Guaranteeing more

Dato: April 2008

Skrevet af: Michael Preisel (ATP), Søren Fiig Jarner (ATP) & Chresten Dengsøe (ATP)

Udgivet i: Life & Pensions (2008)

Abstract (på engelsk): 

Traditional pension guarantees are expensive but this is not an inherent characteristic of guarantees. The problem with ”traditional” guarantees is that they are not easily transferred to financial markets. Think about a final-salary DB plan: Here neither career nor wage inflation are tradable in financial markets leaving the plan sponsor with substantial risk. The dividing line for guarantees in pension plans therefore is accessibility to financial markets. We call this investment-driven liabilities to underline the importance of designing guarantees from market opportunities. Guarantees that are designed with respect to investment opportunities are not expensive to neither the plan sponsor nor the company since the guarantee is easily transferrable to financial markets. Neither are they an unreasonable cost to those clients who seek the security of a guarantee because financial instruments are efficiently priced. It is in this light that ATP has fundamentally changed its guarantees.