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Volume 56, Issue 11 -12

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A Dynamic Accumulation Model for the Second Pillar of the Slovak Pension System

Kiliánová, Soňa; Melicherčík, Igor; Ševčovič, Daniel

Year: 2006   Volume: 56   Issue: 11 -12   Pages: 506-521

Abstract: Since January 2005, pensions in Slovakia are operated by a three-pillar system as proposed by the World Bank. This paper concentrates on the mandatory, fully funded second pillar. The authors present a dynamic accumulation model for determining the optimal switching strategy among pension funds with different risk profiles. The resulting strategies depend on the individual risk preferences of future pensioners. The authors´ results illustrated that gradual decreasing risk while amassing savings for a pension is rational. Furthermore, the authors present several simulations of optimal fund-switching strategies for various model parameter settings.

JEL classification: C15, E27, G11, G23

Keywords: dynamic stochastic programming; funded pillar; utility function; Bellman equation; Slovak pension

RePEc: http://ideas.repec.org/a/fau/fauart/v56y2006i11-12p506-521.html

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