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Optimal investment and Pension policy in Pay-As-You-Go systems under forward utility and ageing population

Author

Listed:
  • Jennifer Alonso-Garcia
  • Caroline Hillairet
  • Sarah Kaakai
  • Mohamed Mrad

Abstract

This paper investigates optimal investment and pension policies in a Pay-As-You-Go (PAYG) system supplemented by a buffer fund used as an intergenerational risk-sharing mechanism. The social planner's preference criterion is represented by non-zero volatility forward Constant Relative Risk Aversion (CRRA) utilities, and explicitly accounts for both sustainability and adequacy constraints. The optimal policies are characterized in closed form, and an in-depth analysis of the impact of preference sensitivities on the pension scheme is conducted. A detailed numerical analysis is performed to evaluate the sustainability and benefit adequacy of this hybrid PAYG buffer fund arrangement under a range of demographic, financial, and macroeconomic scenarios.

Suggested Citation

  • Jennifer Alonso-Garcia & Caroline Hillairet & Sarah Kaakai & Mohamed Mrad, 2026. "Optimal investment and Pension policy in Pay-As-You-Go systems under forward utility and ageing population," Papers 2605.12698, arXiv.org, revised May 2026.
    • Handle: RePEc:arx:papers:2605.12698
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    File URL: http://arxiv.org/pdf/2605.12698
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