Thu 24 Feb 2022 - Investment risk-sharing is a fundamental part of whole-life collective defined contribution (CDC) pension schemes, such as the Royal Mail CDC. But how does investment risk-sharing benefit members? And does it favour some groups of members over others?
We present the results of a simplified model of investment risk-sharing. The high-level lessons learned from this model should be useful to understand the impact of various factors on the benefits paid to members. For example, how the predicted investment return versus their observed values, the evolution of the membership profile and the frequency of the contributions and benefits.
Leah Evans is an Associate Partner and Head of Pensions Risk Transfer in the EY Parthenon Pensions Team. Leah specialises in strategic pensions risk management advice to corporates and trustees, including global pension risk management for multinationals. Leah is Chair of the Pensions Board of the Institute and Faculty of Actuaries and a member of the CMI Executive Committee.
Catherine Donnelly is a Professor in the Department of Actuarial Mathematics and Statistics at Heriot-Watt University and is Director of the Risk Insight Lab. Prof. Donnelly is a qualified actuary who has previously worked in the pensions industry. She has a PhD from the University of Waterloo, Canada, an MSc from the University of Oxford and a MA from the University of Cambridge. Her research interests lie in pensions and life insurance, and she has published widely in these areas. She was a member of the USS Joint Expert Panel in 2018. Prof. Donnelly has a keen interest in developing workable solutions to improve people’s financial situation in retirement.