Least Expensive Standard Pensions
Eckhard Platen
Abstract
The paper proposes generating annuity payment streams at far lower costs than those implied by traditional theories. For a given investment universe, this enables the design of a least expensive standard pension, providing accurate monthly payments of savings account units over a set period. Such a standard pension invests dynamically in the savings account and the equity market's growth-optimal portfolio to replicate riskless payments with high accuracy at the lowest possible cost. Since this mathematically grounded standard pension is reliable and, by orders of magnitude, less expensive than traditional pensions, it provides a unique opportunity to improve the health of pension systems and provide more benefits for retirees.
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