Manuel Ventura-Marco

An Actuarial Balance Sheet Model for Defined Benefit Pay-As-You-Go Pension Systems with Disability and Retirement Contingencies

In this paper, we develop a theoretical basis for drawing up a “Swedish†type actuarial balance sheet for a defined benefit pay-as-you-go (DB PAYG) scheme with retirement and disability benefits. Our model enables us to obtain the systems expected average turnover duration, measure the schemes solvency and explore the phenomenon identified as “pension reclassification†, a widespread practice that masks the systems real status unless further pension information becomes available. The model is clearly linked to actuarial practice in social security and gives partial support to the practical adaptation of Swedish methodology carried out by OSFI (2012) in applying the concept of the contribution asset to the Canadian Pension Plan (CPP) balance sheet, which includes disability and survivor benefits.

Integrating Retirement and Permanent Disability in NDC Pension Schemes

In this article, we develop a theoretical basis for integrating retirement and permanent disability using a generic nonfinancial defined contribution framework. The methodology we use relies on a multistate overlapping generations model that includes the so-called survivor dividend. Currently, this feature can only be found in the Swedish defined contribution (DC) scheme. The results achieved in the numerical example we present endorse the fact that the model works well. Special attention is given to the assumptions made about mortality rates for disabled people and disability incidence rates, which largely determine the contribution rate assigned to disability. The model could be of interest to policymakers because, after some adaptations, it could be implemented without too much difficulty and would uncover the real cost of disability and minimize the risk of disability insurance being used as a vote-buying mechanism.

Converting retirement benefit into a life care annuity with graded benefits

Abstract This paper deals with life care annuities, i.e. bundled products comprising a life annuity and long-term care insurance. It aims to assess the cost of converting retirement benefit into a life care annuity with graded benefits using a pre-existing public pay-as-you-go pension scheme. With this objective in mind, we present an actuarial method based on array calculus for valuing this type of life care annuity. The health dynamics of the annuitant rely on a reversible illness-death multistate framework. The paper contains a numerical example in which mortality and disability assumptions are based on data from the USA and Australia, although this should be viewed simply as an illustration. In addition, in order to check the coherence of these data, we compute life expectancy for both healthy and dependent persons, and then for dependent persons in each of the states of dependence. The effect of ruling out the recovery assumption on the annuity’s cost is also assessed. The analysis provides valuable insights into how much it would cost to introduce these annuities and enables us to make some policy recommendations to help ensure that this combined pension scheme has a good actuarial design.

How do unisex life care annuities embedded in a pay-as-you-go retirement system affect gender redistribution?

This paper deals with the idea of converting retirement benefit into a life care annuity with graded benefits using a pre-existing public pay-as-you-go pension scheme. Based on accurate biometric data from Australia and the US, the paper shows that using gender-neutral annuity factors to compute the initial benefit involves a large increase in ex-ante gender redistribution compared to a system without long-term coverage. In spite of the very different biometric data, the results are surprisingly similar for both countries. To disentangle the hidden redistribution, a methodology based on conversion (actuarial) factors is used. The value of the actuarial factor relies on a multistate framework in which transitions are modeled from the initial health state to the absorbing state. We also look at what might happen if an annuitant’s initial heath state is not able when they become a beneficiary.

Converting Retirement Benefit into a Life Care Annuity with Graded Benefits: How Costly Would it Actually Be?

This paper deals with life care annuities, i.e. bundled products comprising a life annuity and long-term care insurance. It aims to assess the cost of converting retirement benefit into a life care annuity with graded benefits using a pre-existing public pay-as-you-go pension scheme. With this objective in mind, we present an actuarial method based on array calculus for valuing this type of life care annuity. The health dynamics of the annuitant rely on a reversible illness-death multistate framework. The paper contains a numerical example in which mortality and disability assumptions are based on data from the USA and Australia, although this should be viewed simply as an illustration. In addition, in order to check the coherence of these data, we compute life expectancy for both healthy and dependent persons, and then for dependent persons in each of the states of dependence. The effect of ruling out the recovery assumption on the annuitys cost is also assessed. The analysis provides valuable insights into how much it would cost to introduce these annuities and enables us to make some policy recommendations to help ensure that this combined pension scheme has a good actuarial design. If the data used were the real data, it would be no exaggeration to say that embedding long-term care coverage into the retirement system in the USA might not be very costly, whereas for Australia the opposite would be true.