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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

    (Département de mathématiques Université Libre de Bruxelles - ULB - Université libre de Bruxelles = Free University of Brussels)

  • Caroline Hillairet

    (ENSAE-CREST, Institut Polytechnique de Paris)

  • Sarah Kaakai

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

  • Mohamed Mrad

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

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," Working Papers hal-05622524, HAL.
    • Handle: RePEc:hal:wpaper:hal-05622524
    Note: View the original document on HAL open archive server: https://hal.science/hal-05622524v1
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