Household finance: life-cycle strategies

Abstract

Longevity is increasing and retirees face the risk of outliving their income resources, perceived by the (compulsory) second pillar pension scheme. In this regard the European Commission has launched the pan-European pension program (PEPP) to help workers to deal with this type of risk. In the thesis I address the potential risks and benefits of different life-cycle strategies, which could be adopted in a (voluntary) third pillar pension scheme. I run a simulation and compare the results of eight strategies. The analysis aims at suggesting which one fits best the capital protection characteristics required by a default option in PEPP. The main results of the thesis concern the greater ability of life-cycle strategies in providing a higher wealth realization at retirement with respect to a minimum capital guarantee policy, and the very low probability that these strategies cannot recoup the amount of contributions paid by the worker.