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.