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Financial and demographic risks impact on a pay-as-you-go pension fund

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Abstract

This paper studies the financial sustainability of a pay-as-you-go pension fund within a stochastic framework. To this aim, a set of risk indicators of the solvency of the fund are also constructed. Financial and demographic risks are analyzed by investigating and comparing their impact on the evolution of the fund. Numerical results are approached by means of a simulation methodology, on the Italian pension funds.

Key words

  • Pension funds
  • demographic risk
  • pay-as-you-go
  • new entrants

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Fig. 1
Fig. 2

Notes

  1. 1.

    IPS55 are projected life tables for Italian males and females, cohort 1955.

  2. 2.

    Pension funds of Italian Professional Orders are fed by two types of contributions: the first, called subjective, is calculated applying to the professional annual income a contribution rate which varies electively between 10% and 17%, with the obligation to pay a minimum annual contribution. In 2005 the average rate was 10.71%. The second type of contribution, called integrative, is calculated applying to the total amount of professional annual sales, subjected to VAT, a rate of 2%.

  3. 3.

    The transformation coefficient is the annuitization coefficient used for the conversion into annuity of the notional contribution amount accumulated by each worker. For an exhaustive explanation of the argument we refer to [4].

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Acknowledgements

The authors acknowledge the financial support provided by the Banco di Sardegna Foundation (prot. 1637/2009.0377). Roberta Melis acknowledges the financial support provided by the Regione Autonoma della Sardegna (L.R. 7/2007).

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Correspondence to Alessandro Trudda .

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Melis, R., Trudda, A. (2012). Financial and demographic risks impact on a pay-as-you-go pension fund. In: Perna, C., Sibillo, M. (eds) Mathematical and Statistical Methods for Actuarial Sciences and Finance. Springer, Milano. https://doi.org/10.1007/978-88-470-2342-0_36

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