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Actuarial Fairness When Longevity Increases: An Evaluation of the Italian Pension System

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Author Info

  • Michele Belloni

    ()
    (Department of Economics, University Ca’ Foscari of Venice, San Giobbe 873, Venice 30121, Italy.)

  • Carlo Maccheroni

    (Department of Statistics and Mathematics, University of Turin, Turin, Italy)

Abstract

This study analyses the actuarial characteristics of the Italian pension system throughout its transition from defined benefit (DB) to notional defined contribution (NDC) rules, taking into account expected increasing longevity. Computations rely on ad hoc projected cohort mortality tables based on a limit survival scenario depicted by demographic experts. Most workers retiring in the coming years, whose pension is partly computed according to DB rules, will receive more-than-actuarially fair pensions. However, the generosity of the pension system has been significantly reduced for them by a recent reform that tightened early retirement eligibility requirements. Disability benefits remain (extremely) generous when claimed before age (57) 60. Steady-state NDC pensions, due to dynamic efficiency, are less than actuarially fair. They further deviate from actuarial fairness due to the specific rules, based on historical mortality, adopted by the Italian law for computing and updating benefits while facing increasing longevity. Cohort mortality projections should be used to handle longevity changes in NDC schemes.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance Issues and Practice.

Volume (Year): 38 (2013)
Issue (Month): 4 (October)
Pages: 638-674

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Handle: RePEc:pal:gpprii:v:38:y:2013:i:4:p:638-674

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Cited by:
  1. Michele Belloni & Rob Alessie & Adriaan Kalwij & Chiara Marinacci, 2012. "Lifetime income and old age mortality risk in Italy over two decades," CeRP Working Papers 129, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  2. Roberto Leombruni & Michele Mosca, 2011. "The lifetime gender gap in Italy. Do the pension system countervails labour market outcomes?," LABORatorio R. Revelli Working Papers Series 113, LABORatorio R. Revelli, Centre for Employment Studies.

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