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Intergenerational risk sharing within funded pension schemes

Published online by Cambridge University Press:  14 October 2010

JIAJIA CUI ,
FRANK DE JONG  and
EDUARD PONDS
JIAJIA CUI*
Affiliation:
University of Amsterdam, APG (All Pensions Group) and Netspar, Amsterdam, The Netherlands
FRANK DE JONG
Affiliation:
Tilburg University and Netspar
EDUARD PONDS
Affiliation:
APG (All Pensions Group), Tilburg University and Netspar
*
(e-mail: j.cui@uva.nl)
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Abstract

Is intergenerational risk sharing desirable and feasible in funded pension schemes? Using a multi-period OLG model, we study risk sharing between generations for a variety of realistic collective funded pension schemes, where pension benefits and contributions may depend on the funding ratio and the asset returns. We find that well-structured intergenerational risk sharing via collective schemes can be welfare-enhancing vis-à-vis the optimal individual benchmark. Moreover, from an ex ante perspective the expected welfare gain of the current entry cohort is not at the cost of the older and future cohorts.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 10 , Issue 1 , January 2011 , pp. 1 - 29
Copyright
Copyright © Cambridge University Press 2010

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