As part of the Insurance Studies seminar, Professor Svein-Arne Persson from the NHH Norwegian School of Economics will be giving a talk.

Topic: “Time Diversification in Defined Contribution Plans: Fallacy or Brilliance?” 

Tuesday, 6 October 2026, 

at 10.00 am 

in HeHo 18, Room E60

Abstract: 

We examine how future contributions to a defined contribution (DC) pension scheme affect the optimal equity allocation during the accumulation period. We distinguish between accumulated financial wealth and contribution wealth — the present value of future pension contributions, which is related to, but not identical to, human capital as defined in the lifecycle-portfolio literature. Applying the standard Merton allocation to economic pension wealth — the sum of financial wealth and non-traded contribution wealth — implies a constant proportion of economic pension wealth allocated to risky assets. Because contribution wealth typically shrinks relative to financial wealth over the accumulation period, this allocation rule translates into a risky share of financial wealth that varies with the realised ratio of the two wealth components and declines with age on average. Since the resulting equity exposure can exceed 100 per cent of financial wealth, we also consider a capped, long-only version that excludes leverage and short positions. In our baseline simulation, this capped plan retains 94.56 per cent of the certainty-equivalent wealth of the unconstrained plan, whilst outperforming the standard Merton plan applied to financial wealth alone. Seven stylised Norwegian sector glide paths likewise outperform the standard Merton benchmark, achieving 91–93 per cent of the unconstrained certainty-equivalent wealth. These results show that a declining equity glide path can arise purely from the implicit wealth effect of future contributions, without any exogenous change in risk aversion or investment horizon.