Sustainability of funded pension schemes: A financial position perspective using options
This study offers in-depth knowledge of the socio-economic characteristics of funded pension projects. It is based on the financial position of pension market actors during the transition of the pension system to a more funded capitalized scheme, mainly through the option benefit model. This is poss...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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LLC "CPC "Business Perspectives"
2021-10-01
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| Series: | Investment Management & Financial Innovations |
| Subjects: | |
| Online Access: | https://www.businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/15731/IMFI_2021_04_Wolf.pdf |
| Summary: | This study offers in-depth knowledge of the socio-economic characteristics of funded pension projects. It is based on the financial position of pension market actors during the transition of the pension system to a more funded capitalized scheme, mainly through the option benefit model. This is possible due to the fact that the economy is not viewed as a single earning cohort. The study analytically demonstrates a socio-economic anomaly in the funded pension system, which is in favor of high-earning cohorts at the expense of low-earning cohorts. This anomaly is realized due to lack of insurance and exposure to financial and systemic risks. Furthermore, the anomaly might lead to the pension re-reform back to an unfunded scheme, mainly due to political pressure. A minimum pension guarantee was found to be a rebalance mechanism to this anomaly, which increases the probability of a sustainable pension scheme. Specifically, it is argued that implementing a guarantee with an intra-generational, risk-sharing mechanism is the most effective way to reduce the impact of this abnormality. Moreover, the paper shows the convergence process toward implementing a minimum pension guarantee in many countries that have capitalized their pension systems during the last three decades, in particular in Latin America and Central and Eastern Europe. |
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| ISSN: | 1810-4967 1812-9358 |