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The survivor dividend as a tool to improve pension adequacy in nonfinancial defined contribution schemes

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  • Séverine Arnold (-Gaille)
  • M. Carmen Boado-Penas
  • Zuochen Song

Abstract

The mechanisms of non-financial defined contribution pension schemes (NDCs) are close to those of a fully funded defined contribution plan but under a pay-as-you-go framework. Of particular interest is how the accumulated capital of a deceased person is used, when the death occurs prior to retirement. At the moment, Sweden is the only NDC country that distributes this capital, called survivor dividend (SD). Without a distribution of the SD, the scheme would accumulate a reserve with no clear purpose. This paper aims to analyse to what extent the SD kept by most NDCs can be used to improve pension adequacy giving low-income pensioners the financial support they need. We develop theoretical models to achieve the financial equilibrium of the scheme depending on how the SD is distributed among all socio-economic groups and the use of different mortality tables (unisex versus group-specific). Our results indicate that the survivor dividend can be used to set up a minimum pension that benefit 66.54 $ \% $ % of the pensioners increasing the average annual pension by 8.68%.

Suggested Citation

  • Séverine Arnold (-Gaille) & M. Carmen Boado-Penas & Zuochen Song, 2025. "The survivor dividend as a tool to improve pension adequacy in nonfinancial defined contribution schemes," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2025(4), pages 433-455, April.
    • Handle: RePEc:taf:sactxx:v:2025:y:2025:i:4:p:433-455
    DOI: 10.1080/03461238.2024.2430551
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