How to Finance Pensions: Optimal Strategies for Pay-as-You-Go Pension Systems

Humberto Godínez-Olivares; María Del Carmen Boado-Penas; Athanasios A. Pantelous

doi:10.1002/for.2351

How to Finance Pensions: Optimal Strategies for Pay-as-You-Go Pension Systems

Humberto Godínez-Olivares, María Del Carmen Boado-Penas, Athanasios A. Pantelous^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

21 Citations (Scopus)

Abstract

The aim of this paper was to design optimal strategies using nonlinear dynamic programming to guarantee the required level of liquidity in pay-as-you-go pension systems through changes in the key variables of the system, such as the contribution rate, retirement age and/or indexation of pensions. These strategies, also known as automatic balancing mechanisms (ABMs), calculate the optimal path of these variables over time, managing fluctuations in longevity, fertility rates, salary growth or any other kind of uncertainty faced by the pension scheme without repeated legislative intervention. A numerical application of our model, which uses the projection of the population structure of two representative countries, illustrates the main findings of the paper.

Original language	English
Pages (from-to)	13-33
Number of pages	21
Journal	Journal of Forecasting
Volume	35
Issue number	1
DOIs	https://doi.org/10.1002/for.2351
Publication status	Published - Jan 2016

Keywords

financial equilibrium
optimization
pay-as-you-go
public pensions
risk

ASJC Scopus subject areas

Modelling and Simulation
Computer Science Applications
Strategy and Management
Statistics, Probability and Uncertainty
Management Science and Operations Research

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10.1002/for.2351

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abstract = "The aim of this paper was to design optimal strategies using nonlinear dynamic programming to guarantee the required level of liquidity in pay-as-you-go pension systems through changes in the key variables of the system, such as the contribution rate, retirement age and/or indexation of pensions. These strategies, also known as automatic balancing mechanisms (ABMs), calculate the optimal path of these variables over time, managing fluctuations in longevity, fertility rates, salary growth or any other kind of uncertainty faced by the pension scheme without repeated legislative intervention. A numerical application of our model, which uses the projection of the population structure of two representative countries, illustrates the main findings of the paper.",

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AU - Pantelous, Athanasios A.

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How to Finance Pensions: Optimal Strategies for Pay-as-You-Go Pension Systems

Abstract

Keywords

ASJC Scopus subject areas

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