Seminar in applied mathematics and statistics

SPEAKER: Massimiliano Menzietti (Department of Economics, Statistics and Finance “Giovanni Anania”, University of Calabria).

TITLE: Automatic Balance Mechanisms for Notional Defined Contribution pension systems guaranteeing social adequacy and financial sustainability.

ABSTRACT:  Since the mid 1990s  some European countries (including Italy) implemented a Notional Defined Contribution (NDC) pension system. Such a system is based on pay-as-you-go funding, while the pension amount is a function of the individual lifelong contribution. Despite many appealing features, the NDC system presents some drawbacks: first, it is vulnerable to demographic and economic shocks compromising the financial sustainability; second, it could fail to guarantee adequate pension benefits to pensioners. In order to reduce the first limit, automatic balance mechanisms (ABMs) have been proposed in literature and also implemented in Sweden, while solutions that combine financial sustainability and social adequacy have been applied only in a pay-as-you-go point system. The aim of this paper is to insert into the Italian NDC architecture ABMs that preserve social adequacy under financial sustainability constraints. We apply nonlinear optimization techniques to calculate the optimal paths of the control variables representing the main drivers of a NDC pension system: pensions indexation, notional rate and contribution rate. The objective function considers both social adequacy and contribution rate sustainability, under liquidity and sustainability constraints. In the numerical application we apply the model to the Italian pension system and test the sensitivity of the results to different economic scenarios and objective function parameters.

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Upcoming events (after March 3):

Tuesday, March 3 at 13.15: Susanna Levantesi

Tuesday, March 3 at 14.15: Massimiliano Menzietti

Wednesday, March 18 at 15.15: Alexandre Antonov

Friday, April 17 at 13.15: Thomas S Richardson