Long Term Risk Assessment In A Defined Contribution Pension System

One of the most important consequences of the Chilean pension reform undertaken in the early 1980s was to transfer a significant portion of the risk associated to the financing of pensions, from the State, to the pension fund participants of the newly established compulsory pension system. This paper is concerned with the risk embedded in the portfolio strategies of pension fund portfolio managers. The authors develop an analytic framework that permits to incorporate the behavior of a pension fund manager in the long-term risk assessment of its investment strategy, where the latter is conducted from the point of view of the pension fund participant, who has preferences over his/her final pension.