NDC Schemes and Heterogeneity in Longevity: Proposals for Redesign

Robert Holzmann, Jennifer Alonso-García, Heloise Labit-Hardy and Andrés M. Villegas

No 136564, Social Protection Discussion Papers and Notes from The World Bank

Abstract: A positive relationship between lifetime income and life expectancy leads to a redistribution mechanism when the average cohort life expectancy is applied for annuity calculation. Such a distortion puts into doubt the main features of the NDC (nonfinancial defined contribution) scheme and calls for alternative designs to compensate for the heterogeneity. This paper explores five key mechanisms of compensation: individualized annuities; individualized contribution rates; a two-tier contribution structure with socialized and individual rates; and two supplementary two-tier approaches to deal with the income distribution tails. Using unique American and British data, the analysis indicates that both individualized annuities and two-tier contribution schemes are feasible and effective and thus promising policy options. A de-pooling by gender will be required, however.

Keywords: Gender and Development; Pensions&Retirement Systems; Law and Justice Institutions; Population&Development (search for similar items in EconPapers)
Date: 2019-04-01
New Economics Papers: this item is included in nep-age and nep-dem
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Citations: View citations in EconPapers (9)

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Related works:
Working Paper: NDC schemes and heterogeneity in longevity: proposals for redesign (2020)
Working Paper: NDC Schemes and Heterogeneity in Longevity: Proposals for Redesign (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:hdnspu:136564

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