Pension fund management and conditional indexation

Conditional indexation offers a middle way between defi ned benefi t and defi ned contribution pension schemes. In this paper, we consider a fully-funded pension scheme with conditional indexation. We show how the pension fund can be managed to reduce the risks associated with promised pension benefi ts when declared benefi ts are adjusted regularly during the working life. In particular, we derive an investment strategy that provides protection against underfunding at retirement and which is self-fi nancing on average. Our results are illustrated in an extensive simulation study. © 2011 by Astin Bulletin. All rights reserved.