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Time-consistent pension policy with minimum guarantee and sustainability constraint

Author

Listed:
  • Caroline Hillairet

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - GENES - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - GENES - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique)

  • Sarah Kaakai

    (LMM - Laboratoire Manceau de Mathématiques - UM - Le Mans Université)

  • Mohamed Mrad

    (LAGA - Laboratoire Analyse, Géométrie et Applications - UP8 - Université Paris 8 Vincennes-Saint-Denis - CNRS - Centre National de la Recherche Scientifique - Université Sorbonne Paris Nord)

Abstract

This paper proposes and investigates an optimal pair investment/pension policy for a pay-as-you-go (PAYG) pension scheme. The social planner can invest in a buffer fund in order to guarantee a minimal pension amount. The model aims at taking into account complex dynamic phenomena such as the demographic risk and its evolution over time, the time and age dependence of agents preferences, and financial risks. The preference criterion of the social planner is modeled by a consistent dynamic utility defined on a stochastic domain, which incorporates the heterogeneity of overlapping generations and its evolution over time. The preference criterion and the optimization problem also incorporate sustainability, adequacy and fairness constraints. The paper designs and solves the social planner's dynamic decision criterion, and computes the optimal investment/pension policy in a general framework. A detailed analysis for the case of dynamic power utilities is provided.

Suggested Citation

  • Caroline Hillairet & Sarah Kaakai & Mohamed Mrad, 2022. "Time-consistent pension policy with minimum guarantee and sustainability constraint," Working Papers hal-03813755, HAL.
    • Handle: RePEc:hal:wpaper:hal-03813755
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