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

Abstract

This article proposes a “Swedish” type actuarial balance sheet (ABS) for a notional defined contribution (NDC) scheme with disability and minimum pension benefits. The proposed ABS splits the pension system in two parts: the pure NDC part and the redistributive part, which includes the assets and liabilities originating from non‐contributory rights. The article contains a numerical example that sheds light on the real applicability of our proposal. The model has practical implications that could be of interest to policy‐makers, given that it integrates actuarial and social aspects of public pensions and discloses the real cost of redistribution through minimum pensions.

A Social Insurance Accounting for a Notional Defined Contribution Scheme Combining Retirement and Long-Term Care Benefits

“…In line with the classic Swedish ABS [10], which basically aims to compute the value of the commitments to contributors and pensioners taken on by the system, rather than calculate how much the system would have to pay a third party if it was decided to contract out or transfer those commitments, the interest rate for discounting liabilities to pensioners is taken to be the growth rate of the covered wage bill (G). Several papers have used a discount rate tied to wage growth or overall economic growth [11,22,24,31,32,34,73].…”

“…The Japanese AB has included the amount by which the state subsidizes the pension system for many years [8]. Metzger [11], and Pérez-Salamero González et al [34] also included state subsidies in several balance sheet frameworks.…”

“…With all the above reasons in mind, this paper has developed the necessary technicalities to present a Swedish-type financial reporting statement for an NDC scheme embedding LTC insurance within the retirement pension system. The articles [34,35] and the current financial report of the Swedish NDC scheme [10] were the cornerstones enabling the paper's aim to be achieved.…”

“…Our paper also relies on research into NDC schemes, its starting point being the papers by TSPS [10], Pérez-Salamero González et al [34], and Vidal-Meliá et al [35]. Pérez-Salamero González et al [34] developed a Swedish-type ABS for an NDC scheme with disability and minimum pension benefits.…”

“…Our paper also relies on research into NDC schemes, its starting point being the papers by TSPS [10], Pérez-Salamero González et al [34], and Vidal-Meliá et al [35]. Pérez-Salamero González et al [34] developed a Swedish-type ABS for an NDC scheme with disability and minimum pension benefits. The most recent annual report of the Swedish pension system [10] presents its financial status and income statement along with a description of the accounting principles used for valuing the system's assets and liabilities.…”