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Risks 2018, 6(2), 48; https://doi.org/10.3390/risks6020048

The Italian Pension Gap: A Stochastic Optimal Control Approach

1,†
and
2,†,*
1
Imperial College London, London SW7 2AZ, UK
2
Università di Torino, Collegio Carlo Alberto and Centre for Research on Pensions and Welfare Policies (CeRP), 10134 Torino TO, Italy
These authors contributed equally to this work.
*
Author to whom correspondence should be addressed.
Received: 29 March 2018 / Revised: 23 April 2018 / Accepted: 24 April 2018 / Published: 28 April 2018
(This article belongs to the Special Issue Recent Development in Actuarial Science and Related Fields)
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Abstract

We study the gap between the state pension provided by the Italian pension system pre-Dini reform and post-Dini reform. The goal is to fill the gap between the old and the new pension by joining a defined contribution pension scheme and adopting an optimal investment strategy that is target-based. We find that it is possible to cover, at least partially, this gap with the additional income of the pension scheme, especially in the presence of late retirement and in the presence of stagnant careers. Workers with dynamic careers and workers who retire early are those who are most penalised by the reform. Results are intuitive and in line with previous studies on the subject. View Full-Text
Keywords: pension reform; defined contribution pension scheme; net replacement ratio; stochastic optimal control; dynamic programming; Hamilton-Jacobi-Bellman equation; Bellman’s optimality principle pension reform; defined contribution pension scheme; net replacement ratio; stochastic optimal control; dynamic programming; Hamilton-Jacobi-Bellman equation; Bellman’s optimality principle
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Milazzo, A.; Vigna, E. The Italian Pension Gap: A Stochastic Optimal Control Approach. Risks 2018, 6, 48.

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