Annuities in (N)DC Pension Schemes: Design, Heterogeneity, and Estimation Issues

Abstract

This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

Intergenerational Actuarial Fairness When Longevity Increases: Amending the Retirement Age

“…For pension schemes, we now know that if the remaining lifetime at retirement age is underestimated by using period-based life expectancy estimates the scheme will be in deficit and the actuarial balance equation will not hold; i.e., the scheme will not be neutral among generations (Palmer and Zhao de Gosson de Varennes 2020). This means that if longevity changes over time -for instance if survival prospects at retirement continue to improve -the pension parameters (contribution rate, retirement age, accrual rate) must be updated to guarantee the scheme remains actuarially neutral across generations.…”

Automatic Indexation of the Pension Age to Life Expectancy: When Policy Design Matters

“…In the present context, this "incomplete" design strategy neglects addressing the strong empirical evidence of increasing socioeconomic heterogeneity in the development of retirement income in the most recent decades. This is a separate factor that-if allowed to remain unmitigated-increases the inequality of retirement income over time both within and between future generations (NASEM 2015;Ayuso et al 2017aAyuso et al , 2017bAuerbach et al 2017;Holzmann et al 2019Holzmann et al , 2020Palmer and de Gosson de Varennes 2020;Coppola et al 2019;Arnold and Jijiie 2020).…”