Simulations of long-term returns and replacement rates in the Colombian pension system
AbstractThis study is a theoretical exercise for Colombia that aims to simulate a variety of scenarios under a hypothetical scheme similar to the multi-funds currently in operation in Chile, Mexico and Peru. This has been done by modeling the future movement of asset prices that are considered to be representative of equity and fixed-income using the Monte Carlo method. After making the simulations we have constructed alternative investment portfolios according to the chosen combination of equity and fixed-income, and compared and assessed them in terms of their risk-return ratio. The study emphasizes the fundamental importance of adequate contribution densities for obtaining sufficient income for old age, and the relevance of high returns, with adequate risk limitation. Another of the studyÃ¢â‚¬â„¢s aims is to use the new multi-fund scheme defined for Colombia as a basis for the hypotheses of different scenarios projected to 2050. These will include the composition of membersÃ¢â‚¬â„¢ pension fund portfolios and changes in the scheme over time, taking as a reference the life-cycle scheme operated in Mexico, as well as other compositions and profiles that participants may decide to enter into in accordance with their choice and the limits set by regulations. The results of the work confirm what has been found in other studies on the subject for the Colombian economy: that the implementation of a multi-fund system will provide pension-fund members with efficient returns in the long term, with limited volatility over time.
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Bibliographic InfoPaper provided by BBVA Bank, Economic Research Department in its series Working Papers with number 1029.
Length: 31 pages
Date of creation: Dec 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-AGE-2011-04-02 (Economics of Ageing)
- NEP-ALL-2011-04-02 (All new papers)
- NEP-CMP-2011-04-02 (Computational Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alejandro Reveiz & Carlos León, .
"Administración de fondos de pensiones y multifondos en Colombia,"
Borradores de Economia
506, Banco de la Republica de Colombia.
- Alejandro Reveiz & Carlos León, 2008. "Administración de fondos de pensiones y multifondos en Colombia," BORRADORES DE ECONOMIA 004598, BANCO DE LA REPÚBLICA.
- Alejandro Reveiz & Carlos león & Juan Mario laserna & Ivonne Martínez, .
"Recomendaciones para la modificación del régimen de pensiones obligatorias de Colombia,"
Borradores de Economia
507, Banco de la Republica de Colombia.
- Alejandro Reveiz & Carlos León & Juan Mario Laserna & Ivonne Martínez, 2008. "Recomendaciones para la modificación del régimen de pensiones obligatorias de Colombia," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
- Alejandro Reveiz & Carlos León & Juan Mario Laserna & Ivonne Martínez, 2008. "Recomendaciones para la modificación del régimen de pensiones obligatorias de Colombia," BORRADORES DE ECONOMIA 004599, BANCO DE LA REPÚBLICA.
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