Stochastic Modellization of Hybrid Public Pension Plans (PAYG) under Demographic Risks with Application to the Belgian Case

AL-Hassan, Hassana;Devolder, Pierre
(2022) , 34 pages

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  • AL-Hassan, HassanaUCLouvain
    Author
  • Devolder, PierreUCLouvain
    Author
Abstract
Aging is an important challenge for pension schemes, especially for social security plans mainly 􏰂nanced by PAYG (Pay as you go) and based on a DB formula (De􏰂ned Bene􏰂t). In particular, demographic risks induce important increases of the contributions and threaten the 􏰂nancial sustainability of such schemes. On the other hand, switching to De􏰂ned Contribution plans can be a solution in terms of funding but introduce signi􏰂cant risks in terms of social adequacy. The purpose of this paper is to study hybrid solutions between DB and DC in a stochastic environment. In particular, we simulate for various risk sharing strategies, the evolution of contributions and bene􏰂ts by introducing risk factors in􏰃uencing the demographic dependence ratio (fertility, longevity, baby boom). We study the mean evolution of these processes as well as their value at risk.
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AL-Hassan, H., & Devolder, P. (2022). Stochastic Modellization of Hybrid Public Pension Plans (PAYG) under Demographic Risks with Application to the Belgian Case (LIDAM Discussion Paper ISBA 2022/42). https://hdl.handle.net/2078.5/128066