”Money purchase” pensions: contract proposals and risk analysis

The growth and the consolidation of the third pillar of retirement, posit a significant challenge to the combination of long-term savings and long-term investments. The varied world of the Personal Pensions basically consists of open funds or Private Personal Pensions (PPP), the latter being individual plans built up by insurance con- tracts, people may join as a consequence of discretionary choices. Those who enter this kind of contracts contribute to the accumulation of an individually accounted private pension fund to complement the pension income provided by a basic public and/or occupational pension scheme, in order to meet the need of future adequacy of income at old age. We propose a personal pension product, consisting of a non-traditional profit sharing life insurance contract where the insured is allowed to share the profit of the pension’s invested funds all along the contract duration, that is from the issue time till the insured’s death. In its concrete realization, the idea comes true as a sequence of premiums characterized by a level cap, followed by the sequence of benefits characterized by a level floor. The two embedded options are inserted in the basic structure of a pension annuity. Due to the negligibility of the pooling effect in such kind of portfolios, in respect of their size and also the current phase of market evolution, the impact of the accidental demographic risk source is investigated.