<abstract xmlns="http://www.w3.org/1999/xhtml"><p>This paper identifies the conditions under which the private pension funds generate superior retirement outcomes compared to public pension system. The research objective is to determine the probability of success of the selected investment strategies in achieving the public pension system replacement rate, and the probability of the realization of extremely unfavourable outcomes. The methodology used in this paper includes the comparative analysis of simulated financial results of the four selected investment strategies implemented in the private pension fund model and the defined retirement benefits generated within the public pension system. For the simulation of the financial results at retirement, Monte Carlo simulation technique has been used. The authors have found that the success rate of the private pension fund in achieving superior financial results in comparison to public pension system is high, but only for the contribution rates higher than 10%. At low contributions rates, the extremely aggressive strategy is the only one that generates moderate success rate. Also, the probability of realization of extremely unfavourable financial results is lowest for the conservative strategy, which suggests that for the relatively high levels of the contribution rate, it is the most appropriate option for the pension fund members.</p></abstract>

This paper identifies the conditions under which the private pension funds generate superior retirement outcomes compared to public pension system. The research objective is to determine the probability of success of the selected investment strategies in achieving the public pension system replacement rate, and the probability of the realization of extremely unfavourable outcomes. The methodology used in this paper includes the comparative analysis of simulated financial results of the four selected investment strategies implemented in the private pension fund model and the defined retirement benefits generated within the public pension system. For the simulation of the financial results at retirement, Monte Carlo simulation technique has been used. The authors have found that the success rate of the private pension fund in achieving superior financial results in comparison to public pension system is high, but only for the contribution rates higher than 10%. At low contributions rates, the extremely aggressive strategy is the only one that generates moderate success rate. Also, the probability of realization of extremely unfavourable financial results is lowest for the conservative strategy, which suggests that for the relatively high levels of the contribution rate, it is the most appropriate option for the pension fund members.

Comparative Analysis of Retirement Benefits in Private Pension Funds and Public Pension System

Economic Themes

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

This paper identifies the conditions under which the private pension funds generate superior retirement outcomes compared to public pension system. The...

Comparative Analysis of Retirement Benefits in Private Pension Funds and Public Pension System

Published Online: May 04, 2020

Page range: 145 - 164

Received: May 14, 2019

Accepted: Jun 19, 2019

DOI: https://doi.org/10.2478/ethemes-2019-0009

Keywords
pension funds, public pension system, retirement benefits, investment strategy, Monte Carlo simulation

© 2019 Stevan Luković et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Comparative Analysis of Retirement Benefits in Private Pension Funds and Public Pension System

Published Online: May 04, 2020

Page range: 145 - 164

Received: May 14, 2019

Accepted: Jun 19, 2019

DOI: https://doi.org/10.2478/ethemes-2019-0009

Keywordspension funds, public pension system, retirement benefits, investment strategy, Monte Carlo simulation

© 2019 Stevan Luković et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Keywords
pension funds, public pension system, retirement benefits, investment strategy, Monte Carlo simulation