Pension funds' asset allocation and participant age: a test of the life-cycle model

This article examines the impact of participants’ age distribution on the asset allocation of Dutch pension funds, using a unique data set of pension fund investment plans for 2007. Theory predicts a negative effect of age on (strategic) equity exposures. We observe that a 1-year higher average age in active participants leads to a significant and robust reduction of the strategic equity exposure by around 0.5 percentage point. Larger pension funds show a stronger age-equity exposure effect. The average age of active participants influences investment behavior more strongly than the average age of all participants, which is plausible as retirees no longer possess any human capital.