in intergenerational risk sharing in the presence of productivity, financial market
and demographic risks. We find relatively large welfare gains from the presence of
a two-tier pension system with a defined benefit second pillar when compared to
laissez-faire. The first, PAYG pillar takes care of appropriate redistribution between
the young and the old generation. Benefits from the fully funded second pillar allow
for risk sharing between the two generations.
The exact form of the defined benefit second pillar is not very important, as different
specifications of the second pillar lead to almost identical welfare gains compared to
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