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LTC of a Defined Benefit Employee Pension Scheme

In: Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author

Listed:
  • J. Iñaki De La Peña

    (University of the Basque Country, Faculty of Economics and Business
    Consolidated Research Group EJ/GV: IT 897-16
    Polibienestar Research Institute)

  • M. Cristina Fernández-Ramos

    (Junta de Castilla y León - School of Education)

  • Asier Garayeta

    (University of the Basque Country, Faculty of Economics and Business
    Consolidated Research Group EJ/GV: IT 897-16)

  • Iratxe D. Martín

    (University of the Basque Country, Faculty of Economics and Business)

Abstract

Private pension schemes focus on retirement savings. Perceptions of health status change over time and, as retirement age approaches, concerns about Long-Term Care grow. However, once near retirement age, there isn’t enough time to plan sufficiently in advance. This paper proposes a mechanism to transform the private pension of a Defined Benefit scheme (retirement, invalidity) into an allowance. In turn, should the need arise on becoming dependant, this allowance will pay for any Long-Term Care services the beneficiary might require. Depending on the pensioner’s situation, both the expected number of payments and their intensity are transformed. For this purpose, a mechanism is defined, through a multiple state Markov model, to adapt the amount of the pension to the revised life expectancy of the beneficiary. The revised life expectancy would be derived from his/her new health status. The main contribution of this work is to establish a private Defined Benefit pension scheme model capable of transforming its benefits, adding Long-Term Care support, without increasing the total pension cost to the scheme.

Suggested Citation

  • J. Iñaki De La Peña & M. Cristina Fernández-Ramos & Asier Garayeta & Iratxe D. Martín, 2022. "LTC of a Defined Benefit Employee Pension Scheme," Springer Books, in: Marco Corazza & Cira Perna & Claudio Pizzi & Marilena Sibillo (ed.), Mathematical and Statistical Methods for Actuarial Sciences and Finance, pages 188-194, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-99638-3_31
    DOI: 10.1007/978-3-030-99638-3_31
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