A “Swedish” actuarial balance for a notional defined contribution pension scheme with disability and minimum pension benefits

2017 ◽  
Vol 70 (3) ◽  
pp. 79-104 ◽  
Author(s):  
Juan M. Pérez-Salamero González ◽  
Manuel Ventura-Marco ◽  
Carlos Vidal-Meliá
Keyword(s):  
Pension Scheme ◽  
Defined Contribution ◽  
Notional Defined Contribution ◽  
Pension Benefits ◽  
Minimum Pension

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.

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.

Another look at housing finance in Africa

2016 ◽  
Vol 9 (1) ◽  
pp. 20-46 ◽  
Author(s):  
Kenneth Appiah Donkor-Hyiaman ◽  
DeGraft Owusu-Manu
Keyword(s):  
Housing Finance ◽  
Sub Saharan Africa ◽  
Pension Scheme ◽  
Occupational Pension ◽  
Defined Contribution ◽  
Tier 2 ◽  
Content Type ◽  
Sub Saharan ◽  
Pension Benefits

Purpose – Most households in Sub-Saharan African cannot afford adequate housing. Most often, their pension benefits are also meagre, usually resulting from low contribution levels and mismanagement. Coupled with low life expectancies, most would not live to enjoy the benefits of pensions, thus validating the need to utilize their hitherto deferred pension benefits for immediate housing investment and consumption. Design/methodology/approach – Quantitative research methodology via the present value technique was used in valuing pension benefits to demonstrate the potential of pension schemes as savings mobilization mechanisms for long-term pension-backed housing financing in Ghana. Findings – Policy wise, the paper provides some evidence to support proposals for the development of pension-backed housing finance systems in Ghana with lessons for Sub-Saharan Africa. The authors demonstrate that the Tier 2 defined contribution mandatory occupational pension scheme could serve the purpose of a savings mobilization mechanism for long-term housing financing. The authors observe that by increasing the Tier 2 contribution rate to 30 per cent, the majority of the sample, mainly of the middle-income class, could accumulate between US$11,000 and US$17,000 over their working life. At the same rate, between US$5,783 and US$9,550 could have been raised as savings between 2010 (when implementation began) and 2014. This could form a substantial equity contribution in a mortgage investment and or borrowed on a housing microfinance basis. Originality/value – The paper contributes to the ongoing debate on the need to develop alternate savings mechanisms and collateral assets using pension assets, other than property, for mortgage financing. The proposals made are aimed at influencing policy by way of advocating for the use of latent pension equity to improve the housing conditions of members while they are alive, and also to suggest pension-backed housing financing as an alternative investment option. A comprehensive study would be required to settle issues of scalability, pricing and model design.

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 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.

Should a Survivorship Dividend Be Included in Notional Defined Contribution Accounts (NDCs)?

2013 ◽  
Author(s):  
Carlos Vidal-Melii ◽  
Marra del Carmen Boado-Penas ◽  
Francisco Navarro-Cabo
Keyword(s):  
Defined Contribution ◽  
Notional Defined Contribution

The transition to a multi-pillar pension system: the inherent socio-economic anomaly

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ishay Wolf ◽  
Jose Maria Caridad y Ocerin
Keyword(s):  
Income Inequality ◽  
Old Age ◽  
Pension System ◽  
Economic Loss ◽  
Pension Scheme ◽  
Total Contribution ◽  
Content Type ◽  
Pension Systems ◽  
High Earning ◽  
Minimum Pension

Purpose This paper aims to analytically show that in an over-lapping-generation (OLG) model, low earning cohorts bear unwanted risk and absorb higher economic cost than high earning cohorts do. Design/methodology/approach This paper aims to consider the individual's risk appetite, using a simple utility function, based on consumptions and discount rates in each period. This paper calibrates the model according to teh Israeli pension system as a representative of a small open developed organization for economic cooperation and development country. Israel is considered as unique case study in the pension landscape, as it implements almost pure defined contribution pension scheme with continuous trend of pension market capitalization (Giorno and Jacques, 2016). Hence, this study finds Israel suitable for examining the theoretical mix of pension scheme. That model enables exploring combined solutions for adequate old age benefits, involving the first and the second pension pillars, under fiscal constraints. Findings It comes out that for risk-averse individuals, the optimal degree of funding is negatively correlated to asset returns' volatility and positively correlated to earning decile level. The neglect of risk and individual's current earning level will thus overstate the contribution level and funded percentage from total contributions. Moreover, even in an economy with minimum government intervention, and highly developed private pension fund with high average of rate of return, the authors find it is optimal that the pension system contains a sizeable unfunded pillar. This paper innovates by revealing a socio-economic anomaly in design of mix pension systems in favor of high earning cohorts on the expense of economic loss of low earning cohorts. Practical implications The model presented in this paper could be implemented in countries with mix pension systems, as an alternative to public social transfers or means tested, alleviating poverty and inequality in old age. Additionally, this model could raise the public awareness of the financial sustainability of the unfunded pay-as-you-go pillar to diversify financial risk in pension systems, especially for low earning cohort in society. Social implications One area of research that is particularly relevant in this context concerns the issue of alleviating poverty and income inequality. It is often stressed that the prevention of old age poverty is among the central targets of well-designed pension system (Holzmann and Hinz, 2005). The conceptualization of minimum pension guarantee used in this composition allows to clearly capturing the notion of such a poverty and social targets as an integral part of the pension system rolls. Originality/value This paper innovates by revealing a socio-economic anomaly in design of mix pension systems in favor of high earning cohorts on the expense of economic loss of low earning cohorts. That comes to realize through the level of total contribution rates and funded share that are generally optimal for high earning cohorts but not for low earning cohorts. This paper identifies that the effect of anomaly is most significant in a market characterized with high income-inequality level. This paper finds that imposing intra-generational risk sharing instrument in the form of minimum pension guarantee can re-balance pension design among different earning cohorts. This solution demonstrates balancing effect on the entire economy.

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