Abstract
In this paper, we propose a semi-Markov chain to model the salary levels of participants ina pension scheme. The aim of the models is to understand the evolution in time of the salary of activeworkers in order to implement it in the construction of the actuarial technical balance sheet. It isworth mentioning that the level of the contributions in a pension scheme is directly proportional tothe incomes of the active workers; in almost all cases, it is a percentage of the worker’s incomes. As aconsequence, an adequate modeling of the salary evolution is essential for the determination of thecontributions paid to the fund and thus for the determination of the fund’s sustainability, especiallycurrently, when all jobs and salaries are subject to changes due to digitalization, ICT, innovation, etc.The model is applied to a large dataset of a real compulsory Italian pension scheme of the first pillar.The semi-Markovian hypothesis is tested, and the advantages with respect to Markov chain modelsare assessed.
Highlights
Pension funds are acquiring even more importance in the management of pension contributions of participants in a pension scheme
It is necessary to use a realistic model of the salary levels of participants in the pension scheme, which in turn allows a correct representation of contributions that are proportional to the incomes
Salary levels change over time due to the innovation of society, especially if we consider those jobs that are subject to digitalization, ICT, big data application, etc
Summary
Pension funds are acquiring even more importance in the management of pension contributions of participants in a pension scheme. Fund managers need to assure safety of the fund, establishing equilibrium conditions on in-flows and out-flows of the fund. To achieve this result, it is necessary to use a realistic model of the salary levels of participants in the pension scheme, which in turn allows a correct representation of contributions that are proportional to the incomes. Accurate modeling of the pension scheme is very important, and too simplistic frameworks may represent a real risk for the pension fund (see, e.g., Slipsager 2018) as well as incorrect investment strategies (see, e.g., Wang et al 2018)
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