Good Practice Principles in Modelling Defined Contribution Pension Plans

Kevin Dowd and David Blake

We establish 15 good practice principles in modelling defined contribution pension
plans. These principles cover the following issues: model specification and
calibration; modelling quantifiable uncertainty; modelling member choices; modelling
member characteristics, such as occupation and gender; modelling plan charges;
modelling longevity risk; modelling the post-retirement period; integrating the preand
post-retirement periods; modelling additional sources of income, such as the state
pension and equity release; modelling extraneous factors, such as unemployment risk,
activity rates, taxes and entitlements; scenario analysis and stress testing; periodic
updating of the model and changing assumptions.

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