Managing Pension Plan in an Aging Population -The Dynamic Profit-Share Pension Model

Abstract

This study examined the profit-share pension model as a potential vehicle for generating capital accumulation and effecting a progressive redistribution of wealth. Taking the functions of the pension mechanism as the guiding principle, we attempted to incorporate a profit-share fund into a three-pillar pension system, eliminating the need for full funding from public resources. The general equilibrium model, with each agent solving a specific optimization problem, in which, on top of the full set of first order conditions for each problem, constraint conditions are imposed. Consideration of the equilibrium conditions gave us a complete system which conceivably, allowed us to solve the equilibrium paths for endogenous variables. The use of simulation techniques allowed us to accommodate a flexible and behaviorally realistic setting to examine the model’s behavior over time and compare its level of consistency to that of the real existing systems. The use of sensitivity analysis additionally investigated the model’s behavior in the presence of macroeconomic shocks by making changes to the model variables and observing their effects. The findings show profit-sharing has a positive impact on business and economic activity and also has a positive impact on pension activity.