Generational Pension Plan Designs
27 Pages Posted: 6 Dec 2010
Date Written: October 27, 2010
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: Suggested Citation