A Multifaceted Analysis of Dynamic Pension Plan Designs

December 2025

Author(s)

Chun-Ming (George) Ma, PhD, FSA, FCIA

David Vanderweide, FSA

Executive Summary

The evolution of collective defined contribution (CDC) plans has gained momentum in countries such as the Netherlands, the UK, and Canada. These plans blend defined benefit (DB) and defined contribution (DC) elements, offering more predictable retirement income, while managing funding risks through risk-sharing among participants. This paper examines the roles of various designs of decumulation-only CDC plans, referred to as Dynamic Pension (DP) plans, in providing sustainable retirement income for retirees.

We use two key measures to evaluate DP plans: the repayment ratio (RR) and the annual pension payment ratio (APPR). The RR measures the extent to which participants recapture their contributions through pension payments, while the APPR assesses the annual pension payments relative to target pensions. Our analysis reveals the impacts of mortality and investment risks on pension outcomes within DP plans.

A critical focus of this paper is the exploration of optimal investment strategies under the Type 3 (Target Benefit Funded Ratio Linked, described later in this report) benefit adjustment mechanism. We apply bivariate spline interpolation to identify combinations of equity allocation and adjustment parameters that balance pension payment volatility with intergenerational wealth transfers. This quantitative approach offers plan administrators actionable strategies to manage risk and increase fairness across generations.

Additionally, the paper explores crucial design elements for DP plans, such as valuation interest rates, benefit-smoothing mechanisms, and pension annuity forms. Our findings highlight the necessity of a comprehensive design strategy for DP plans, incorporating regular reviews and adjustments to ensure fairness, stability, and participant satisfaction. By addressing the unique challenges of open versus closed group plans and optimizing design elements, DP plans can better achieve their goals of sustainable and equitable pension outcomes.

Material

A Multifaceted Analysis of Dynamic Pension Plan Designs

Acknowledgements

The researchers’ deepest gratitude goes to those without whose efforts this project could not have come to fruition: the Project Oversight Group for their diligent work overseeing, reviewing and editing this report for accuracy and relevance.

Project Oversight Group members:
Gavin Benjamin, FSA, FCIA
David Cantor, ASA
Doug Chandler, FCIA
Grant Martin, FSA, CERA, EA, FCA
Lisa Ullman, FSA, FCA, MAAA

At the Society of Actuaries Research Institute:
Barbara Scott, Senior Research Administrator
Steven Siegel, ASA, MAAA, Senior Research Actuary

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