Self-insurance against natural disasters: the use of pension funds in Pacific island countries

Pacific island countries are exposed to significant risks from natural disasters. As a disaster relief measure, Fiji allowed pre-retirement pension withdrawls in the wake of Cyclone Winston in 2016. Motivated by this policy action, this paper provides a normative analysis of the use of early pension withdrawals after disasters, by setting up a life-cycle saving model with myopic households facing large natural disaster shocks. The model demonstrates the key trade-off between building up sufficient retirement savings and ensuring the access to savings against natural disaster shocks, and sheds light on welfare implications of early pension withdrawals.