RISK REALLOCATION IN DEFINED-CONTRIBUTION FUNDED PENSION SYSTEMS

2013 ◽  
Vol 19 (1) ◽  
pp. 22-57 ◽  
Author(s):  
Roel M. W. J. Beetsma ◽  
Alessandro Bucciol
Keyword(s):  
Market Risk ◽  
Welfare Effects ◽  
Asset Market ◽  
Defined Contribution ◽  
Skilled Workers ◽  
Pension Systems ◽  
Collective Risk

This paper explores the introduction of collective risk-reallocation elements into defined-contribution pension contracts. We consider status-contingent, age-contingent, and asset-contingent arrangements to reallocate risk among participants. Eliminating asset market risk for the retired raises their welfare, whereas it lowers the welfare of the workers, despite the fact that they benefit later from the same arrangement. Overall welfare falls. The welfare effects are largest when personal and pension portfolios are optimally chosen. Allowing for intragenerational heterogeneity, the highest-skilled retirees benefit most, whereas the highest-skilled workers lose most. Our main results are qualitatively robust to a number of model variations and extensions.

scholarly journals The Motherhood Pension Gap in a Defined Contribution Pension Scheme—the Case of Poland

2020 ◽  
Vol 12 (11) ◽  
pp. 4425 ◽  
Author(s):  
Anna Jędrzychowska ◽  
Ilona Kwiecień ◽  
Ewa Poprawska
Keyword(s):  
Gender Gap ◽  
Measurement Model ◽  
Future Research ◽  
Pension Scheme ◽  
Defined Contribution ◽  
Childless Woman ◽  
Second Child ◽  
Pension Systems ◽  
Gap Measurement ◽  
Individual Decisions

A gender gap in pensions has recently been discussed in the context of non-discrimination and the sustainability of pension systems. Such systems in Europe are evolving towards strengthening the role of individual contributions from periods of paid work. Among other factors, the women’s pension gap is affected by interruptions in employment arising from care responsibilities. The purpose of this article is to measure the pension gap associated with having children in defined contribution pension systems. Using financial mathematics, the retirement capital of a childless woman (without breaks in work) was determined and compared with mothers of 1–4 children. The results indicate that the motherhood pension gap is approximately 4.5%–9.5%, 7.5%–15%, 9%–20%, and 12.5%–25% for mothers of 1, 2, 3, and 4 children, respectively. Measuring these individual gaps allows the cost of investing in children to be estimated. Significant for systemic and individual decisions is that the gap size is highest by the first and the second child, however the decision about the third child—relevant to the demography as ensuring the generational replacement—means the whole pension gap could rise to 20%. This could help support a policy of counteracting adverse demographic trends in fertility rates through the building of socially sustainable pensions schemes. In terms of future research, it forms the basis for building a gap measurement model that takes into account various drivers of the gender gap.

scholarly journals The implications of first-order risk aversion for asset market risk premiums

1997 ◽  
Vol 40 (1) ◽  
pp. 3-39 ◽  
Author(s):  
Geert Bekaert ◽  
Robert J. Hodrick ◽  
David A. Marshall
Keyword(s):  
Risk Aversion ◽  
Market Risk ◽  
Asset Market ◽  
Risk Premiums ◽  
First Order

Non-DC notional accounts: relaxing the trade-off between fairness and solvency of pay-as-you-go pension systems

2020 ◽  
pp. 1-23
Author(s):  
Sergio Nisticò
Keyword(s):  
Growth Rate ◽  
Employment Growth ◽  
Fine Tuning ◽  
Defined Contribution ◽  
Rates Of Return ◽  
Overlapping Generations Model ◽  
Small Oscillations ◽  
Pension Systems ◽  
Constant Rate ◽  
Individual Accounts

Abstract Existing pay-as-you-go (PAYG) schemes based on notional accounts (NAs) have chosen the defined-contribution (DC) setting that forces the rate of interest credited to all individual accounts to change over time to ensure solvency. On the other hand, volatility of the rate of interest is the source of non-negligible disparities of individual internal rates of return (IRRs) both within and across generations. It is argued that these disparities represent a threat to the political appeal of PAYG DC systems, in particular in the present situation characterized by low growth rates of the contribution base. The paper uses a four-overlapping-generations model to prove that the DC setting is not a necessary ingredient of NAs and that their political appeal could be enhanced by extending their use to non-DC pension systems. In fact, redistributions can be avoided by crediting all individual accounts with a constant rate of interest while ensuring financial solvency by fine-tuning of the contribution rate to make the system's revenues grow at the same (constant) rate credited to all accounts. The proof requires constancy of the employment growth rate but not of average earnings. Changes in the employment growth rate produce small oscillations around perfect balance between contribution revenue and pension expenditure manageable with a small buffer fund.

Wie hat sich die intragenerationale Umverteilung in der staatlichen Säule des Rentensystems verändert? / Has Intragenerational Redistribution Become Less Important in Pension Systems’ Public Pillar?

2011 ◽  
Vol 231 (2) ◽  
Author(s):  
Tim Krieger ◽  
Stefan Traub
Keyword(s):  
Pension System ◽  
Defined Contribution ◽  
The Public ◽  
Pension Systems ◽  
Catching Up ◽  
Sigma Convergence ◽  
Notional Defined Contribution ◽  
International Convergence ◽  
High Degree ◽  
Beta Convergence

SummaryWe empirically investigate whether the significance of intragenerational redistribution in the public pillar of pension systems in 20 OECD countries has changed systematically since the 1980s and whether international convergence of the degree of intragenerational redistribution can be observed. Intragenerational redistribution is measured by the Bismarckian factor which provides information about the relative importance of the earnings-benefit link in the pension formula (as compared to a flat-benefit Beveridgean pension system). Based on micro data from the Luxembourg Income Study, we find both, a trend towards (more Bismarckian) pension systems which obey the principle of participation equivalence and an international convergence of pension systems. The reduced variation of pension systems (sigma convergence) is driven by countries with a high degree of intragenerational redistribution catching up with more traditional Bismarckian countries (beta convergence). Both, fundamental pension reforms as Sweden’s and Italy’s move to „notional defined contribution‘‘ systems, and parametric reforms ranging from the removal of group-specific benefits to alternative calculations of contribution history, such as changing from „best years‘‘ to the entire worklife, underlie this development.

scholarly journals Controlling a demographic wave in defined contribution pension systems

2018 ◽  
Vol 27 (2) ◽  
pp. 1-18
Author(s):  
Massimo Angrisani ◽  
Cinzia di Palo
Keyword(s):  
Baby Boomers ◽  
General Principle ◽  
Pension System ◽  
Developed Countries ◽  
Intergenerational Equity ◽  
Defined Contribution ◽  
Theoretical Profile ◽  
Pension Systems ◽  
Pension Schemes ◽  
Operating Method

Abstract In several developed countries, the baby boomers will come to retire in the next decades. This problem will threaten the sustainability and the intergenerational equity of mandatory pay-as-you-go pension systems because they will have to drain the “demographic wave” of retirees with a relatively small number of contributors. In this paper, we give the operating method developed on the basis of a general principle, which a defined contribution pension system, in a state of stable sustainability, should adopt to control these issues in the presence of a demographic wave. In the theoretical profile, our approach breaks and overcomes the classical juxtaposition between funded and pay-as-you-go pension schemes, carrying out the integration of the two financial methods.

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