Pension systems play a crucial role in ensuring economic security in retirement and promoting social stability at the national level. However, due to population aging and low fertility rates, traditional pension schemes are increasingly confronted with funding shortfalls and sustainability challenges. In this context, hybrid pension plans have drawn significant attention because they can effectively address the challenges posed by rising life expectancy and facilitate intergenerational risk sharing. This paper studies a hybrid pension model featuring intergenerational risk sharing under model uncertainty and longevity risk, where the fund invests in rolling nominal zero-coupon bonds and a risk-free asset. Longevity trends are described through a linearly increasing maximum lifespan over time and a force of mortality that depends on both age and calendar time. Using a quadratic loss function with a penalty term and applying the dynamic programming principle, we derive the optimal investment and contribution policy. Numerical simulations show that intergenerational risk sharing enhances the stability of the pension system, while delayed retirement effectively alleviates the fiscal burden induced by an aging population. Our findings underscore the importance of incorporating realistic longevity dynamics into pension design to achieve long-term sustainability.
Li et al. (Fri,) studied this question.
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