Pension Design in the Presence of Systemic Risk

63 Pages Posted: 19 Aug 2015

See all articles by Stavros Panageas

Stavros Panageas

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: September 1, 2011


I consider the possibility that individual agents’ savings and portfolio choices can have negative externalities on public finances, whenever retirement consumption drops below a minimum level. Within this framework, I discuss optimal pension design. I show the optimality of two policies. The first policy mandates that retirees use part of their accumulated assets to purchase a claim providing a fixed income stream for the duration of their life. The second policy mandates the purchase of an appropriately structured portfolio insurance policy. Both policies are financed by an appropriate mandatory minimum savings requirement. It is also shown that it is optimal to “back- load” mandatory savings towards the end of an agent’s work-life, when borrowing constraints cease to bind.

Keywords: Continuous time optimization, Life Cycle savings and portfolio choice, Portfolio insurance, Ricardian Equivalence, Borrowing constraints

JEL Classification: C6, D6, D9, E2, E6, G1

Suggested Citation

Panageas, Stavros, Pension Design in the Presence of Systemic Risk (September 1, 2011). Fama-Miller Working Paper; Chicago Booth Research Paper No. 15-37. Available at SSRN: or

Stavros Panageas (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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