Pension income indexation: a mean-variance approach

Rodrigo Lluberas

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper proposes a theoretical framework to study pension income indexation from the retirees’ point of view. The theoretical model is then used to calculate the optimal indexation measure for different cohorts of retirees using historical data from Uruguay. The results suggest that for most of the cohorts, but particularly for those retiring in the 1970s and 1990s, the optimal strategy would be 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, two alternative criteria are used to assess the two indexation measures, with 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: 27 pages
Date: 2019-10-01
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Published in Economía, 1, October, 2019, 20(1), pp. 33 - 59. ISSN: 1529-7470

Downloads: (external link)
http://eprints.lse.ac.uk/123185/ Open access version. (application/pdf)

Related works:
Journal Article: Pension Income Indexation: A Mean-Variance Approach (2019)
Working Paper: Pension income indexation: a mean-variance approach (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:123185

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