Recovery Measures of Underfunded Pension Funds: Higher Contributions, No Indexation, or Pension Cuts?

Abstract

Using recovery plan data of 213 underfunded Dutch pension funds for the years 2011, 2012 and 2013, discrete choice models are estimated describing pension funds’ choices between three recovery measures: higher contributions, no indexation, and pension cuts. The estimation results suggest, firstly, that pension cuts are more likely when the funding ratio is very low, there is little time left for recovery, the pension fund is not a corporate pension fund, and its participants are still relatively young. Secondly, the results suggest that Dutch pension funds consider contribution increase first, no indexation second, and pension cuts only as a last resort.