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

Godínez-Olivares, Humberto; Boado‐Penas, María del Carmen; Pantelous, Athanasios A.

doi:10.1002/for.2351

Cited by 27 publications

(15 citation statements)

References 26 publications

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“…In particular, one cannot increase the retirement age or make possible changes in the relationship between unfunded and funded systems. The dynamics of the pension systems were considered by Godınez-Olivares et al (2016), among others, which proposes approaches to the calibration of the optimal values of payments, retirement ages and indexation of the payments for the PAYG system, taking into account life expectancy, birth rate and salary increases. Billig and Menard (2013) took into account not only demographic but also four macroeconomic and institutional factors, namely the ratio of the funded to the unfunded parts in the obligatory pension system.…”

Section: Literature Reviewmentioning

confidence: 99%

Optimal Pension System: Case Study

Nepp¹,

Larionova²,

Okhrin³

et al. 2018

Economics &Amp; Sociology

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Any reforms of pension systems inevitably involve their optimization, which is a challenging task since pension systems are dynamic, multidimensional and are affected by a variety of demographic, investment-related, and institutional random impact factors. The model described in this article aims at demonstrating the dependence of the target functions of pension systems on such factors. The current research sheds light on the influence of demographic parameters on funded and unfunded pension systems and shows the importance of institutional risks in both types of systems. The values of the state-regulated parameters for 2030 are specified, which allows us to maximize the key target functions: the replacement rate and pension benefits. Further, the results of empirical analysis of the impact factors affecting pension systems of OECD countries are described. The novelty of the paper lies in the analytical and quantitative methods used for the optimization of the pension system on the basis of the replacement rate JEL Classification: G23,

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Section: Literature Reviewmentioning

confidence: 99%

Optimal Pension System: Case Study

Nepp¹,

Larionova²,

Okhrin³

et al. 2018

Economics &Amp; Sociology

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show abstract

“…For example, Haberman and Zimbidis (2002) and Pantelous and Zimbidis (2008) are examples of works using optimal control methods to compute trajectories of key variables of a Social Security system. Recently, Godínez-Olivares et al (2015) introduced as a control variable the indexation of pensions jointly with the contribution rates and retirement ages in a dynamic programming setting. However, their framework is not suited to our particular problem, where revaluation only affects to surviving pensions and not to all pensions.…”

Section: The Dynamic Optimization Approachmentioning

confidence: 99%

A Revision of the Revaluation Index of Spanish Pensions

et al. 2015

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This article reviews the methodological aspects of the revaluation index of Spanish pensions developed following Law 23/2013 which regulates the sustainability factor and revaluation index of the Social Security pension system. From a gradual breakdown of the elements that make up the revaluation index, an exposition is given of the formal and implementation problems it involves. Finally, an alterna tive model based on dynamic optimization techniques is proposed and its use is illustrated with nu merical examples.

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“…The second main focus of this paper is to demonstrate the impact of these projections on various financial calculations, and we provide a number of ways of quantifying, both graphically and numerically, the model risk in such calculations. Moreover, we test how the temperature change affects insurance pricing and reserving, both of which are of paramount importance for the sustainability of the insurance industry, governmental authorities, decision makers, and policymakers (Godinez‐Olivares, Boado‐Penas, & Pantelous, ; Pantelous & Zimbidis, , ; Pantelous, Zimbidis, & Kalogeropoulos, ; Richards & Currie, ). Our results and conclusions are evaluated based on historical mortality data available for the UK from the Human Mortality Database.…”

Section: Introductionmentioning

confidence: 99%

The impact of parameter uncertainty in insurance pricing and reserve with the temperature‐related mortality model

Seklecka

Pantelous

O’Hare

2018

Journal of Forecasting

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Changes in mortality rates have an impact on the life insurance industry, the financial sector (as a significant proportion of the financial markets is driven by pension funds), governmental agencies, and decision makers and policymakers. Thus the pricing of financial, pension and insurance products that are contingent upon survival or death and which is related to the accuracy of central mortality rates is of key importance. Recently, a temperature‐related mortality (TRM) model was proposed by Seklecka et al. (Journal of Forecasting, 2017, 36(7), 824–841), and it has shown evidence of outperformance compared with the Lee and Carter (Journal of the American Statistical Association, 1992, 87, 659–671) model and several others of its extensions, when mortality‐experience data from the UK are used. There is a need for awareness, when fitting the TRM model, of model risk when assessing longevity‐related liabilities, especially when pricing long‐term annuities and pensions. In this paper, the impact of uncertainty on the various parameters involved in the model is examined. We demonstrate a number of ways to quantify model risk in the estimation of the temperature‐related parameters, the choice of the forecasting methodology, the structures of actuarial products chosen (e.g., annuity, endowment and life insurance), and the actuarial reserve. Finally, several tables and figures illustrate the main findings of this paper.

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

Cited by 27 publications

References 26 publications

Optimal Pension System: Case Study

Optimal Pension System: Case Study

A Revision of the Revaluation Index of Spanish Pensions

The impact of parameter uncertainty in insurance pricing and reserve with the temperature‐related mortality model

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