Intergenerational risk-sharing through funded pensions and public debt

D.H.J. Chen, R.M.W.J. Beetsma, E.H.M. Ponds, W.E. Romp

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We explore the benefits of intergenerational risk-sharing through both private funded pensions and via the public debt. We use a multi-period overlapping generation model with a pay-as-you-go pension pillar, a funded pension pillar and a government. Shocks are smoothed via the public debt and variations in the indexation of pension entitlements and pension contributions. The intensity of these adjustments increases when the pension funding ratio or public debt gets closer to their boundaries. The best-performing pension arrangement is a hybrid funded scheme in which both contributions and entitlement indexation are simultaneously deployed as stabilisation instruments. We find that
contribution and indexation adjustment policies are substitutes and the same is the case for contribution and tax adjustment policies. By contrast, indexation and tax adjustment policies are complements. We compare different taxation regimes and conclude that a regime in which pension benefits are taxed, while contributions are paid before taxes, is preferred to a regime in which contributions are paid after taxes, but benefits are untaxed.
Original languageEnglish
Pages (from-to)127-159
JournalJournal of Pension Economics and Finance
Volume15
Issue number2
DOIs
Publication statusPublished - Apr 2016

Fingerprint

Intergenerational risk sharing
Pensions
Public debt
Tax
Indexation
Entitlement
Pension funding
Private pensions
Substitute
Pay-as-you-go pension
Taxation
Government
Overlapping generations model
Stabilization

Keywords

  • intergenerational risk-sharing
  • pension funds
  • public debt
  • indexation
  • contributions
  • taxation regimes
  • social welfare

Cite this

Chen, D.H.J. ; Beetsma, R.M.W.J. ; Ponds, E.H.M. ; Romp, W.E. / Intergenerational risk-sharing through funded pensions and public debt. In: Journal of Pension Economics and Finance. 2016 ; Vol. 15, No. 2. pp. 127-159.
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Intergenerational risk-sharing through funded pensions and public debt. / Chen, D.H.J.; Beetsma, R.M.W.J.; Ponds, E.H.M.; Romp, W.E.

In: Journal of Pension Economics and Finance, Vol. 15, No. 2, 04.2016, p. 127-159.

Research output: Contribution to journalArticleScientificpeer-review

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