Pension fund investment: Impact of the liability structure on equity allocation

In this paper, the relationship between the liability structure and equity exposure of 41 Dutch corporate defined-benefit pension funds is studied. Theory observed a positive relationship of pension liabilities with equity returns over the long-term and suggests defined-benefit schemes are able to save future contribution costs when aligning their assets with their liabilities. This paper aims to observe this relationship in Dutch pension funds by incorporating the variables of wage inflation, workforce growth and return on liabilities as they were suggested in theory. However only a limited significant evidence of the growth in plan workforce and equity allocation was observed.