Indexation of Dutch pension rights in multistage recourse ALM models

Indexation (correction for inflation) of defined benefit pension rights is an important topic in the current pension debate fostered by the ageing of populations. In the Netherlands, pension funds need to formulate policies concerning indexation. We show how indexation decisions can be modelled adequately in multistage recourse asset liability management (ALM) models, which can be used for supporting the policy making. Moreover, for a stylized pension fund, we analyze the working of these indexation decisions in a numerical experiment.