Carlos Vidal-Meliá » Work in Progress

Monitoring the solvency of a notional defined contribution pension scheme with disability and minimum pension benefits.

Anne Garvey , Manuel Ventura-Marco and Carlos Vidal-Meliá

ABSTRACT:  This paper develops a full accounting model for monitoring the solvency of a notional defined contribution (NDC) pension scheme with disability and minimum pension benefits. Using the annual report of the Swedish pension system as a benchmark (TSPS, 2018), we extend the “Swedish” actuarial balance developed by Pérez-Salamero et al. (2017) by adding an income statement which fully explains the reasons behind the changes in the system’s solvency by type of benefit. In line with the reference model, assets and liabilities are measured at present value at each reporting date, and changes in present value are reported in each period as income or expenses and are included on the income statement. The paper contains a numerical example consisting of an income statement for an already-functioning system to illustrate the main differences between the Swedish NDC scheme and our model. Mathematical details are presented in a comprehensive technical appendix. 

JEL: G22, H55, H83, J26, M48

KEYWORDS: Disability Insurance, Minimum Pensions, Notional Defined Contribution, Pay-as-you-go, Pension Accounting, Retirement, Sweden.