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Actuarial Fairness When Longevity Increases: An Evaluation of the Italian Pension System

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  • Michele Belloni

    (Department of Economics, University Ca’ Foscari of Venice, San Giobbe 873, Venice 30121, Italy.)

  • Carlo Maccheroni

    (Department of Statistics and Mathematics, University of Turin, Turin, Italy)

Abstract

This study analyses the actuarial characteristics of the Italian pension system throughout its transition from defined benefit (DB) to notional defined contribution (NDC) rules, taking into account expected increasing longevity. Computations rely on ad hoc projected cohort mortality tables based on a limit survival scenario depicted by demographic experts. Most workers retiring in the coming years, whose pension is partly computed according to DB rules, will receive more-than-actuarially fair pensions. However, the generosity of the pension system has been significantly reduced for them by a recent reform that tightened early retirement eligibility requirements. Disability benefits remain (extremely) generous when claimed before age (57) 60. Steady-state NDC pensions, due to dynamic efficiency, are less than actuarially fair. They further deviate from actuarial fairness due to the specific rules, based on historical mortality, adopted by the Italian law for computing and updating benefits while facing increasing longevity. Cohort mortality projections should be used to handle longevity changes in NDC schemes.

Suggested Citation

  • Michele Belloni & Carlo Maccheroni, 2013. "Actuarial Fairness When Longevity Increases: An Evaluation of the Italian Pension System," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 38(4), pages 638-674, October.
    • Handle: RePEc:pal:gpprii:v:38:y:2013:i:4:p:638-674
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    Cited by:

    1. Culotta, Fabrizio & Alaimo, Leonardo Salvatore & Bravo, Jorge Miguel & di Bella, Enrico & Gandullia, Luca, 2022. "Total-employed longevity gap, pension fairness and public finance: Evidence from one of the oldest regions in EU," Socio-Economic Planning Sciences, Elsevier, vol. 82(PA).
    2. Frank W. Heiland & Na Yin, 2014. "Have We Finally Achieved Actuarial Fairness of Social Security Retirement Benefits and Will It Last?," Working Papers wp307, University of Michigan, Michigan Retirement Research Center.
    3. R. Melis & A. Trudda, 2014. "Mixed pension systems sustainability," Working Paper CRENoS 201413, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    4. Leombruni Roberto & Mosca Michele, 2013. "The lifetime gender gap in Italy. Does the pension system countervail labour market outcomes?," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201302, University of Turin.
    5. Fabrizio Culotta, 2021. "Life Expectancy Heterogeneity and Pension Fairness: An Italian North-South Divide," Risks, MDPI, vol. 9(3), pages 1-22, March.
    6. Antonio Abatemarco & Maria Russolillo, 2023. "The Dynamics of the Gender Gap at Retirement in Italy: Evidence from SHARE," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 9(2), pages 445-473, July.
    7. Keivan Diakite & Pierre Devolder, 2021. "Progressive Pension Formula and Life Expectancy Heterogeneity," Risks, MDPI, vol. 9(7), pages 1-19, July.
    8. Simonetti, Irene & Belloni, Michele & Farina, Elena & Zantomio, Francesca, 2022. "Labour market institutions and long term adjustments to health shocks: Evidence from Italian administrative records," Labour Economics, Elsevier, vol. 79(C).
    9. Lorenzo Fratoni & Susanna Levantesi & Massimiliano Menzietti, 2022. "Measuring Financial Sustainability and Social Adequacy of the Italian NDC Pension System under the COVID-19 Pandemic," Sustainability, MDPI, vol. 14(23), pages 1-23, December.
    10. Roberto Leombruni & Michele Mosca, 2011. "The lifetime gender gap in Italy. Do the pension system countervails labour market outcomes?," LABORatorio R. Revelli Working Papers Series 113, LABORatorio R. Revelli, Centre for Employment Studies.
    11. Dennis Fredriksen & Nils M Stølen, 2017. "Life Time Pension Benefits Relative to Life Time Contributions," International Journal of Microsimulation, International Microsimulation Association, vol. 10(2), pages 177-207.
    12. Alonso-García, J. & Devolder, P., 2016. "Optimal mix between pay-as-you-go and funding for DC pension schemes in an overlapping generations model," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 224-236.
    13. Michele Belloni & Rob Alessie & Adriaan Kalwij & Chiara Marinacci, 2013. "Lifetime income and old age mortality risk in Italy over two decades," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 29(45), pages 1261-1298.
    14. Anca-Stefania Jijiie & Jennifer Alonso Garcia & Séverine Arnold (-Gaille), 2019. "Mortality by socio-economic class and its impact on the retirement schemes: How to render the systems fairer?," ULB Institutional Repository 2013/300032, ULB -- Universite Libre de Bruxelles.

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