Optimal Design and Regulation of Funded Pension Schemes

Examples include the Social Security Trust Funds in the United States, the Japan Government Pension Investment Fund, the Canada Pension Plan, the Central Provident Fund in Singapore, the Employee Provident Fund in Malaysia, and occupational pension funds in Iceland and the Netherlands. Sovereign wealth funds (for example in Norway) face similar issues of intergenerational risk sharing in deciding on their dividend policies. Most of these funds are diversified with respect to asset class as well as internationally. Some funds, such as the US Social Security Trust Fund, are intended to act as a buffer against demographic shocks and are expected to be depleted in the coming decades. Others, such as the Canada Pension Plan, are permanent in nature and are expected to grow in size in the coming decades. Risk sharing between non-overlapping generations is not possible in countries in which individuals save and invest for retirement in individual retirement accounts. Several countries (for example, Australia andvarious Latin American and Eastern European countries) have established a mandatory funded social security tier with individual retirement accounts.