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Roberta Melis and Alessandro Trudda
''Financial and demographic risks in PAYG pension funds''
( 2012, Vol. 32 No.2 )
The paper analyzes the financial sustainability of private pay-as-you-go pension funds, focusing on the particular demographic risks affecting these institutions. We propose a model to describe the evolution of these pension funds, including two stochastic variables: ”global asset return” and “new entrants variation rate”. The study analyzes the demographic variable “new entrants” and its impact on the future evolution of the fund, comparing it with that of the financial returns. The numerical applications, implemented on Italian pension funds, show that the rate of variation of new entrants has a higher influence on the evolution of the fund with respect to the global asset return, despite the considerable invested wealth. Some proposal are developed to face the demographic “risk of extinction” of the insured professional category.
Keywords: pension funds, PAYG system, demographic risk, stochastic new entrants
JEL: G2 - Financial Institutions and Services: General
H5 - National Government Expenditures and Related Policies National Government Expenditures and Related Policies: General
Manuscript Received : Sep 22 2011 Manuscript Accepted : May 01 2012

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