DP6089 Pension systems, Intergenerational Risk Sharing and Inflation

Author(s): Roel Beetsma, A Lans Bovenberg
Publication Date: February 2007
Keyword(s): (funded) pensions, fiscal policy, nominal assets, overlapping generations, risk sharing
JEL(s): E21, H55, J18
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6089

We investigate intergenerational risk sharing in two-pillar pension systems with a pay-as-you-go pillar and a funded pillar. We consider shocks in productivity, depreciation of capital and inflation. The funded pension pillar can be either defined contribution or defined benefit, with benefits defined in real or nominal terms or indexed to wages. Optimal intergenerational risk sharing can be achieved only in the presence of a defined benefit pension system with appropriate restrictions on investment policy of the funded pillar. In this way, both generations have similar exposures to financial and human capital risks.