Maximizing with-profit pensions without guarantees

M. Carmen Boado-Penas*, Julia Eisenberg, Paul Krühner

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

Pension providers are currently running into trouble mainly due to the ultra-low interest rates and the guarantees associated to some pension benefits. In this paper, we aim to reduce the pension volatility and provide adequate pension levels—with no guarantees—through a new pension design. Under this design, the individual's premium is split into an individual and a collective account, both invested in funds. When the return from the individual fund exceeds a predefined corridor, a certain number of units is transferred to or from the collective account. In this way, the volatility of the individual fund is smoothed. By controlling the corridor width, we maximize the total accumulated capital at retirement.

Original languageEnglish
Pages (from-to)308-322
Number of pages15
JournalApplied Stochastic Models in Business and Industry
Volume38
Issue number2
Early online date19 Dec 2021
DOIs
Publication statusPublished - Mar 2022

Keywords

  • collective mechanism
  • optimization
  • pensions
  • redistribution index
  • volatility smoothing

ASJC Scopus subject areas

  • Modelling and Simulation
  • General Business,Management and Accounting
  • Management Science and Operations Research

Fingerprint

Dive into the research topics of 'Maximizing with-profit pensions without guarantees'. Together they form a unique fingerprint.

Cite this