The impact of pension asset allocation on economic growth and social welfare: evidence from the UK, Germany, Italy and Spain

Xu, Kexin 2026. The impact of pension asset allocation on economic growth and social welfare: evidence from the UK, Germany, Italy and Spain. PhD Thesis, Cardiff University. Item availability restricted.

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Abstract

Population ageing has become one of the main challenges facing modern pension sys tems, particularly under persistent low-interest-rate environments. Using a multi-country overlapping generations (OLG) model with 100 cohorts, this study examines how pen sion asset allocation strategies affect economic growth, pension sustainability, and social welfare in the United Kingdom, Germany, Italy, and Spain over the period 2019–2118. The model incorporates households, firms, government, and capital markets within a uni fied general equilibrium framework, while modelling the pension sector explicitly through pension assets, liabilities, contribution rates, replacement rates, and portfolio allocation decisions. Unlike conventional OLG models that rely on a single aggregate return, this study in troduces an endogenous dual-interest-rate structure consisting of a risky return on capital and a risk-free bond return. This framework allows the analysis to capture how demo graphic ageing affects different asset markets asymmetrically and how pension portfolio allocation influences macroeconomic dynamics through capital-market equilibrium. The results reveal substantial cross-country differences, but all cases exhibit a common trade-off between economic growth and welfare stability. Higher exposure to risky assets generally promotes long-run capital accumulation and GDP growth, particularly under ageing and low-interest-rate conditions. However, larger risky asset shares may also increase volatility and intergenerational welfare pressures. The findings further show that ageing tends to depress risk-free rates more strongly than risky returns, leading to a widening risk premium over time. The United Kingdom demonstrates relatively strong resilience due to more stable de mographic conditions and stronger effective labour dynamics. Germany benefits from relatively strong productivity and capital accumulation, while Italy and Spain face more severe demographic pressures and increasing difficulty in sustaining conservative pension investment strategies over the long run. The results therefore suggest that pension portfo lio allocation should reflect country-specific demographic and macroeconomic conditions rather than follow a uniform investment structure. Overall, this study contributes to the literature by integrating pension systems, de mographic ageing, and financial markets within a unified OLG framework with endoge nous dual asset returns. The findings provide policy implications for balancing economic growth, pension sustainability, and social welfare under long-run ageing pressures.

Item Type:	Thesis (PhD)
Date Type:	Completion
Status:	Unpublished
Schools:	Schools > Business (Including Economics)
Date of First Compliant Deposit:	14 July 2026
Last Modified:	15 Jul 2026 10:11
URI:	https://orca.cardiff.ac.uk/id/eprint/188172

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