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Integrating retirement and permanent disability in NDC pension schemes

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  • Manuel Ventura-Marco
  • Carlos Vidal-Meliá

Abstract

In this article, we develop a theoretical basis for integrating retirement and permanent disability using a generic nonfinancial defined contribution framework. The methodology we use relies on a multistate overlapping generations model that includes the so-called survivor dividend. Currently, this feature can only be found in the Swedish defined contribution (DC) scheme. The results achieved in the numerical example we present endorse the fact that the model works well. Special attention is given to the assumptions made about mortality rates for disabled people and disability incidence rates, which largely determine the contribution rate assigned to disability. The model could be of interest to policymakers because, after some adaptations, it could be implemented without too much difficulty and would uncover the real cost of disability and minimize the risk of disability insurance being used as a vote-buying mechanism.

Suggested Citation

  • Manuel Ventura-Marco & Carlos Vidal-Meliá, 2016. "Integrating retirement and permanent disability in NDC pension schemes," Applied Economics, Taylor & Francis Journals, vol. 48(12), pages 1081-1102, March.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:12:p:1081-1102
    DOI: 10.1080/00036846.2015.1093084
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    References listed on IDEAS

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    1. Radha Iyengar & Giovanni Mastrobuoni, 2014. "The political economy of the disability insurance: theory and evidence of gubernatorial learning," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-31, December.
    2. Patrick Wiese, 2006. "Financing Disability Benefits In A System Of Individual Accounts: Lessons From International Experience," Working Papers, Center for Retirement Research at Boston College wp2006-4, Center for Retirement Research.
    3. Tobias Laun & Johanna Wallenius, 2016. "Social Insurance and Retirement: A Cross-Country Perspective," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 22, pages 72-92, October.
    4. C Radha Iyengar & Giovanni Mastrobuoni, 2007. "The Political Economy of the Disability Insurance. Theory and Evidence of Gubernatorial Learning from Social Security Administration Monitoring," CeRP Working Papers 70, Center for Research on Pensions and Welfare Policies, Turin (Italy).
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    Cited by:

    1. Carlos Vidal-Meliá & Manuel Ventura-Marco & Juan Manuel Pérez-Salamero González, 2018. "Social Insurance Accounting for a Notional Defined Contribution Scheme Combining Retirement and Long-Term Care Benefits," Sustainability, MDPI, vol. 10(8), pages 1-36, August.
    2. Carlos Vidal-Meliá & Manuel Ventura-Marco & Juan Manuel Pérez-Salamero González, 2018. "Actuarial accounting for a notional defined contribution scheme combining retirement and longterm care benefits," Documentos de Trabajo del ICAE 2018-16, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    3. Hind El-Houjjaji & Abdellah Echaoui, 2020. "Notional Defined Contribution Accounts: An Application To Morocco," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 25, pages 93-108, June.
    4. Anne M. Garvey & Manuel Ventura-Marco & Carlos Vidal-Meliá, 2021. "Does the pension system’s income statement really matter? A proposal for an NDC scheme with disability and minimum pension benefits," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 34(1), pages 292-310, January.
    5. Martin Eling & Omid Ghavibazoo, 2019. "Research on long-term care insurance: status quo and directions for future research," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(2), pages 303-356, April.
    6. Alonso-García, J. & Devolder, P., 2016. "Optimal mix between pay-as-you-go and funding for DC pension schemes in an overlapping generations model," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 224-236.

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