Funded-capitalized pension designs and the demand for minimum pension guarantee

Using funded and unfunded pillars, the optimal pension structure is estimated usingan over-lapping generation model, calibrated to the average OECD countries. Whilesimulating different pillar sizes, a socio-economic characteristic was revealed in whichlow-earning groups are prone to unexpected market risks than high-earning cohortsand support a larger contribution than better-off individuals. This led to high contribution rates for funded pillars and low contributions rates for social security pillars. Thissuboptimal allocation leads to inefficient hedging capability for the pension portfolio.An alternative is a minimum pension guarantee as an efficient system stabilizer as it rebalances the economic cost among different earning cohorts. However, the guaranteemight be expensive to implement if not capitalized early in the working phases in anera of aging populations, low birth rates, and deep financial crisis