Optimal investment and Pension policy in Pay-As-You-Go systems under forward utility and ageing population

Jennifer Alonso-Garcia, Caroline Hillairet, Sarah Kaakai and Mohamed Mrad

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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.

Date: 2026-05, Revised 2026-05
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2605.12698

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