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Levelling the playing field: A VIX-linked structure for funded pension schemes

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  • Bégin, Jean-François

Abstract

In this article, we study intergenerational risk and cost sharing for a variety of collective funded pension plans. Inspired by the literature on contingent claim analysis in pension insurance, we derive time-varying contribution and benefit levels. The latter specifically include the fund surplus, which accounts for (intergenerational) risk sharing, and the VIX, which is related to cost sharing among generations. We find that pension schemes with a well-structured volatility-risk-adjusted component can be welfare enhancing for the entry and future cohorts. In addition, these schemes are fair from an ex ante perspective, provide adequate consumption profiles and high levels of satisfaction.

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  • Bégin, Jean-François, 2020. "Levelling the playing field: A VIX-linked structure for funded pension schemes," Insurance: Mathematics and Economics, Elsevier, vol. 94(C), pages 58-78.
    • Handle: RePEc:eee:insuma:v:94:y:2020:i:c:p:58-78
    DOI: 10.1016/j.insmatheco.2020.06.009
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    More about this item

    Keywords

    Funded pension schemes; Hybrid pension plan; Intergenerational risk sharing; Volatility index; Fairness;
    All these keywords.

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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