The Notional Defined Contribution Pension Scheme and the German ‘Point System’: A Comparison

2018 ◽  
Vol 19 (4) ◽  
pp. 365-382 ◽  
Author(s):  
Vera Gurtovaya ◽  
Sergio Nisticò
Keyword(s):  
Pension System ◽  
Pension Scheme ◽  
Point System ◽  
Defined Contribution ◽  
Rates Of Return ◽  
System A ◽  
Analytical Properties ◽  
Notional Defined Contribution

AbstractThis paper examines the analytical properties of the German ‘points-based’ pension system. These properties are compared with those of a canonical Notional Defined Contribution (NDC) pension scheme. The paper identifies the circumstances under which the German ‘points-based’ system would mimic a Swedish-type NDC scheme and verifies to what extent the German ‘points-based’ scheme ensures uniformity of individual rates of return for some hypothetical careers. Finally, the paper proposes a set of new possible adjustment rules able to increase similarity between the German point system and the NDC scheme.

scholarly journals The transition to NDC in Italy: assessing distributive and financial effects

2021 ◽  
pp. 1-16
Author(s):  
Carlo Mazzaferro
Keyword(s):  
Net Present Value ◽  
Pension System ◽  
Pension Scheme ◽  
Defined Benefit ◽  
Defined Contribution ◽  
Ratio Distribution ◽  
Actuarial Fairness ◽  
Notional Defined Contribution ◽  
High Level ◽  
Pension Benefits

Abstract Moving from a Defined Benefit (DB) to a Notional Defined Contribution (NDC) pension formula creates significant re-distributive effects. We estimate the amount and the intensity of these effects in the case of the Italian transition to NDC, which began in 1995. Based on administrative data of the main Italian pension scheme (FPLD), we study the evolution of yearly inequality within old-age pension benefits. Furthermore, we study the adequacy and the actuarial fairness of the pension system, by estimating the replacement rates and the Net Present Value Ratio distribution for workers who retired in the period 1996–2019. Our results show that the very generous interpretation of acquired rights determined by the 1995 reform has contributed to maintaining a high level of adequacy and a significant level of intergenerational imbalance. The financial costs of this imbalance are estimated and its extent is significant.

scholarly journals The impact of notional defined contribution system (NDC) from the point of view of individual

2014 ◽  
pp. 96-105
Author(s):  
Milda Švedienė ◽  
Astrida Slavickienė
Keyword(s):  
Interest Rate ◽  
Pension System ◽  
Labour Force ◽  
Point Of View ◽  
Pension Benefit ◽  
Pension Scheme ◽  
Retirement Age ◽  
Defined Contribution ◽  
Notional Defined Contribution ◽  
The Impact

Retirement benefit plans are the relevant theme in the world and in Lithuania as well. The demographic challenges such as ageing and shrinking labour force cause the problem which usual PAYG system is not able to solve. Whereas this problem is very important in Lithuania simulation of notional defined contribution system is suggested. The influence of new pension system to individuals is analysed in this paper.  The analysis of theoretical works showed that NDC system is defined contribution (DC) system financed as in pay-as-you-go (PAYG) system. This pension scheme is different from others because of it accounting mechanism: contributions of individuals are accumulated on their individual accounts but whereas real capital is not accumulated the balance is notional. All accumulated sum is converted to pension benefit when individuals are at retirement age depending on cohort’s life expectancy. It is said that NDC pension system helps to solve problems such as sensitivity to changes in economic growth, decreasing volume of savings or create a better link between contributions and benefits.  Nevertheless it is recognized that benefit return in NDC pension system is less than in usual defined contribution system. The results of simulation have showed that notional defined contribution system in Lithuania would not be the way out from problems in pension system. The system would be balanced in 30-year period and indexation would be acceptable for individuals but from 2040 interest rate would be reduced by the relevant part of the balance ratio. Depending on the changes in interest rate from 2040 notional capital would be less than all sum of contribution paid and it would negatively impact individuals’ finances. It was found that the more years individuals spend in labour market the bigger capital they accumulate and the bigger benefit get when they are at retirement age. Nevertheless it was noticed that replacement rate would be approximately 25 percent and it would not be adequate for the required use of retirees.

