Abstract

The new labor pension scheme is a defined-contribution plan. The minimum contribution ratio is 6% for employers. Minimum investment returns are under government's guarantee. It is important to find optimal asset allocation to improve replacement ratio for employees and reduce guarantee cost for government. This study modifies the model of Haberman and Vigna (2002) and investigates the relevant questions. We find that: 1. The minimum contribution ratio is proper only for 20 years old labors. Self-contribution is necessary for 30 and 40 years old labors to get 30% replacement ratio. It is not proper for 50 years old labors to depend on individual account as the only financial support after retirement. 2. Age, contribution, and downside risk are relevant to optimal asset allocations. 3. Guarantee cost can be effectively controlled by the model we modified if proper parameter is set.