Generational Pension Plan Designs

27 Pages Posted: 6 Dec 2010

See all articles by Xiaohong Huang

Xiaohong Huang

University of Twente - Department of Finance & Accounting

Ronald Mahieu

Tilburg University - Center for Economic Research, Econometrics and Finance Group; TiasNimbas Business School

Date Written: October 27, 2010

Abstract

We propose a generational plan for the occupational pension provision in which people from the same generation are pooled in a generational fund. Each fund can set its own policies independently. This plan provides the benefits of differentiation missing in the prevailing collective plan and the benefits of centralized management and risk sharing which are missing in the individual plan. We compare the generational plan and the collective plan by imposing the same investment and contribution rates, find that the generational plan provides a higher welfare to the new entrants. This better performance is driven by the fact that the generational plan precludes any a-priori transfers while allowing for risk sharing via time diversification of long-term investment.

Keywords: collective plan, generation, risk sharing, pension plan design

JEL Classification: E21, E27, G23

Suggested Citation

Huang, Xiaohong and Mahieu, Ronald J., Generational Pension Plan Designs (October 27, 2010). Netspar Discussion Paper No. 10/2010-071. Available at SSRN: https://ssrn.com/abstract=1720851 or http://dx.doi.org/10.2139/ssrn.1720851

Xiaohong Huang (Contact Author)

University of Twente - Department of Finance & Accounting ( email )

P.O.Box 217
7500 AE Enschede
Netherlands

Ronald J. Mahieu

Tilburg University - Center for Economic Research, Econometrics and Finance Group ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2430 (Phone)
+31 13 466 3280 (Fax)

HOME PAGE: http://center.uvt.nl/staff/mahieu/

TiasNimbas Business School ( email )

Warandelaan 2
Tilburg, North-Brabant 5071HS
Netherlands

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