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Levelling the playing field: A VIX-linked structure for funded pension schemes

Jean-François Bégin

Insurance: Mathematics and Economics, 2020, vol. 94, issue C, 58-78

Abstract: In this article, we study intergenerational risk and cost sharing for a variety of collective funded pension plans. Inspired by the literature on contingent claim analysis in pension insurance, we derive time-varying contribution and benefit levels. The latter specifically include the fund surplus, which accounts for (intergenerational) risk sharing, and the VIX, which is related to cost sharing among generations. We find that pension schemes with a well-structured volatility-risk-adjusted component can be welfare enhancing for the entry and future cohorts. In addition, these schemes are fair from an ex ante perspective, provide adequate consumption profiles and high levels of satisfaction.

Keywords: Funded pension schemes; Hybrid pension plan; Intergenerational risk sharing; Volatility index; Fairness (search for similar items in EconPapers)
JEL-codes: G22 J32 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.insmatheco.2020.06.009

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Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu

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