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RISK REALLOCATION IN DEFINED-CONTRIBUTION FUNDED PENSION SYSTEMS

Published online by Cambridge University Press:  04 July 2013

Roel M. W. J. Beetsma  and
Alessandro Bucciol
Roel M. W. J. Beetsma
Affiliation:
University of Amsterdam
Alessandro Bucciol*
Affiliation:
University of Verona
*
Address correspondence to: Alessandro Bucciol, University of Verona, Department of Economics, Via dell'Artigliere 19, 37129 Verona, Italy; e-mail: alessandro.bucciol@univr.it.
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Abstract

This paper explores the introduction of collective risk-reallocation elements into defined-contribution pension contracts. We consider status-contingent, age-contingent, and asset-contingent arrangements to reallocate risk among participants. Eliminating asset market risk for the retired raises their welfare, whereas it lowers the welfare of the workers, despite the fact that they benefit later from the same arrangement. Overall welfare falls. The welfare effects are largest when personal and pension portfolios are optimally chosen. Allowing for intragenerational heterogeneity, the highest-skilled retirees benefit most, whereas the highest-skilled workers lose most. Our main results are qualitatively robust to a number of model variations and extensions.

Keywords

Funded PensionsRisk ReallocationDefined ContributionIntergenerational Welfare
Type
Articles
Information
Macroeconomic Dynamics , Volume 19 , Issue 1 , January 2015 , pp. 22 - 57
Copyright
Copyright © Cambridge University Press 2013 

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