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arXiv · 2605.12698

Optimal investment and Pension policy in Pay-As-You-Go systems under forward utility and ageing population

Jennifer Alonso-Garcia·Caroline Hillairet·Sarah Kaakai·Mohamed Mrad
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Abstract

This paper investigates optimal investment and pension policies in a Pay-As-You-Go (PAYG) system supplemented by a buffer fund used as an intergenerational risk-sharing mechanism. The social planner's preference criterion is represented by non-zero volatility forward Constant Relative Risk Aversion (CRRA) utilities, and explicitly accounts for both sustainability and adequacy constraints. The optimal policies are characterized in closed form, and an in-depth analysis of the impact of preference sensitivities on the pension scheme is conducted. A detailed numerical analysis is performed to evaluate the sustainability and benefit adequacy of this hybrid PAYG buffer fund arrangement under a range of demographic, financial, and macroeconomic scenarios.

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Jennifer Alonso-Garcia, Caroline Hillairet, Sarah Kaakai, Mohamed Mrad. 2026-05-14. Optimal investment and Pension policy in Pay-As-You-Go systems under forward utility and ageing population. https://arxiv.org/abs/2605.12698

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