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The sustainability of pension schemes

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  • Srichander Ramaswamy

Abstract

Poor financial market returns and low long-term real interest rates in recent years have created challenges for the sponsors of defined benefit pension schemes. At the same time, lower payroll tax revenues in a period of high unemployment, and rising fiscal deficits in many advanced economies as economic activity has fallen, are also testing the sustainability of pay-as-you-go public pension schemes. Amendments to pension accounting rules that require corporations to regularly report the valuation differences between their defined benefit pension assets and plan liabilities on their balance sheet have made investors more aware of the pension risk exposure for the sponsors of such schemes. This paper sheds light on what effects these developments are having on the design of occupational pension schemes, and also provides some estimates for the post-employment benefits that could be delivered by these schemes under different sets of assumptions. The paper concludes by providing some policy perspectives.

Suggested Citation

  • Srichander Ramaswamy, 2012. "The sustainability of pension schemes," BIS Working Papers 368, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:368
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    References listed on IDEAS

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    1. Philip Turner, 2011. "Is the long-term interest rate a policy victim, a policy variable or a policy lodestar?," BIS Working Papers 367, Bank for International Settlements.
    2. Kevin Dowd & David Blake & Andrew Cairns, 2011. "A Computationally Efficient Algorithm for Estimating the Distribution of Future Annuity Values Under Interest-Rate and Longevity Risks," North American Actuarial Journal, Taylor & Francis Journals, vol. 15(2), pages 237-247.
    3. Dushi, Irena & Friedberg, Leora & Webb, Tony, 2010. "The impact of aggregate mortality risk on defined benefit pension plans," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(4), pages 481-503, October.
    4. William Poole, 2005. "Demographic challenges to state pension systems around the world," Speech 8, Federal Reserve Bank of St. Louis.
    5. Friedberg, Leora, 2011. "Labor market aspects of state and local retirement plans: a review of evidence and a blueprint for future research," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(2), pages 337-361, April.
    6. Jeffrey R. Brown & Robert L. Clark, 2011. "The Economics of State and Local Pensions," NBER Books, National Bureau of Economic Research, Inc, number brow11-1.
    7. Peter A. Diamond, 1999. "What Stock Market Returns To Expect For The Future?," Issues in Brief ib-2, Center for Retirement Research.
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    Citations

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    Cited by:

    1. Maria Teresa Medeiros Garcia & André Fernando Rodrigues Rocha da Silva, 2023. "Pension expenditure determinants: the case of Portugal," Public Sector Economics, Institute of Public Finance, vol. 47(2), pages 177-203.
    2. Philip Turner, 2011. "Is the long-term interest rate a policy victim, a policy variable or a policy lodestar?," BIS Working Papers 367, Bank for International Settlements.
    3. Sheila Rose Darmaraj & Suresh Narayanan, 2019. "The Long-Term Financial Sustainability of the Civil Service Pension Scheme in Malaysia," Asian Economic Papers, MIT Press, vol. 18(1), pages 155-178, Winter/Sp.
    4. Claudio Borio, 2014. "The financial cycle and macroeconomics: what have we learned and what are the policy implications?," Chapters, in: Ewald Nowotny & Doris Ritzberger-Grünwald & Peter Backé (ed.), Financial Cycles and the Real Economy, chapter 2, pages 10-35, Edward Elgar Publishing.
    5. Maria Teresa Medeiros Garcia & André Fernando Rodrigues Rocha da Silva, 2019. "Assessing Pension Expenditure Determinants – the Case of Portugal," Working Papers REM 2019/68, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    6. Borio, Claudio, 2014. "The financial cycle and macroeconomics: What have we learnt?," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 182-198.
    7. Catherine Donnelly, 2017. "A Discussion of a Risk-Sharing Pension Plan," Risks, MDPI, vol. 5(1), pages 1-20, February.
    8. Catherine Equey Balzli, 2021. "A Digital Individual Benefit Statement to Mitigate the Risk of Poverty in Retirement: The Case of Switzerland," Risks, MDPI, vol. 9(6), pages 1-14, June.

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    More about this item

    Keywords

    funds; service cost; contribution rates; mortality rates; long-term real interest rates; real wages; sovereign liabilities; pay-as-you-go schemes;
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