Assessing Vertical Equity in Defined Benefit Pension Plans: An Application to Switzerland

Tanja Kirn () and Gijs Dekkers
Additional contact information
Tanja Kirn: Center of Economics, University of Liechtenstein, 9490 Vaduz, Liechtenstein
Gijs Dekkers: Federal Planning Bureau Brussels, 1040 Brussel, Belgium

Risks, 2025, vol. 13, issue 5, 1-32

Abstract: This paper establishes a theoretical link between actuarial neutrality and the Oaxaca–Blinder decomposition to empirically assess vertical equity in public defined-benefit schemes. We demonstrate how this approach can be generalized to non-linear functions, point systems, and notional accounts. We use an aligned dynamic microsimulation model to apply this method to the first pillar of the Swiss pension system and highlight the following three key effects: (1) the impact of the accrual rate on vertical equity; (2) the assessment of actuarial neutrality through the comparison of migrants with the non-migrant population; and (3) vertical equity across marital statuses. Our findings indicate that changing societal trends, such as increased migration, female labor participation, and the rise in non-marital unions, may alter the extent of vertical equity. This has significant implications for actuarial risk management, as a higher degree of vertical equity is associated with increased pension expenses, thereby raising the financial sustainability risk of the pension system. Future research should explore these dynamics to ensure that pension systems remain both equitable and financially sustainable in the face of evolving societal trends.

Keywords: DB pension system; actuarial neutrality; vertical equity; quantile decomposition; RIF regressions methods (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2227-9091/13/5/89/pdf (application/pdf)
https://www.mdpi.com/2227-9091/13/5/89/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:13:y:2025:i:5:p:89-:d:1651335

Access Statistics for this article

Risks is currently edited by Mr. Claude Zhang

More articles in Risks from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().