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

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.