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

Abstract

This paper develops an 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, the "Swedish" actuarial balance is extended by adding an income statement fully explaining 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 in each period, included as income or expenses on 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. Apart from Sweden, this proposal could be especially interesting for improving the reporting of public pensions in countries such as Poland, Italy, Latvia and Norway.

Indicators for Measuring Intergenerational Fairness of Social Security Systems—The Case of the German Social Health Insurance

“…In contrast to the cited examples, which assess the liabilities of a pension scheme using the so-called "retrospective method", our application of the SM concept assesses the liabilities of the German SHI by computing the present value of future benefits and contribution payments, which Vidal-Meliá and Boado-Penas [30] call the "the prospective method". However, as pointed out by Ventura and Vidal-Meliá [31] and others [10,11,32], by taking the contribution asset into account, the Settergren and Mikula [6] approach is basically equivalent to an open group approach.…”

From ‘Table 29’ to the Actuarial Balance Sheet: Is It Really That Big a Leap?

“…The SOG is based on the CG method but modified to make it equivalent to OG. It can be considered "open group" in any particular year because, in order to value the system's assets and liabilities, it takes new entrants into account and assumes that there will be contributions to meet liabilities, although the valuation formulas consider pensioners and contributors only at the valuation date (Ventura and Vidal-Meliá, 2014;Vidal-Meliá et al, 2018;Metzger, 2019;Garvey et al, 2020).…”

“…An ABS for a fictional already-functioning SS scheme can be compiled as shown in Table 3 and is suitable for a wide variety of schemes (Boado-Penas et al, 2008;Billig and Menard, 2013;Ventura-Marco and Vidal-Meliá, 2014;Vidal-Meliá, 2014;Metzger, 2018;Vidal-Meliá et al, 2018;Metzger, 2019;Garvey et al, 2020).…”

“…The value of the change in the TD is a combined effect from a variety of causes. This amount synthesizes into a single number a great deal of information about the system's rules, the age distribution of the population, the age patterns of the labour supply and earnings, mortality (changes in life expectancy) and disability rates (changes in biometric assumptions) Vidal et al, 2018;Garvey et al, 2020).…”

“…It is not only potentially misleading but may encourage "accounting arbitrage", whereby countries are motivated to structure their systems in certain ways so as to reduce the value given for their pension liabilities. In short, it can be said that the ADL captures only one side of a pension scheme's balance sheet but is nevertheless the most valuable instrument for reporting the system's financial status from an SS administration's point of view (Vidal-Meliá et al, 2018, Garvey et al, 2020TSPS, 2020).…”