Lessons from the financial crisis: Funded pension funds should invest conservatively
We model a three-pillar pension system and analyse in this context the impact of the financial crisis on the aggregate economy, using an overlapping generations model where individuals live for two periods. The system consists of (1) a PAYG pension system, (2) a Defined Benefit pension fund, and (3) private savings. We show that in this pension system the impact of the financial crisis on the economy is mitigated in case the funded pension funds have invested in more risk averse assets and savings are invested in more risky assets. In order to illustrate the working of the model with respect to the impact of the financial crisis, both in terms of size and development over time, we provide simulation results for the Netherlands. We argue that the lesson from the financial crisis is that pension funds should always invest in relatively risk-free assets, while private savings can be invested in more risky assets.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +31 (0)43 38 83 830
Web page: http://www.maastrichtuniversity.nl/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gary Burtless, 2010.
"Lessons of the Financial Crisis for the Design of National Pension Systems,"
CESifo Economic Studies,
CESifo, vol. 56(3), pages 323-349, September.
- Gary Burtless, 2009. "Lessons of the Financial Crisis for the Design of National Pension Systems," CESifo Working Paper Series 2735, CESifo Group Munich.
- Matsen, E. & Thogersen, O., 2001.
"Designing Social Security - A Portfolio Choice Approach,"
21/2001, Norwegian School of Economics and Business Administration-.
- Matsen, Egil & Thogersen, Oystein, 2004. "Designing social security - a portfolio choice approach," European Economic Review, Elsevier, vol. 48(4), pages 883-904, August.
- Egil Matsen & Øystein Thøgersen, 2000. "Designing Social Security – A Portfolio Choice Approach," Working Paper Series 1102, Department of Economics, Norwegian University of Science and Technology.
- David K. Miles, 2000. "Funded and Unfunded Pension Schemes: Risk, Return and Welfare," CESifo Working Paper Series 239, CESifo Group Munich.
- Markus Knell, 2010.
"The Optimal Mix Between Funded and Unfunded Pension Systems When People Care About Relative Consumption,"
London School of Economics and Political Science, vol. 77(308), pages 710-733, October.
- Markus Knell, 2008. "The Optimal Mix Between Funded and Unfunded Pensions System When People Care About Relative Consumption," Working Papers 146, Oesterreichische Nationalbank (Austrian Central Bank).
- Dutta, Jayasri & Kapur, Sandeep & Orszag, J. Michael, 2000. "A portfolio approach to the optimal funding of pensions," Economics Letters, Elsevier, vol. 69(2), pages 201-206, November.
- Bas van Groezen & Lex Meijdam & Harrie A. A. Verbon, 2007. "The Case For Pay-As-You-Go Pensions In A Service Economy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(2), pages 151-165, 05.
- Maurer, Raimond & Mitchell, Olivia S. & Rogalla, Ralph, 2009. "Managing contribution and capital market risk in a funded public defined benefit plan: Impact of CVaR cost constraints," Insurance: Mathematics and Economics, Elsevier, vol. 45(1), pages 25-34, August.
When requesting a correction, please mention this item's handle: RePEc:unm:umamet:2011020. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Charles Bollen)
If references are entirely missing, you can add them using this form.