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A model of the French pension reserve fund: what could be the optimal contribution path rate?

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  • BERGER, CHARLIE
  • LAVIGNE, ANNE

Abstract

Current and expected demographic and economic trends are likely to jeopardize the financial sustainability of the French retirement pension scheme, which mainly operates on a pay-as-you-go basis. In 1999, the French government set up a Pension Reserve Fund (Fonds de réserve pour les retraites, FRR) the main objective of which was to introduce some public funding in the PAYG basic pension scheme to cope with its expected financial unsustainability within the next decade. This paper presents some simulation results on the projected evolution of the French Pension Reserve Fund under various assumptions. The main idea is to optimize the profile of the trend in contribution rates needed to meet the objective of a balanced basic pension scheme over the period 2006–2050. Our simulations show that under plausible assumptions the amount of funding is likely to be less important than the Government expected at the FRR set up, about 100 billion euros. Some stress tests show that severe shocks on financial markets may dramatically affect the funding profile of the FRR beyond 2045.

Suggested Citation

  • Berger, Charlie & Lavigne, Anne, 2007. "A model of the French pension reserve fund: what could be the optimal contribution path rate?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 6(3), pages 233-250, November.
    • Handle: RePEc:cup:jpenef:v:6:y:2007:i:03:p:233-250_00
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    References listed on IDEAS

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    1. James M. Poterba, 2004. "Impact of population aging on financial markets in developed countries," Economic Review, Federal Reserve Bank of Kansas City, vol. 89(Q IV), pages 43-53.
    2. James M. Poterba, 2004. "The impact of population aging on financial markets," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 163-216.
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    Cited by:

    1. Frédéric Gannon & Florence Legros & Vincent Touzé, 2020. "Sustainability of pension schemes. Building a smooth automatic balance mechanism with an application to the us social security," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(6), pages 377-401.
    2. Rodrigue Mendez & Lionel Ragot, 2010. "Quel avenir pour le Fonds de réserve pour les retraites ?," Économie et Prévision, Programme National Persée, vol. 194(3), pages 57-78.
    3. repec:spo:wpmain:info:hdl:2441/1nnmnobpu685qait9jaqir07rn is not listed on IDEAS
    4. Castañeda, Pablo & Castro, Rubén & Fajnzylber, Eduardo & Medina, Juan Pablo & Villatoro, Félix, 2021. "Saving for the future: Evaluating the sustainability and design of Pension Reserve Funds," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    5. repec:hal:spmain:info:hdl:2441/1nnmnobpu685qait9jaqir07rn is not listed on IDEAS
    6. Frédéric Gannon & Florence Legros & Vincent Touzé, 2020. "Sustainability of pension schemes. Building a smooth automatic balance mechanism with an application to the us social security," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(6), pages 377-401.

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