Funded and Unfunded Pension Schemes: Risk, Reutrn and Welfare

39 Pages Posted: 19 Feb 2001

See all articles by David Miles

David Miles

Imperial College Business School; The Bank of England; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 2000

Abstract

This paper uses stochastic simulations on calibrated models to assess the optimal degree of reliance on funded pensions and on a particular type of unfunded (PAYG) pension. Surprisingly little is known about the optimal split between funded and unfunded systems when there are sources of uninsurable risk that are allocated in different ways by different types of pension system. This paper calculates the expected welfare of agents in different economies where in the steady state the importance of PAYG pensions differs. We estimate how the optimal level of unfunded, state pensions depends on rate of return and income risks and also upon the actuarial fairness of annuity contracts.

JEL Classification: H55, D91, G22, J14

Suggested Citation

Miles, David Kenneth, Funded and Unfunded Pension Schemes: Risk, Reutrn and Welfare (January 2000). CESifo Working Paper Series No. 239. Available at SSRN: https://ssrn.com/abstract=260011

David Kenneth Miles (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

The Bank of England ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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