In this work, we consider rule-based investment strategies for managing a defined contribution pension savings scheme, under the Dutch pension fund testing model. We find that dynamic, rule-based investment strategies can outperform traditional static strategies, by which we mean that the investor may achieve the target retirement income with a higher probability or limit the shortfall when the target is not met. In comparison with dynamic programming-based strategies, the rule-based strategies have more stable asset allocations throughout time and avoid excessive transactions that may be hard to explain to an investor. We also study a combined strategy of a rule-based target with dynamic programming. A key feature of our setting is that there is no risk-free asset, instead, a matching portfolio is introduced for the investor to avoid unnecessary risk.

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Ortec Finance, Rotterdam, The Netherlands
European Actuarial Journal
Centrum Wiskunde & Informatica, Amsterdam (CWI), The Netherlands

den Haan, T. R. B., Chau, K., van der Schans, M., & Oosterlee, K. (2021). Rule-based strategies for dynamic life cycle investment. European Actuarial Journal, 12, 189–213. doi:10.1007/s13385-021-00283-0