The value of intergenerational transfers within funded pension schemes

In this paper we model the transfers of value between the various generations in a funded pension scheme. Value-based generational accounting is used as framework of analysis. Pension benefits and contributions may depend on the funding ratio and the assett returns. Using contingent claims valuation methods, we calculate these transfers and the distribution of value across generations. Pension schemes that provide safer and smoother consumption streams are ranked higher in utility terms, which can be achieved by allowing risk shifting over time, using both benefit indexation and contribution instruments. Intergenerational risk sharing can be welfare-enhancing, and even initially underfunded collective funds may still provide higher utilities than the individual benchmark.