Risk Reallocation in Defined-Contribution Funded Pension Systems

We model intergenerational risk sharing in closing funded pension plans. Specifically, we consider a setting in which in each period, the pension fund's investment and indexation policy is the outcome of a bargaining process between representatives of the then living generations. Because some generations might be under-or overrepresented in the board, we use the asymmetric Nash bargaining solution to allow for differences in bargaining powers. In a numerical study, we compare the welfare that the generations derive from the outcome of this repeated bargaining to the welfare that they would derive if a social planner's optimal policy would instead be implemented. We find that as compared to the social optimum, older generations benefit substantially from the repeated bargaining, even if all generations are equally well-represented in the board. If older generations are relatively over-represented, as is sometimes argued, these effects are attenuated.JEL-codes: C78, D9, G23.

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“…. , 4} at the beginning of their first retirement period is N τ = (1.0087 10 ) τ ≈ 1.09 τ (see Beetsma and Bucciol, 2015). …”

Section: • Characteristics Of the Generationsmentioning

confidence: 99%

Intergenerational risk sharing in closing pension funds

Boonen

Waegenaere

2017

Insurance: Mathematics and Economics

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“…This is a variable annuity of the type considered in Feldstein and Ranguelova (1998, 2001) and Beetsma and Bucciol (forthcoming). It differs from an annuity that pays out the same amount each period.…”

Section: The Modelmentioning

confidence: 99%

Intergenerational risk-sharing through funded pensions and public debt

Chen¹,

Beetsma

Ponds

et al. 2014

Journal of Pension Economics and Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We explore the benefits of intergenerational risk-sharing through both private funded pensions and via the public debt. We use a multi-period overlapping generations model with a PAYG pension pillar, a funded pension pillar and a government. Shocks are smoothed via the public debt and variations in the indexation of pension entitlements and the pension contribution rate, which both respond to funding ratio of the pension fund. The intensity of these adjustments increases when the funding ratio or the public debt ratio get closer to their boundaries. The best-performing pension arrangement is a hybrid funded scheme in which both contributions and entitlement indexation are deployed as stabilisation instruments. We find trade-offs between the optimal use of these instruments. We also find that entitlement indexation and the response of the tax rate to public debt movements are complements. We compare different taxation regimes and conclude that a regime in which pension benefits are taxed, while contributions are paid before taxes, is preferred to a regime in which contributions are paid after taxes, while benefits are untaxed. Terms of use: Documents inJEL-Code: G230, H550, H630.

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“…This is a variable annuity of the type considered in Feldstein & Ranguelova (1998, 2001 and Beetsma & Bucciol (2013). It differs from an annuity that pays out the same amount each period.…”

Section: The Idc Second Pillarmentioning

confidence: 99%