scholarly journals Closing the gender gap in pensions: A microsimulation analysis of the Norwegian NDC pension system

2018 ◽  
Vol 29 (1) ◽  
pp. 130-143 ◽  
Author(s):  
Elin Halvorsen ◽  
Axel West Pedersen
Keyword(s):  
Gender Gap ◽  
Economies Of Scale ◽  
Pension System ◽  
Personal Income ◽  
Defined Contribution ◽  
Pension Income ◽  
System A ◽  
Actuarial Fairness ◽  
Annual Earnings ◽  
Pension Benefits

In this article, we use an advanced microsimulation model to study the distributional effects of the reformed Norwegian pension system with a particular focus on gender equality. The reformed Norwegian system is based on the notional defined contribution (NDC)-formula with fixed contribution/accrual rates over the active life-phase and with accumulated pension wealth being transformed into an annuity upon retirement. A number of redistributive components are built into the system: a unisex annuity divisor, a ceiling on annual earnings, generous child credits, a possibility for widows/widowers to inherit pension rights from a deceased spouse, a targeted guarantee pensions with higher benefit rates to single pensioners compared to married/cohabitating pensioners, and finally a tax system that is particularly progressive in its treatment of pensioners and pension income. Taking complete actuarial fairness as the point of departure, we conduct a stepwise analysis to investigate how these different components of the National Insurance pension system impact on the gender gap in pensions and on general (Gini) inequality in the distribution of pension income within a cohort of pensioners. Our analysis concentrates on one birth cohort – individuals born in 1963 – and we study three different outcomes: the distribution of annual pensions early in retirement (at age 70), the distribution of the total sum of pension benefits received over retirement, and the distribution of the average annual pension benefits received over the retirement phase. In addition, we look at three alternative income concepts. These are personal income, equivalised household income, and finally an original income concept developed for this study: personal income adjusted for the economies of scale enjoyed by couple households.

GUARANTEE VALUATION IN NOTIONAL DEFINED CONTRIBUTION PENSION SYSTEMS

2016 ◽  
Vol 46 (3) ◽  
pp. 677-707 ◽  
Author(s):  
Jennifer Alonso-García ◽  
Pierre Devolder
Keyword(s):  
Interest Rates ◽  
Closed Form Solution ◽  
Form Solution ◽  
Pension Scheme ◽  
Dependence Structure ◽  
Defined Contribution ◽  
Index Set ◽  
Notional Defined Contribution ◽  
Utility Indifference ◽  
Pension Adequacy

AbstractThe notional defined contribution pension scheme combines pay-as-you-go financing and a defined contribution pension formula. The return on contributions is based on an index set by law, such as the growth rate of GDP, average wages or contribution payments. The volatility of this return compromises the system's pension adequacy and therefore guarantees may be needed. Here, we provide a minimum return guarantee to the pension contributions. The price is calculated in a utility indifference framework. We obtain a closed-form solution for a general dependence structure with exponential preferences and in presence of stochastic short interest rates.

Wie hat sich die intragenerationale Umverteilung in der staatlichen Säule des Rentensystems verändert? / Has Intragenerational Redistribution Become Less Important in Pension Systems’ Public Pillar?

2011 ◽  
Vol 231 (2) ◽  
Author(s):  
Tim Krieger ◽  
Stefan Traub
Keyword(s):  
Pension System ◽  
Defined Contribution ◽  
The Public ◽  
Pension Systems ◽  
Catching Up ◽  
Sigma Convergence ◽  
Notional Defined Contribution ◽  
International Convergence ◽  
High Degree ◽  
Beta Convergence

