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Participation Constraints in Pension Systems

Author

Listed:
  • Roel Beetsma

    (University of Amsterdam)

  • Ward Romp

    (University of Amsterdam)

Abstract

We explore voluntary participation in pension arrangements. Individuals only participate when participation is more attractive than autarky. The bene􀏐it of participation is that risks can be shared with future generations. We apply our analysis to a pay-as-you-go system, a funded system without buffers and a funded system with buffers. Buffers play a particularly interesting role, because they raise the sensitivity of the contributions to the asset returns. In particular, compared to a system without buffer requirements, they require higher contributions when asset returns are low. Moreover, individual contributions may be increasing or decreasing in the size of the young cohort, depending on whether the fund has more or less reserves than required. We con􀏐ine ourselves to recursive settings and study equilibria characterised by thresholds on the contribution that young generations are prepared to make assuming that the future young apply the same threshold. For standard parameter settings two such equilibria exist, of which only the one with the higher threshold is consistent with the initial young being prepared to start the system. Finally, we explore the social welfare maximising policy parameter settings for various levels of uncertainty and risk aversion.

Suggested Citation

  • Roel Beetsma & Ward Romp, 2013. "Participation Constraints in Pension Systems," Tinbergen Institute Discussion Papers 13-149/VI, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20130149
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:insuma:v:74:y:2017:i:c:p:182-196 is not listed on IDEAS
    2. Damiaan Chen & Roel Beetsma & Dirk Broeders, 2015. "Stability of participation in collective pension schemes: An option pricing approach," DNB Working Papers 484, Netherlands Central Bank, Research Department.
    3. repec:eee:hapoch:v1_311 is not listed on IDEAS
    4. Chen, Damiaan H. J. & Beetsma, Roel M. W. J. & Ponds, Eduard H. M. & Romp, Ward E., 2016. "Intergenerational risk-sharing through funded pensions and public debt," Journal of Pension Economics and Finance, Cambridge University Press, vol. 15(02), pages 127-159, April.
    5. repec:wfo:wstudy:58532 is not listed on IDEAS
    6. Ulrike Famira-Mühlberger & Ulrike Huemer & Christine Mayrhuber, 2015. "Der Einfluss der sozialen Sicherungssysteme auf die Beschäftigungsquote Älterer in traditionellen Wohlfahrtsstaaten," WIFO Working Papers 499, WIFO.

    More about this item

    Keywords

    Participation constraints; pension funds; pay-as-you-go; buffers; risk-sharing;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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