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Netspar Annual Report 2008 2008 Visiting address Faculty of Economics and Business Administration Tilburg University Warandelaan 2 5037 AB Tilburg Postal address P.O. Box 90153 5000 LE Tilburg The Netherlands Phone +31 13 466 2109 E-mail: [email protected] www.netspar.nl Annual Report Annual Report Annual Report 2008 Contents Preface 7 State of Affairs 11 Internationalization and Research 16 Education 22 Contents Sharing Knowledge 28 Appendices 33 Colophon 64 The Promise She wants to become a doctor. She wants to travel the world and do good works in distant places. She wants to fall in love. She wants a beautiful house. She wants to have children. But not right now. Right now she’s doing well in her first summer job. And while she serves the customers and cleans the shop, she has ample time to think about her future. Her great expectations don’t even seem exaggerated or profane. Her license to dream is one of the blessings of youth. If she’s lucky, she might even get it all. Preface This annual report for the period April 2008 until March 2009 7 surveys the many activities that Netspar — now four years old — has developed during this year. The global financial Preface crisis has created a long list of new questions and issues that must be addressed — both in academic research and in the current policy debate. Netspar interacts with its partners to find answers to all of these new challenges by shifting the frontier of knowledge, by providing education and, last but not least, through various forms of knowledge exchange with the pension and insurance industry. More events have been organized that focus on the interaction with professionals in the sector. Moreover, the number of papers written by Netspar researchers that directly address current policy issues has increased significantly, and working group meetings have successfully been introduced that assure a degree of confidentiality when discussing sensitive issues. In 2008, Netspar and Holland Financial Centre (HFC) jointly developed the innovation program Retirement Management, which outlines the many excellent opportunities to benefit from innovation and further improvements in the interaction between knowledge centers and the pension and insurance industry. Needless to say, Netspar’s Advisory Board strongly supports this initiative and hopes that it can be implemented in the very near future. I gladly accepted the invitation to chair Netspar’s Advisory Board as of September 1, 2008. Netspar is an inspiring initiative that has a lot to offer to all its partners, both in academia and in the private and public sector! Jan Willem Oosterwijk Erasmus University Rotterdam Chairman of Netspar’s Advisory Board The Congregation Sister She has entered the convent of career and wears her habit with pride. Five years ago she devoted her life to her work. She is already in her third job now. At two o’clock she attends a meeting in The City of London. During her flight back she writes a well thought-out report for her bosses. At nine o’clock she eats a simple supper in front of the television. Exhausted, she climbs into her single bed. Just before she falls asleep a sudden thought startles her: a profound desire for a baby. Based on the evaluations of Netspar’s Scientific Council and the recommendations of its council of private partners, new research themes have been selected for the period 2009 – 2012. These new research themes in part help Netspar to take up the challenge of the evaluation committee to enrich its research program with insights from other disciplines, such as psychology. Supporting Consumer Pension Decision-Making Online Theme coordinator: Benedict Dellaert (EUR) In recent years, the range of available pension- and related income-provision products has expanded significantly. This trend is likely to continue in the future. Consumers are potentially better off, given the rich product menu — but are they really willing and capable to act on 10 this potential welfare gain? How can individuals be classified in terms of their willingness to consider pension decisions? How can they best be assisted in formulating their future needs when retiring? This theme’s focus is on the role of online systems and interactive decision aids in answering these questions. Netspar Research New Themes for 2009-2012 The Economics and Psychology of Lifecycle Decision-Making Theme coordinators: Peter Kooreman and Jan Potters (both UvT) Lifecycle decisions — especially with regard to pensions and insurance— are increasingly left to individuals. This second Netspar theme aims to expand our empirical knowledge about lifecycle decision-making. In order to make better models, predictions and recommendations, we need a better understanding of people’s preferences, probability and risk perceptions, and decision strategies. This theme’s researchers use experiments from both economics and the social sciences to improve our knowledge of lifecycle decision-making. State of Affairs Affairs of State The Influence of Market Imperfections on Recovery Strategies for Pension Funds Theme coordinator: