Abstract

The mechanisms of non-financial defined contribution pension schemes (NDCs) are close to those of a fully funded defined contribution plan but under a pay-as-you-go framework. Of particular interest is how the accumulated capital of a deceased person is used, when the death occurs prior to retirement. Sweden is currently the only NDC country that distributes this capital, called survivor dividend (SD). Without distributing the SD, the scheme accumulates a reserve with no clear purpose. This paper aims to analyse to what extent the SD kept by most NDCs can be used to improve pension adequacy, and thus give low-income pensioners the financial support they need. We develop some theoretical models that allow to achieve the financial equilibrium of the scheme, which depends on how the SD is distributed among all socio-economic groups and which mortality tables are used (unisex versus group-specific). Our results indicate that the survivor dividend can be used to set up a minimum pension that benefits 66% of the pensioners and increases the average annual pension by 8.68%.

Speaker

Séverine Arnold (University of Lausanne)