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Automatic Balancing Mechanisms in Public Pension Systems: A Solution to Face Demographic and Economic Risks?

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  • Full or part time
    Dr Boado Penas
    Prof McCabe
  • Application Deadline
    Saturday, December 31, 2016

Project Description

PLEASE APPLY ONLINE TO THE SCHOOL OF ENGINEERING, PROVIDING THE PROJECT TITLE, NAME OF THE PRIMARY SUPERVISOR AND SELECT THE PROGRAMME CODE "EGPR" (PHD - SCHOOL OF ENGINEERING).

This is a project within the multi-disciplinary EPSRC and ESRC Centre for Doctoral Training (CDT) on Quantification and Management of Risk & Uncertainty in Complex Systems & Environments, within the Institute for Risk and Uncertainty. The studentship is granted for 4 years and includes, in the first year, a Master in Decision Making under Risk & Uncertainty. The project includes extensive collaboration with prime industry to build an optimal basis for employability.

In recent years considerable attention has been focused on the impact of demographic changes on pension and social security systems. Virtually all industrialised nations have experienced significant changes in the demographic structure of their population. Two developments have triggered this phenomenon. Firstly, improved health care and medical innovations have led to an increased life expectancy. Secondly, birth rates have dramatically decreased, particularly in European countries. These two effects are, to a large extent, responsible for the present pension crises of many pay-as-you-go systems as more and more pensioners have to be financed by fewer and fewer contributors. On top of these effects, the recent global financial crisis and a severe world-wide public debt crisis has exerted additional stress on European pension systems.

The literature on pension finance has long been highlighting concerns that public pay-as-you-go pension systems will turn out to be unsustainable in the long run and are a concern for most European countries. In most of Europe, the general public has become increasingly aware that their old-age pension plans may not be secure. Thus, the confidence in the sustainability of public pension systems has been severely shaken.

In Europe, a variety of different approaches are being taken to guarantee the sustainability of the systems in the long run. In this line, some countries have decided to set up Automatic Balancing Mechanisms (ABMs) defined as a set of predetermined measures established by law to be applied immediately as required according to an indicator that reflects the financial health of the system.

This research analyses, from a mathematical point of view, different types of ABMs for public pension systems to face economic and demographic risks. We are also interested in designing an ABM that provides an optimal share of risk between contributors and pensioners.

The project will definitively contribute to the public debate on pension finance and formulate new policy recommendations regarding a better management of public pension systems.

The project requires a strong mathematical background and a keen interest to work in the interface of financial mathematics and actuarial science. Applicants should have either a background in Mathematical or Actuarial / Financial Sciences or in relevant fields. A combined education in these fields would be an advantage.

Funding Notes

The PhD Studentship (Tuition fees + stipend of £ 13,726 annually over 4 years) is available for Home/EU students. In addition, a budget for use in own responsibility will be provided.

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