Notional defined contribution pension schemes (NDCS): Reviewing the “Old” and exploring the “New” - Delayed in 2019
The presentation will be in two parts:
- General characteristics of NDC pension schemes and the main tools that accompany them (using the example of Sweden). The Swedish public pension system has become a benchmark due to its ability to integrate actuarial analysis methodology into the field of public management. The instruments on which this methodology is based - the actuarial balance (AB), the automatic balance (stabilizing or adjustment) mechanism (ABM) and the individual information statement (IIS) - help to improve the system's equity, transparency, solvency and communication with contributors and pensioners. In this part I will concentrate mainly on explaining various general aspects of NDCs and the actuarial balance (AB) with some brief references to ABMs and IISs. The main message conveyed will be that these tools are not unrealistic theoretical concepts but a response to the growing social demand for transparency in the area of public finance management, the need to minimize the political risk faced by pay-as-you-go systems, the desire to set the pension system firmly on the road to long-term financial solvency, and the wish to increase contributors’ and pensioners’ confidence in the system in the sense that promises of pension payments will be respected.
- Innnovation in NDC pension schemes. In practice, these schemes mainly involve old-age pensions, but their application can be extended to other contingencies such as permanent disability and long-term care (LTC). In this part I will explore the idea of combining the retirement and LTC contingencies embedded in the public pension system and using cash-for-care (CFC) benefits to help pensioners to cope with the cost of LTC if they become dependent. The way LTC is treated in my proposal has several advantages. Briefly, it makes it easier to integrate both contingencies into an NDC framework, it raises awareness of LTC needs and, at least on paper, it is financially sound and sustainable over time. Furthermore, it does not raise the contribution rate for workers, it extends LTC coverage, it introduces redistribution in a very transparent manner and it allows the sponsor (the state) to more effectively take into account trends in disability, longevity and other sources of risk in “pricing” benefits. However, its direct application in practice would not be immediate.
Date and time:
Tuesday 18 September 2018, 16:00 - 18:00
co-organized by the National Bank of Belgium and the actuarial research groups of KU Leuven, UCL and ULB.
Carlos Vidal-Melia, Department of Financial Economics and Actuarial Science, University of Valencia
Auditorium of the National Bank of Belgium, rue Montagne aux Herbes potagères 61, Brussels