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Comparative Analysis of Retirement Benefits in Private Pension Funds and Public Pension System

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  • Luković Stevan

    (University of Kragujevac, Faculty of Economics, Republic of Serbia)

  • Marinković Srđan

    (University of Niš, Faculty of Economics, Republic of Serbia)

Abstract

This paper identifies the conditions under which the private pension funds generate superior retirement outcomes compared to public pension system. The research objective is to determine the probability of success of the selected investment strategies in achieving the public pension system replacement rate, and the probability of the realization of extremely unfavourable outcomes. The methodology used in this paper includes the comparative analysis of simulated financial results of the four selected investment strategies implemented in the private pension fund model and the defined retirement benefits generated within the public pension system. For the simulation of the financial results at retirement, Monte Carlo simulation technique has been used. The authors have found that the success rate of the private pension fund in achieving superior financial results in comparison to public pension system is high, but only for the contribution rates higher than 10%. At low contributions rates, the extremely aggressive strategy is the only one that generates moderate success rate. Also, the probability of realization of extremely unfavourable financial results is lowest for the conservative strategy, which suggests that for the relatively high levels of the contribution rate, it is the most appropriate option for the pension fund members.

Suggested Citation

  • Luković Stevan & Marinković Srđan, 2019. "Comparative Analysis of Retirement Benefits in Private Pension Funds and Public Pension System," Economic Themes, Sciendo, vol. 57(2), pages 145-164, June.
    • Handle: RePEc:vrs:ecothe:v:57:y:2019:i:2:p:145-164:n:2
    DOI: 10.2478/ethemes-2019-0009
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    More about this item

    Keywords

    pension funds; public pension system; retirement benefits; investment strategy; Monte Carlo simulation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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