Description: This paper models minimum pension guarantee using a simulation approach. Lachance and Mitchell [2002] have shown that it could be important if and when individual accounts are introduced in the United States. This paper's model uses real data from Mexico where individual accounts are already a reality and the minimum pension guarantee is already enshrined by law. The authors calculate the probability of the government needing to honor the guarantee and estimate the cost of such a promise using a real options approach. Higher investment in the stock market turns out to be the key. The higher the proportion of investment allowed by law in stocks, the lower the probability of government support.

Description: On July 1 1997, a new privatized but compulsory retirement system came into effect in Mexico. The new system has a complex web of contributions by employers, employees and by the government. The retirement funds also have a complex web of charges applied to the funds. This paper carefully analyzes these complex cases to find out which funds perform the best. It shows through simulations that the optimal strategy for individual retirement account holder is not to stay with one fund throughout the working life. Instead, the best option is to switch at some point. The switching point depends on a number of factors: 1. the wage rate of the workers [and also on the growth rate of wages], 2. the real interest rate, and 3. the inflation rate. From Actuarial Research Clearing House 1999, Vol. 1.

Description: Calculating the retirement benefits under a defined contribution pension plan requires information about lifetime salary profiles along with the density of contribution. Most often, in developing countries, a simple income profile is assumed with no regard to actual income profiles. One commonly used rule is to assume a x percent growth in income throughout the working lives of affiliates. This is the abstract of a paper that investigates if the reality corresponds to such assumptions.