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Funded and Unfunded Pension Schemes: Risk, Return and Welfare

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  • David K. Miles

Abstract

This paper uses stochastic simulations on calibrated models to assess the optimal degree of reliance on fun ded pensions and on a particular type of unfunded (PAYG) pension. Surprisingly little is known about the optimal split between funded and unfunded systems when there are sources of uninsurable risk that are allocated in different ways by different types of pension system. This paper calculates the expected welfare of agents in differenteconomies where in the steady state the importance of PAYG pensions differs. We estimate how the optimal level of unfunded, state pensions depends on rate of return and income risks and also upon the actuarial fairness of annuity contracts.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2000/wp-cesifo-2000-01/WP239.PDF
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 239.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_239

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Keywords: Pensions; annuities; risk-sharing;

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References

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Cited by:
  1. Börsch-Supan, Axel & Heiß, Florian & Winter, Joachim, 2000. "Pension reform, capital markets, and the rate of return," Discussion Papers, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre 589, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
  2. Du Caicai & Muysken Joan & Sleijpen Olaf, 2011. "Lessons from the financial crisis: Funded pension funds should invest conservatively," Research Memorandum 020, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  3. Friedrich Breyer, 2000. "Kapitaldeckungs- versus Umlageverfahren," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, Verein für Socialpolitik, vol. 1(4), pages 383-405, November.

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