NETHERLANDS - Dutch pension funds focus their strategic asset allocation on active participants rather than taking the interests of all participants into account in equal measure, according to research commissioned by pension regulator De Nederlandsche Bank.

Employers and employees who dominate pension funds' boards are less interested in optimising the expected benefits for pensioners and deferred participants, claimed the report's authors - Jacob Bikker, Dirk Broeders, David Hollander and Eduard Ponds.

In the report's conclusions, the authors recommended pension funds replace their average age-based approach with a cohort-specific investment policy.

The researchers, who used the 2007 investment data from 472 Dutch pension funds, noted schemes whose participants had a higher average age also had significantly lower equity exposure than pension funds with younger participants.

A one-year higher average age in active participants led pension funds to adopt a 0.5 percentage point reduction in the strategic equity exposure, according to the study.

Researchers said this age-dependent asset allocation is aligned with optimal lifecycle and investment theories, which suggest young workers should invest more of their assets in equities than older employees because they have a longer period of time for their assets to accrue.

Larger pension funds showed a much stronger age-equity exposure effect than smaller schemes, the four academics observed, adding that equity investments per pension plan or fund type did not show significant differences.

That said, the pension fund's size, its funding ratio and the average personal pension wealth of its participants also affected its strategic asset allocation, researchers discovered.

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