Julia Eisenberg (Vienna University of Technology)

The decreasing birth rates and increasing longevity threaten the sustainability of the public pension systems usually financed on a pay-as-you-go (PAYG) basis, where current contributions cover current pension expenditure. We investigate a scheme where the deficit of the PAYG system is immediately covered by the state. However, in return the individuals need to invest an amount of money into a fund. This investment is designed so that the individuals can repay "their debt" to the state at a particular level of probability and at the same time expect a positive gain. Two different strategies of debt repayment depending on the amount invested and the timing of the repayment to the state are analysed and compared to the classical PAYG scheme.