• Monthly Cross Asset
    • EN

Hybrid Pensions Schemes with Risk-Sharing: Are They the Future of Occupational Pensions?

Published December 18, 2015

> 10 minutes

> 10 minutes


The sustainability of occupational pension systems is under threat in many countries. Setbacks include a structural increase in liabilities due to longer life expectancy, the harmful effects of financial crises on investment returns, unusually low interest rates that prompt a search for yield from riskier or less liquid investments, and stricter pension regulation.

This inability of funds to cope with the current situation has sparked intense debate about reforming pension systems around the world. One promising line of thought–is to redefine the pension contract. These hybrid pension schemes embody elements of the traditional defined-benefit (DB) and defined-contribution (DC) schemes.

DB and DC schemes are at the opposite ends of the risk sharing spectrum between employers and employees. Under a DC arrangement, the members shoulder all the risks. In DB schemes, on the contrary, the employer bears all of the risks, including investments (financial market returns fluctuating around the expectation), macro-longevity (death probability estimates can be inaccurate)1, interest rates (the cost of annuities is unpredictable due to interest rate changes), and in some cases inflation (the real value of benefit payments may fall more than expected). Hybrid plans are designed as a compromise between DB and DC schemes. They alleviate the employer’s high costs of DB provision, yet provide more certainty about the individual’s financial security in retirement than a DC scheme does. Numerous hybrid pension plans exist around the world, including collective defined-contribution plans in the Netherlands, Cash Balance plans in the US, and target benefit plans in Canada. These schemes address some of the shortcomings of traditional DB and DC contracts by allowing risk sharing between employers and employees. The continuous effort to find hybrid solutions has led to the more recent suggestions of the Defined Ambition scheme, and the Personal Pension Accounts with Risk-Sharing in the Netherlands. This note highlights innovations in pension contracts in selected countries, and orients the discussion around risk sharing. While the contract names may be country-specific, the fundamental issues tackled and the characteristics of the revised schemes are comparable.

To find out more, download the full paper

This website is solely for informational purposes.
This website does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or any other product or service. Any securities, products, or services referenced may not be registered for sale with the relevant authority in your jurisdiction and may not be regulated or supervised by any governmental or similar authority in your jurisdiction.
Furthermore, nothing in this website is intended to provide tax, legal, or investment advice and nothing in this website should be construed as a recommendation to buy, sell, or hold any investment or security or to engage in any investment strategy or transaction. There is no guarantee that any targeted performance or forecast will be achieved.

Get in touch with us

Our online help service is available to answer your question.

My personal information

If you have a question about our company or one of our products, please complete the form to get in touch. Please do not mention your account numbers or critical data in this form.

CAPTCHA This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.

(*) Required fields
All our job offers (Permanent and temporary position, Internship, Apprenticeship or VIE) are available on our dedicated website: https://jobs.amundi.com.

Register and apply directly online.

Amundi on Twitter