Time-consistent pension policy with minimum guarantee and sustainability constraint

Caroline Hillairet, Sarah Kaakai () and Mohamed Mrad
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Caroline Hillairet: Centre de Recherche en Économie et STatistique (CREST)
Sarah Kaakai: LMM - Laboratoire Manceau de Mathématiques - UM - Le Mans Université
Mohamed Mrad: LAGA - Laboratoire Analyse, Géométrie et Applications - UP8 - Université Paris 8 Vincennes-Saint-Denis - CNRS - Centre National de la Recherche Scientifique - Université Sorbonne Paris Nord

Working Papers from HAL

Abstract: This paper proposes and investigates an optimal pair investment/pension policy for a pay-as-you-go (PAYG) pension scheme. The social planner can invest in a buffer fund in order to guarantee a minimal pension amount. The model aims at taking into account complex dynamic phenomena such as the demographic risk and its evolution over time, the time and age dependence of agents preferences, and financial risks. The preference criterion of the social planner is modeled by a consistent dynamic utility defined on a stochastic domain, which incorporates the heterogeneity of overlapping generations and its evolution over time. The preference criterion and the optimization problem also incorporate sustainability, adequacy and fairness constraints. The paper designs and solves the social planner's dynamic decision criterion, and computes the optimal investment/pension policy in a general framework. A detailed analysis for the case of dynamic power utilities is provided.

Keywords: Consistent Dynamic Utility; PAYG Pension Policy; Sustainability and Actuarial Fairness; Demographic and Financial risk sharing; Stochastic Control (search for similar items in EconPapers)
Date: 2022-10-13
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-03813755

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