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Does the pension system’s income statement really matter? A proposal for an NDC scheme with disability and minimum pension benefits

Anne M. Garvey, Manuel Ventura-Marco and Carlos Vidal-Melia ()
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Anne M. Garvey: Department of Economics and Management Sciences, University of Alcalá, Spain.
Manuel Ventura-Marco: Department of Financial Economics and Actuarial Science, University of Valencia, Spain.

No 2019-22, Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: This paper develops a full accounting model for monitoring the solvency of a notional defined contribution (NDC) pension scheme with disability and minimum pension benefits. Using the annual report of the Swedish pension system as a benchmark (TSPS, 2018), we extend the “Swedish” actuarial balance developed by Pérez-Salamero et al. (2017) by adding an income statement which fully explains the reasons behind the changes in the system’s solvency by type of benefit. In line with the reference model, assets and liabilities are measured at present value at each reporting date, and changes in present value are reported in each period as income or expenses and are included on the income statement. Our proposed model is a step forward because it, also, incorporates the changes for disability pensions, the value of change in the discount rate and the explicit recognition of non-contributory rights (NCRs) into the Income statement. This accounting framework integrates both contributory and social aspects of public pensions and discloses the real cost of the disability contingency and the redistribution through minimum pensions. The paper contains a numerical example consisting of an income statement for a (fictional) already-functioning system to illustrate the main differences between the Swedish NDC scheme and our model. Mathematical details are presented in a comprehensive technical appendix.

Keywords: Disability Insurance; Fair Presentation; Minimum Pensions; Notional Defined Contribution; Pay-as-you-go; Pension Accounting; Retirement; Sweden; True and Fair view. (search for similar items in EconPapers)
JEL-codes: G22 H55 H83 J26 M48 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2019-07
New Economics Papers: this item is included in nep-acc and nep-age
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