Notional defined contribution pension schemes: why does only Sweden distribute the survivor dividend?

Abstract

The aim of this paper is to analyse the role of the survivor dividend in notional defined contribution (NDC) pension schemes. At present, this feature can only be found in the Swedish defined contribution scheme. We develop a model that endorses the idea that the survivor dividend has a strong basis for enabling the NDC scheme to achieve financial equilibrium and that not including the dividend is a non-transparent way of compensating for increases in longevity and/or legacy costs from old pension systems. We also find that the average effect of the dividend remains unchanged for any constant annual rate of population growth, that contributors who reach retirement age always get a higher return than the scheme does, and that population growth enables cohorts with more years of contributions to benefit to a greater extent from the dividend effect.