  We study a fully funded, collective defined-contribution (DC) pension system
with multiple overlapping generations. We investigate whether the welfare of
participants can be improved by intergenerational risk sharing (IRS)
implemented with a realistic investment strategy (e.g., no borrowing) and
without an outside entity (e.g., share holders) that helps finance the pension
fund. To implement IRS, the pension system uses an automatic adjustment rule
for the indexation of individual accounts, which adapts to the notional funding
ratio of the pension system. The pension system has two parameters that
determine the investment strategy and the strength of the adjustment rule,
which are optimized by expected utility maximization using Bayesian
optimization. The volatility of the retirement benefits and that of the funding
ratio are analyzed, and it is shown that the trade-off between them can be
controlled by the optimal adjustment parameter to attain IRS. Compared with the
optimal individual DC benchmark using the life-cycle strategy, the studied
pension system with IRS is shown to improve the welfare of risk-averse
participants, when the financial market is volatile.
