Welcome to The Journal of Risk website. The Journal has now enjoyed 11 successful years as a leader in the market and continues to build upon this solid foundation.

Since the recent expansion of the Journals program The Journal of Risk has become more focused on market-based topics. The Journal publishes high quality theoretical and empirical studies in financial risk management. Its distinctive focus is original, rigorous research with practical applications in mind.

In continuing to act as a market leader, Risk Journals is pleased to announce that in 2010 The Journal of Risk will present a special issue on ’Risk Sharing in Defined Contribution Pension Schemes’. The University of Exeter Business School and Netspar, in partnership with the Department for Work and Pensions, hosted a constructive and structured research conference on this topic at the University of Exeter in January 2010.

Topics presented and robustly debated at the conference focused on the following areas of defined contribution (DC) pension schemes:

• Means of achieving equity-type investment growth whilst mitigating equity related risk by investment risk sharing. Within this topic:
  • i. One discussion was for financial surpluses or deficits from cohorts of members as they retire from target date retirement funds to be traded in financial markets or in an internal market within a pension scheme. This would require a buyer of last resort if counterparties for the surpluses or deficits cannot be found, with a strong enough covenant and financial capital to hold open financial positions across generations if need be.
  • ii. A second discussion was for a DC scheme to offer a minimum return guarantee in which the guarantee would consist of a swap. If a swap event was triggered the buyer of last resort would pay the future pensioners the notional value of the guarantee in exchange for the portfolio of financial assets accumulated in the pension fund.
  • iii. A third discussion was for collective DC, in which the pension scheme provides a return based on a specific indexation policy. This might involve a level or age-based risk profile to the lifecycle asset allocation and indexation policy.
  • iv. A fourth discussion concerned an individual DC scheme purchasing investment return guarantees. Significant attention was paid to the cost of guarantees, the preferences and characteristics of individuals most interested in them, and the main beneficiaries of guarantees.
• That rather than holding equities and investment risk sharing, a portfolio of diversified assets might be a superior means to manage the volatility and risk that DC members’ face whilst achieving real investment growth. There was discussion and evidence on how this could be optimised through the use of target-date funds and lifestyling. This involved varying risk exposure in the early years as well as closer to retirement. The heart of the lifestyling debate was based on reducing the amount of inappropriate risk that any one member of a DC scheme must bear such that lower investment risk no longer presages a need for investment risk sharing.
• That more appropriate assets for DC schemes might be low risk assets – including deferred annuities, longevity bonds and inflation-linked bonds. These are means of sharing longevity, interest rate and inflation risk, all of which, along with growth, are fundamental to meeting individuals’ aspirations in retirement. Strong evidence was provided around the adequacy of market issuance of low risk assets sufficient to absorb the potential demand for such assets from pension schemes as well structured debates around barriers to further issuance and capacity constraints.