G. Nicodano, K. de Vaan, D. Fano, H. Mens, Netspar Discussion Paper 22, 2013
Abstract: Pension regulators stress the need for plan members to receive information allowing them to monitor their future pension wealth and the investment risk they bear. This paper proposes a simple method for projecting DC pension benefits at retirement on a yearly basis, which may be a building block towards an industry reporting standard. Projections highlight how the current choice of asset allocation impacts retirement outcomes, and the results are compared with a money-back benchmark to clarify the trade-off between risk and return. Projections are also connected with ex post performance, in that the pension fund reports its yearly-realized performance relative to previous projections. The fund also revises its current forecasts of benefits at retirement as a function of its own realized returns. We discuss two reporting formats, one based on accumulated capital at retirement and the other on monthly pension wage.