IDEAS home Printed from https://ideas.repec.org/p/saq/wpaper/2-10.html
   My bibliography  Save this paper

Backward-looking and forward-looking notional-defined-contribution pension schemes

Author

Listed:
  • Sandro Gronchi

    (Department of Economic Theory - Sapienza University of Rome (Italy))

  • Fulvio Gismondi

    (Mathematics for Economics at Guglielmo Marconi University of Rome (Italy))

Abstract

In order to spread notional capital accrued at retirement by members of a cohort over life expectancy, pay-as-you-go notional-defined-contribution (payg-ndc) scheme uses multipliers (different by retirement age) called conversion coefficients. These are backward-looking (b.l.) in that they relay on survival rates observed for previous cohorts in the past. Under increasing longevity, b.l. coefficients undervalue life expectancy, thus preventing full implementation of actuarial fairness (benefits equivalent to contributions)which is the main objective of ndc scheme. They also engender chronic deficits. Forward-looking (f.l.) coefficients, relaying on survival rates forecast for the cohort whom coefficients themselves are assigned to, can improve actuarial fairness. Nevertheless, they face a rather serious political difficulty in that forecasting tools are fallible. This explains why switching to f.l. coefficients is unable to gain social consensus. Abstracting from this, the paper shows that forward-looking coefficients produce ‘overshooting’. In fact, they generate chronic surpluses. The paper also shows that frontloading pension profile helps sustainability because it reduces both surpluses and deficits generated, respectively, by f.l. and b.l. approaches

Suggested Citation

  • Sandro Gronchi & Fulvio Gismondi, 2010. "Backward-looking and forward-looking notional-defined-contribution pension schemes," Working Papers 2/10, Sapienza University of Rome, DISS.
    • Handle: RePEc:saq:wpaper:2/10
    as

    Download full text from publisher

    File URL: http://www.diss.uniroma1.it/sites/default/files/allegati/wp-02-10-Gronchi_WPDTE_WPcopertina_ok.pdf
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:saq:wpaper:2/10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Pierluigi Montalbano (email available below). General contact details of provider: https://edirc.repec.org/data/dtrosit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.