Pension income indexation: a mean-variance approach

Rodrigo Lluberas

No 2016009, Documentos de trabajo from Banco Central del Uruguay

Abstract: In this paper, we propose a theoretical framework to study pension income indexation from the pensioners' point of view. We then use the theoretical model to calculate the optimal indexation measure for different cohorts of pensioners using historical data from Uruguay. Our results suggest that for most of the cohorts, but particularly for those retiring in the 1970s and 1990s, the optimal strategy is to choose the Consumer Price Index (CPI) as the pension income indexation measure. Even for cohorts retiring after the 1989 Constitutional reform that established the Average Nominal Earnings Index (ANEI) as the indexation measure, the CPI is still the preferred indexation measure. To show the robustness of the results, we present two alternative criteria to assess the convenience of each indexation measure and arrive to similar results.

Keywords: cost of living; pension income; indexation; mean-variance portfolio choice (search for similar items in EconPapers)
JEL-codes: D12 D60 G11 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2016
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https://www.bcu.gub.uy/Estadisticas-e-Indicadores/ ... 20Trabajo/9.2016.pdf First version, 2016 (application/pdf)

Related works:
Journal Article: Pension Income Indexation: A Mean-Variance Approach (2019)
Working Paper: Pension income indexation: a mean-variance approach (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bku:doctra:2016009

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