Abstract
The retirement savings process for the members of a pension fund involves regular contribution payments made by a member and/or his employer, and the investment earnings generated by following an investment strategy. After the Global Financial Crisis, the aspect of value preservation has become particularly important to members of a pension fund, thus affecting the selection of an investment strategy. In face of increasing fluctuations on the financial market, static lifecycle strategies have become an unsatisfactory solution for members of a pension fund given the absence of a response to shocks on the financial market. In the paper, a comparative analysis of the performance of dynamic and static lifecycle strategies is carried out using bootstrap resampling in order to simulate investment returns and VaR indicators so as to assess the risk of an adverse financial outcome at retirement. The results of the analysis indicate the fact that dynamic lifecycle strategies generate more favorable financial results than static lifecycle strategies do, with a slightly increased likelihood of generating extremely unfavorable outcomes.
Publisher
Centre for Evaluation in Education and Science (CEON/CEES)
Subject
General Economics, Econometrics and Finance,General Business, Management and Accounting
Reference21 articles.
1. Antolin, P., Payet, S., & Yermo, J. (2010). Assessing default investment strategies in defined contribution pension plans. OECD Journal: Financial Market Trends, 1, 87-115. doi:10.1787/fmt-2010-5km7k9tp4bhb;
2. Basu, A., & Drew, M. (2009). Portfolio size effect in retirement accounts: What does it imply for lifecycle asset allocation funds? Journal of Portfolio Management, 35(3), 61-72. doi.org/10.3905/JPM.2009.35.3.061;
3. Basu, A., & Drew, M. (2010). The appropriateness of default investment options in defined contribution plans: Australian evidence. Pacific Basin Financial Journal, 18(3), 290-305. doi.org/10.1016/j.pacfin.2010.02.001;
4. Basu, A., Byrne, A., & Drew, M. (2011). Dynamic lifecycle strategies for target date retirement funds. Journal of Portfolio Management, 37(2), 83-96. doi.org/10.3905/jpm.2011.37.2.083;
5. Blake, D., Cairns, A., & Dowd, K. (2001). Pensionmetrics: Stochastic pension plan design and value-at-risk during the accumulation phase. Insurance: Mathematics and Economics, 29(2), 187-215. doi.org/10.1016/S0167-6687(01)00082-8;