NDC schemes and heterogeneity in longevity: proposals for redesign

Author(s)
Holzmann, Robert
Alonso-Garcia, Jennifer
Labit-Hardy, Heloise
Villegas, Andres M.
Date Issued
July 27, 2019
Subjects
Invecchiamento della popolazione
Analisi delle politiche
Pensioni
Riforma pensionistica
Abstract
A positive relationship between lifetime income and life expectancy leads to a redistribution mechanism when the average cohort life expectancy is applied for annuity calculation. Such a distortion puts into doubt the main features of the NDC (nonfinancial defined contribution) scheme and calls for alternative designs to compensate for the heterogeneity. This paper explores five key mechanisms of compensation: individualized annuities; individualized contribution rates; a two-tier contribution structure with socialized and individual rates; and two supplementary two-tier approaches to deal with the income distribution tails. Using unique American and British data, the analysis indicates that both individualized annuities and two-tier contribution schemes are feasible and effective and thus promising policy options. A de-pooling by gender will be required, however.
Citation
Holzmann R., Alonso-García J., Labit-Hardy H., Villegas A. M., NDC schemes and heterogeneity in longevity: proposals for redesign (2019), Roma, INAPP, WP, n. 24 <https://oa.inapp.org/xmlui/handle/20.500.12916/461>
URI
Type
Working Paper
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