A Micro-Simulation Model for Pension Funds

In recent years there is a growing interest in the management of pension funds: The population in the developed countries is ageing. In countries where the pension rights are financed by means of a capitalization system, this implies for example that many pension funds, that had a contribution cash inflow that was larger than the current pension benefits, are now in the position that a part of the investment returns has to be used to pay the benefits. As a result a closer look at the contribution and pension benefit cash flows is necessary.The pension contributions are an important element of the total costs of the plan sponsor and of the difference between gross and net wage for the employees. They both prefer low and stable contributions. In this field there is a growing role for dynamic contribution systems, that try to smooth the contributions over time.Usually pension contributions are tax-deductable and this part of the income of employees is only taxed at the moment of the pension benefit: many years later and at a probably lower tax rate. Especially in countries with a large public debt, governments would like to accelerate this tax-levy.