Welfare benefits from dynamic premia, asset allocation and age of retirement in a defined contribution pension scheme

Defined contribution (DC) schemes are on the rise in the Netherlands due to poor results of defined benefits (DB) schemes. DC is relatively new implying that there is room for improvement of the commonly used static lifecycle investment schemes. The digital era has made it possible for pension funds to invest in tailor-made pensions, based on the participants' preferences. This research investigates whether relaxing premia, asset allocation and the accumulation phase length results in welfare gains for the pension grantee. Economic scenarios, based on historical data, are simulated and are used to calculate the performance of different strategies each based on a different utility function. Results are evaluated on the whole distribution of the pension replacement ratio and the means used to achieve the pension. This model is extended by including risks on labour income. An extensive sensitivity analysis is performed, providing intuition on how parameters affect the results and the magnitude of these effects. The research concludes that differentiating in pension strategies based on personal preferences results in additional welfare and that the investment climate should be taken into account.