^aNetspar, Tilburg University, P.O. Box 90153, Tilburg, 5000 LE, The Netherlands. E-mail: A.L.Bovenberg@uvt.nl

Abstract

Pension schemes increasingly are stand alone, in the sense that they lack a risk-absorbing sponsor in the form of the government or corporations. This paper describes various principles for how stand-alone pension schemes should optimally share risks among participants and trade risks on capital markets. In this connection, it discusses the optimal liability structure of pension funds, the optimal link between retirement and longevity and the role of longevity bonds in sharing demographic risks across generations. The paper also highlights the need for labor-market reforms that enhance the accumulation and maintenance of human capital and allow the speed and time of retirement to act as a way to buffer risk.