The University of Southampton
University of Southampton Institutional Repository

Pension scheme asset allocation with taxation arbitrage, risk sharing and default insurance

Sutcliffe, Charles (2004) Pension scheme asset allocation with taxation arbitrage, risk sharing and default insurance , Southampton, UK University of Southampton 25pp. (Discussion Papers in Accounting & Finance, AF04-16).

Record type: Monograph (Discussion Paper)


The asset allocation is a crucial decision for pension funds, and this paper analyses the economic factors which determine this choice. The analysis proceeds on the basis that, in the absence of taxation, risk sharing and default insurance, the asset allocation between equities and bonds is indeterminate and governed by the risk-return preferences of the trustees and the employer. If the employing company and its shareholders are subject to taxation, there is a tax advantage in a largely bond allocation. Risk sharing between the employer and the employees often means that one group favours a high equity allocation, while the other favours a low equity allocation. Underpriced default insurance creates an incentive for a high equity allocation. When taxation, risk sharing and underpriced default insurance are all present it is concluded that the appropriate asset allocation varies with the circumstances of the scheme; but that a high equity allocation is probably inappropriate for many private sector pension schemes.

PDF AF04-16.pdf - Other
Download (175kB)

More information

Published date: 2004
Additional Information: ISSN 1356-3548
Keywords: pension fund, asset allocation, tax arbitrage, risk sharing, default insurance, embedded options


Local EPrints ID: 35977
PURE UUID: 18cce49c-f489-46e5-bb6c-c797e14ac9bf

Catalogue record

Date deposited: 24 May 2006
Last modified: 17 Jul 2017 15:46

Export record


Author: Charles Sutcliffe

University divisions

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton:

ePrints Soton supports OAI 2.0 with a base URL of

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.