LTC of a Defined Benefit Employee Pension Scheme

J. Iñaki De La Peña (), M. Cristina Fernández-Ramos, Asier Garayeta and Iratxe D. Martín
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J. Iñaki De La Peña: University of the Basque Country, Faculty of Economics and Business
M. Cristina Fernández-Ramos: Junta de Castilla y León - School of Education
Asier Garayeta: University of the Basque Country, Faculty of Economics and Business
Iratxe D. Martín: University of the Basque Country, Faculty of Economics and Business

A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2022, pp 188-194 from Springer

Abstract: 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.

Keywords: Ageing; Dependence; Long-Term Care; Private pension (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-99638-3_31

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DOI: 10.1007/978-3-030-99638-3_31

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