SummaryWe empirically investigate whether the significance of intragenerational redistribution in the public pillar of pension systems in 20 OECD countries has changed systematically since the 1980s and whether international convergence of the degree of intragenerational redistribution can be observed. Intragenerational redistribution is measured by the Bismarckian factor which provides information about the relative importance of the earnings-benefit link in the pension formula (as compared to a flat-benefit Beveridgean pension system). Based on micro data from the Luxembourg Income Study, we find both, a trend towards (more Bismarckian) pension systems which obey the principle of participation equivalence and an international convergence of pension systems. The reduced variation of pension systems (sigma convergence) is driven by countries with a high degree of intragenerational redistribution catching up with more traditional Bismarckian countries (beta convergence). Both, fundamental pension reforms as Sweden’s and Italy’s move to „notional defined contribution‘‘ systems, and parametric reforms ranging from the removal of group-specific benefits to alternative calculations of contribution history, such as changing from „best years‘‘ to the entire worklife, underlie this development.

scholarly journals SINGAPORE’S LIFE PROGRAM: ACTUARIAL FRAMEWORK, LONGEVITY RISK AND IMPACT OF ANNUITY FUND RETURN

2017 ◽  
pp. 1-17 ◽  
Author(s):  
KOON-SHING KWONG ◽  
YIU-KUEN TSE ◽  
WAI-SUM CHAN
Keyword(s):  
Pension System ◽  
The Elderly ◽  
Pension Scheme ◽  
Longevity Risk ◽  
Defined Contribution ◽  
Lifetime Income ◽  
Fund Return ◽  
Provident Fund

The Central Provident Fund (CPF) is a defined-contribution savings plan forming the key pillar of the pension system in Singapore. The CPF Lifelong Income For the Elderly (LIFE) program, which provides lifetime income for retirees, is a mandatory pension scheme for all Singapore residents. In this paper we construct an actuarial framework to analyze the LIFE program. We use this framework to study the plan payout outcomes with respect to changes in mortality and annuity fund return assumptions. We also examine the effects of some possible changes in the program on the payouts and bequests.

LIFE CARE ANNUITIES (LCA) EMBEDDED IN A NOTIONAL DEFINED CONTRIBUTION (NDC) FRAMEWORK

2016 ◽  
Vol 46 (2) ◽  
pp. 331-363 ◽  
Author(s):  
Javier Pla-Porcel ◽  
Manuel Ventura-Marco ◽  
Carlos Vidal-Meliá
Keyword(s):  
Pension System ◽  
Incidence Rates ◽  
Fixed Cost ◽  
Defined Contribution ◽  
Life Care ◽  
Term Care ◽  
Retirement Pension ◽  
Proposed Model ◽  
Notional Defined Contribution

AbstractThis paper examines the possibility of embedding public long-term care (LTC) insurance within the retirement pension system, i.e. introducing life care annuities into a notional defined contribution framework. To do this, we develop a multistate overlapping generations model that includes the so-called survivor dividend and give special attention to the assumptions made about mortality rates for dependent persons and LTC incidence rates, which largely determine the contribution rate assigned to LTC. The proposed model could be of interest to policymakers because it could be implemented without too much difficulty, it would universalize LTC coverage with a “fixed” cost, and it would discourage politicians from making promises about future LTC benefits without the necessary funding support.

Further Reform of China’s Pension System: A Realistic Alternative Option to Fully Funded Individual Accounts

2007 ◽  
Vol 6 (2) ◽  
pp. 112-135
Author(s):  
Wei Zhang
Keyword(s):  
Capital Market ◽  
Pension System ◽  
Defined Contribution ◽  
Management Skills ◽  
Pension Insurance ◽  
Individual Account ◽  
System A ◽  
Financial Difficulties ◽  
The Individual

China's newly established three-pillar pension system consists of: basic pension; fully funded individual account; and voluntary commercial pension insurance. The second component faces immense financial difficulties caused by transitional costs in the short term and demographic changes in the long term. In addition, the inefficiency of the current capital market and the lack of fund management skills mean that these financial problems are unlikely to be solved within the existing framework of the fully funded individual account. This paper suggests another option—changing the fully funded individual account to a notional defined contribution individual account that operates on a pay-as-you-go basis. This change will keep the advantages of the individual account and avoid the huge risks caused by China's immature capital market.

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