Risk-managed Collective Pension Schemes with Intergenerational Benefit Smoothing

27 Pages Posted: 15 Jul 2021

See all articles by Christoph Berninger

Christoph Berninger

Ludwig Maximilian University of Munich (LMU) - Department of Statistics

Stefan Mittnik

Ludwig Maximilian University of Munich (LMU)

Date Written: July 13, 2021

Abstract

In view of the repeated severe market downturns since the turn of the century, the interest in risk-based investment strategies has grown in recent years. However, such strategies have not yet made major inroads into the design of pension programs. In this paper, we fill this gap by combining a risk-managed investment strategy with a pension scheme where benefits are smoothed across generations by establishing a collective reserve. We demonstrate that combining the two helps to improve the performance of the pension investments and decreases the risk of a negative reserve in times of a market crisis. We furthermore investigate the implications of imposing varying degrees of diversification across assets in such a scheme.

Keywords: collective defined-contribution pla, risk-sharing

JEL Classification: C58, G11, H55, H75

Suggested Citation

Berninger, Christoph and Mittnik, Stefan, Risk-managed Collective Pension Schemes with Intergenerational Benefit Smoothing (July 13, 2021). Available at SSRN: https://ssrn.com/abstract=3885894 or http://dx.doi.org/10.2139/ssrn.3885894

Christoph Berninger (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Department of Statistics ( email )

Munich
Germany

Stefan Mittnik

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

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