Risk Sharing within Pension Schemestorsdag, 11 mars 2021
Many countries are reforming their pension systems to facilitate economic and demographic changes. New systems seek to mitigate risks by allocating surpluses to a buffer fund that smooths fluctuations in investment returns and between pension generations.
This paper explores optimal risk sharing and assesses the welfare effects of the current Dutch pension proposal against theoretical optimal risk sharing arrangements. We show that a solidarity buffer with sufficiently risky investment provides optimal risk sharing while mitigating negative welfare effects.