Working Paper: CEPR ID: DP8312
Authors: Roel Beetsma; Ward E. Romp; Siertjan Vos
Abstract: We explore the feasibility of a funded pension system with intergenerational risk sharing when participation in the system is voluntary. Typically, the willingness of the young to participate depends on their belief about the future young's willingness to do so. We characterise equilibria with voluntary participation and show that the likelihood of their existence increases with risk aversion and financial market uncertainty. We find that it is likely that mandatory participation is necessary to sustain a funded pension pillar and to let participants benefit from intergenerational risk sharing.
Keywords: Funded Pensions; Intergenerational Risk Sharing; Participation Constraints
JEL Codes: C61; H55; J32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Risk Aversion (D81) | Likelihood of Voluntary Participation (J22) |
| Financial Market Uncertainty (G19) | Likelihood of Voluntary Participation (J22) |
| Ex-post Option to Not Participate (J26) | Participation Rates (J49) |
| Likelihood of Voluntary Participation (J22) | Sustainability of Funded Pension System (H55) |
| Risk Aversion and Uncertainty about Returns (D81) | Likelihood of Sustainable Funded System (H55) |
| Mandatory Participation (Z22) | Achieving Intergenerational Risk Sharing (D15) |