Saving and investment over the life cycle: the role of individual and collective pension funds

This paper surveys the academic literature on optimal saving and investment over an individualís life cycle. We start out with a simple benchmark model with separable and smooth preferences, one aggregate risk factor and riskless wage income. Within this simple setting, optimal saving and investment behavior are explored from the perspective of individuals. Subsequently, we investigate various constraints to optimal individual decision making. We discuss how collective pension schemes may help to relieve some of the market incompleteness that arises from these constraints while at the same time introducing new types of constraints. Finally, various extensions to the benchmark setting are analyzed: a more elaborate modeling of human capital, additional risk factors, and other types of preferences.