Sustainability of pension systems with voluntary participation

Ward Romp and Roel Beetsma

Insurance: Mathematics and Economics, 2020, vol. 93, issue C, 125-140

Abstract: Motivated by declining support for mandatory participation in pension arrangements, we explore whether the intergenerational risk-sharing benefits that these arrangements offer suffice to ensure their survival when participation becomes voluntary. Funded systems with asset buffers are particularly interesting since these buffers make contributions more sensitive to financial returns. Equilibria are characterised by thresholds on the young’s willingness to contribute. Standard values for our parameters yield two such equilibria; only the one with the higher threshold is consistent with the initial young being prepared to start the system. An advancement relative to the related literature is that the equilibria feature a non-zero probability of collapse. Finally, we explore the social welfare maximising values for the pension parameters for various levels of uncertainty and risk aversion.

Keywords: Voluntary participation; Intergenerational risk sharing; Funded pensions; Pension buffers; Optimal pension scheme (search for similar items in EconPapers)
JEL-codes: E62 H31 H55 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:93:y:2020:i:c:p:125-140

DOI: 10.1016/j.insmatheco.2020.04.009

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