Risk Sharing in Defined-Contribution Funded Pension System

22 Pages Posted: 21 Dec 2011

See all articles by Roel M. W. J. Beetsma

Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); European Commission; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute; Netspar

Alessandro Bucciol

University of Verona - Department of Economics; Netspar

Date Written: November 9, 2011

Abstract

This paper explores the introduction of collective risk-sharing elements in defined contribution pension contracts. We consider status-contingent, age-contingent and asset contingent risk-sharing arrangements. All arrangements raise aggregate welfare, as measured by equivalent variations. While working individuals hardly benefit or may even lose, retirees experience substantial welfare gains. An increase in the tax deductability of pension contributions can be beneficial for working cohorts, but comes at the cost of a reduction in aggregate welfare due to efficiency losses.

Keywords: funded pensions, risk-sharing, defined contribution, inter-generational welfare, equivalent variation, stochastic simulations

JEL Classification: H55, I38, C61

Suggested Citation

Beetsma, Roel M. W. J. and Bucciol, Alessandro, Risk Sharing in Defined-Contribution Funded Pension System (November 9, 2011). Netspar Discussion Paper No. 11/2011-093, Available at SSRN: https://ssrn.com/abstract=1975239 or http://dx.doi.org/10.2139/ssrn.1975239

Roel M. W. J. Beetsma (Contact Author)

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Alessandro Bucciol

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