Optimal Asset Allocation and Benefit Outgo Policies of the DC Pension Plan During the Decumulation Phase

In this paper, we study the optimal dynamic asset allocation and benefit outgo policies of the DC pension plan with index-linked target during the decumulation phase. The pension management controls the asset allocation to minimize the deviations between the actual benefit outgo and the pre-set target with index-linked property. Using stochastic maximum principle and HJB methods, we establish the optimal proportions allocated in the risky and risk-free assets separately and the optimal benefit outgo policy. We also study the impacts of the fund wealth, target pension-salary replacement rate, the expected return of the risky asset, and the expected growth rate of the average salary on the optimal policies.