A 'Swedish' Actuarial Balance Sheet for a Notional Defined Contribution Pension Scheme with Disability and Retirement Benefits

Abstract

This paper proposes a “Swedish” type actuarial balance sheet for a notional defined contribution scheme embedding disability insurance within the retirement pension system. The underlying framework supporting the actuarial balance relies on a multistate overlapping generations model that includes the so-called survivor dividend and a minimum pension benefit for both contingencies. The proposed ABS splits the system into two parts: the actuarial part (pure NDC) and the redistributive part, which includes the assets and liabilities originating from non-contributory rights. The paper also contains a numerical example that sheds light on the real applicability of our proposal and confirms that the model works reasonably well. The results obtained make sense and provide us with some useful values regarding the impact of introducing a minimum pension on the system's financial equilibrium. The model has practical implications that could be of interest to policy makers, given that it integrates actuarial and social aspects of public pensions and discloses the real cost of redistribution through minimum pensions.