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Notional defined contribution (NDC) pension schemes and income patterns

Author

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  • Nisticò, Sergio
  • Bevilacqua, Mirko

Abstract

During the 1990s, some important European countries, particularly Italy and Sweden, have radically transformed their public pension system by adopting defined-contribution rules while retaining a pay-as-you-go financial architecture. This paper inquires into the theoretical properties of these Notional Defined Contribution pension schemes in order to identify the determinants of the replacement rates awarded to individuals with different income patterns. Three typical career patterns are taken into consideration, according to whether the individual wage growth is equal to, higher than, or lower than average wage growth. The impact of, and the possible remedies to, a possible discontinuity on the replacement rates is finally discussed by means of a sensitivity analysis of the replacement rates with respect to the career length (for a given retirement age), the retirement age, and the conventional rate of return credited on all individual accounts.

Suggested Citation

  • Nisticò, Sergio & Bevilacqua, Mirko, 2013. "Notional defined contribution (NDC) pension schemes and income patterns," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 7, pages 1-24.
  • Handle: RePEc:zbw:ifweej:201329
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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2013-29
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    File URL: https://www.econstor.eu/bitstream/10419/77857/1/751911690.pdf
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    References listed on IDEAS

    as
    1. Assar Lindbeck & Mats Persson, 2003. "The Gains from Pension Reform," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 74-112, March.
    2. Auerbach, Alan J. & Lee, Ronald, 2011. "Welfare and generational equity in sustainable unfunded pension systems," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 16-27, February.
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    Citations

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    Cited by:

    1. R. Melis & A. Trudda, 2014. "Mixed pension systems sustainability," Working Paper CRENoS 201413, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    2. Holzmann, Robert, 2017. "The ABCs of Nonfinancial Defined Contribution (NDC) Schemes," IZA Policy Papers 130, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    NDC; replacement rates; income patterns;

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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