Compiling the actuarial balance for pay-as-you-go pension systems. Is it better to use the hidden asset or the contribution asset?

Vidal‐Meliá, Carlos; Boado‐Penas, María del Carmen

doi:10.1080/00036846.2011.615733

Cited by 28 publications

(13 citation statements)

References 23 publications

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“…In this section, we extend the actuarial overlapping generations model developed by Boado-Penas and Vidal-Meliá (2014) based on those first put forward by Settergren and Mikula (2005), Boado-Penas, Valdés-Prieto, and Vidal-Meliá (2008) and Vidal-Meliá and Boado-Penas (2013). These papers were to some extent inspired by the accounting framework for organizing, summarizing and interpreting data on transfer systems and the life cycle developed in Lee (1994), Willis (1988) and Arthur and McNicoll (1978).…”

Section: The Modelmentioning

confidence: 99%

Notional defined contribution pension schemes: why does only Sweden distribute the survivor dividend?

Vidal‐Meliá

Boado‐Penas

Navarro-Cabo³

2015

Journal of Economic Policy Reform

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The aim of this paper is to analyse the role of the survivor dividend in notional defined contribution (NDC) pension schemes. At present, this feature can only be found in the Swedish defined contribution scheme. We develop a model that endorses the idea that the survivor dividend has a strong basis for enabling the NDC scheme to achieve financial equilibrium and that not including the dividend is a non-transparent way of compensating for increases in longevity and/or legacy costs from old pension systems. We also find that the average effect of the dividend remains unchanged for any constant annual rate of population growth, that contributors who reach retirement age always get a higher return than the scheme does, and that population growth enables cohorts with more years of contributions to benefit to a greater extent from the dividend effect.

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Section: The Modelmentioning

confidence: 99%

Notional defined contribution pension schemes: why does only Sweden distribute the survivor dividend?

Vidal‐Meliá

Boado‐Penas

Navarro-Cabo³

2015

Journal of Economic Policy Reform

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“…While some authors have proposed to use the sum of implicit taxes or the so‐called “hidden asset” as a measure of the implicit intergenerational redistribution, for several reasons we use the concept of a “contribution asset” as outlined by Settergren and Mikula (). The first reason is that the existence and size of implicit taxes depend on the difference between the internal rate of return of the pension system relative to the return of an alternative investment, the interest rate of the financial market (Vidal‐Meliá and Boado‐Penas, ). As we are interested in the pension scheme's sustainability, a more appropriate measure of the implicit intergenerational redistribution seems to be the system‐inherent contribution asset, as it abstracts from any investment comparisons and therefore from other factors determining the financial market interest rate (see Boado‐Penas, Valdés‐Prieto and Vidal‐Meliá, , p. 94).…”

Section: Methodsmentioning

confidence: 99%

“…Although the contribution asset in the Swedish scheme is originally defined for use together with ADL, we also apply the same cross‐sectional turnover duration to estimate the contribution asset when using (net) CWL. From a steady‐state perspective, the use of (net) CWL together with the standard contribution asset is outlined by Settergren and Mikula () and Vidal‐Meliá and Boado‐Penas () and is used by Vidal‐Meliá ().…”

Section: Methodsmentioning

confidence: 99%

An actuarial balance sheet of the Swiss old‐age pension scheme

Metzger

2018

Int Social Security Review

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Following the recent update of the international System of National Accounts (2008 SNA), internationally comparable estimates of accrued‐to‐date pension liabilities (ADL) of unfunded social security pension schemes will soon be available in the supplementary table to the National Accounts. Against this background, this article analyzes the medium‐term sustainability of the Swiss old‐age pension scheme (Alters‐ und Hinterlassenenversicherung – AHV). This is achieved by estimating a “Swedish” actuarial balance sheet, which compares pension liabilities with the explicit and implicit assets of the pension scheme. Our results show that the current financing of the AHV is unsustainable, with about 30 per cent of the liabilities not backed by corresponding assets. In order to close this financing gap either the contribution rate should rise from 8.4 per cent to 12 per cent or all pension liabilities should be cut by about 38 per cent.

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“…This line of research was continued by Vidal-Meliá [32], who in addition linked both types of actuarial balance. The paper by Vidal-Meliá and Boado-Penas [29] obtained the analytical properties of the CA and confirmed its soundness as a measurement for the assets of a PAYG scheme. However, all papers cited limit themselves to the retirement contingency.…”

Section: Introductionmentioning

confidence: 99%

“…This paper builds on previous work carried out in the field of actuarial balances [11,[20][21][22][23][24][25][26][27][28][29][30][31][32][33]. All of these have dealt with the Swedish-type ABS, which has been compiled for various countries including Sweden [10,24,27,28], Spain [24,31], Japan [21], Canada [6,30], New Zealand [25], Germany [33] and Switzerland [11].…”

Section: Introductionmentioning

confidence: 99%

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

2018

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This paper develops a social insurance accounting model for a notional defined contribution (NDC) scheme combining retirement and long-term care (LTC) contingencies. The procedure relies on standard double-entry bookkeeping and enables us to compile a "Swedish" type actuarial balance sheet (ABS) following a framework equivalent to an open group approach. This methodology is suitable for reporting the system's solvency status and can show periodical changes in the system's financial position by means of an income statement. The information underpinning the actuarial valuation is based on events and transactions that are verifiable at the valuation date, without considering expected future trends. The paper also contains an illustrative example to make it easier for policymakers to understand the main advantages and difficulties of our proposal. The policy conclusions stress the need to properly report social insurance benefits to enhance transparency and sustainability and to improve decision-making because it is in the public interest to do so.

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Compiling the actuarial balance for pay-as-you-go pension systems. Is it better to use the hidden asset or the contribution asset?

Cited by 28 publications

References 23 publications

Notional defined contribution pension schemes: why does only Sweden distribute the survivor dividend?

Notional defined contribution pension schemes: why does only Sweden distribute the survivor dividend?

An actuarial balance sheet of the Swiss old‐age pension scheme

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

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