Laura Spierdijk (RUG) The academic literature largely ignores market imperfections in large institutional trades. The recent financial crisis has made it crystal clear how important liquidity issues and the absence of trading opportunities can be. Likewise, the crisis has demonstrated how shocks may easily spread out from one market to another and from the local to the global level. The research question in this third theme is concerned with what asset and liability strategies are optimal for pension funds, in the presence of market imperfections and systemic risks. Netspar’s Research Opportunities 11 The year 2008 was the year of the credit crisis. Pension systems were also seriously hit by the turmoil in the financial markets. Buffers of pension funds and insurance companies have been eroded by steep falls in stock prices as well as by declining long-term interest rates. The most important task for pension funds and insurance companies is to simply survive. The next challenge will be to prepare for the long-term consequences of the credit crisis. Many issues need to be studied: the implications for risk management, for example, and which funded systems world- wide have best weathered the current perfect storm. We need to find out which changes in pension contracts are needed, now that buffers have eroded, and to explore how the financial-market shocks have affected retirement behavior and the labor market for older workers. We must also find out the consequences for the behavior of investors and savers, as well as the implications of how their behavior affects financial markets, in general, and the rewards for risk-taking, in particular. Can institutional investors act as a stabilizing factor in turbulent financial markets, and how can they get involved in the reform of financial systems? We need to answer one question in particular: can institutional investors remain reliable long-term shareholders who provide risk- taking capital to financial institutions, given the fact that State of Affairs Affairs of State many governments are eager to sell their substantial stakes in their newly acquired banks and insurance companies? The Dutch soccer legend Johan Cruyff believed in the saying that every dark cloud has a silver lining. This also applies to the current difficult times experienced by pension systems. Such a crisis reveals flaws in policies and pension practices that need correcting. The turmoil also provides a rich source of new data, which can clarify how financial markets operate and how this process can be improved. The key challenge is to learn from the dramatic events of 2008, so that the pension and insurance sector emerges better prepared for the challenges of our risky world. 12 Netspar is ready to help in this crucial learning process. An evaluation committee — comprised of representatives of Netspar’s partners and the Netherlands’ Organization for Scientific Research (NWO) as well as Netspar’s Scientific Council— evaluated Netspar in 2007. The outcome was positive, and came with two main recommendations. The first is to broaden Netspar’s research activities from the Netherlands to Europe and beyond, while exchanging pension knowledge across borders. The second major recommendation is to intensify contacts with Netspar’s private partners. Netspar has put a lot of effort into meeting these challenges, as described in the chapters Internationalization and Research and Sharing Knowledge. Governance Frank van der Duyn Schouten, former Rector Magnificus of Tilburg University, has been appointed in the new position of general director of Netspar. As of April 1, 2009, he will govern the institute, together with scientific director Theo Nijman. Van der Duyn Schouten will focus on governing and management tasks, as well as external affairs. As such, he will enable the scientific directors Theo Nijman and Lans Bovenberg, in particular, to increase their contribution to the substance of Netspar and to the widening of its scientific base. Netspar’s Advisory Board has appointed Jan Willem State of Affairs of State Oosterwijk as its chairman (as of September 1). Oosterwijk took over from Joep Schouten, the former chairman of pensions provider Cordares, who retired in 2008. The new chairman of the Advisory Board is also chairman of the executive board of the Erasmus University in Rotterdam. He was a member of the ‘Commissie Bakker’, which advised the Dutch government on labor market participation. Erik van Houwelingen of Aegon was chairman in the transition period in the first half of 2008. The development of Netspar over the period 2008 - 2011 will be monitored on behalf of the government sponsors by a committee installed at NWO. A committee of six members has been appointed for this task. Living Longer in Good Health: Prospects, Strategies and Consequences 13 Scope Whereas the rise in life expectancy is one of the great successes of public health, it also poses significant challenges by threatening the sustainability of the pension system and inducing increased demand for social services, including healthcare.

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