IDEAS home Printed from https://ideas.repec.org/p/wbk/hdnspu/136564.html
   My bibliography  Save this paper

NDC Schemes and Heterogeneity in Longevity : Proposals for Redesign

Author

Listed:
  • Holzmann,Robert
  • Alonso-García,Jennifer
  • Labit-Hardy,Heloise
  • Villegas,Andrés M.

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.

Suggested Citation

  • Holzmann,Robert & Alonso-García,Jennifer & Labit-Hardy,Heloise & Villegas,Andrés M., 2019. "NDC Schemes and Heterogeneity in Longevity : Proposals for Redesign," Social Protection Discussion Papers and Notes 136564, The World Bank.
    • Handle: RePEc:wbk:hdnspu:136564
    as

    Download full text from publisher

    File URL: http://documents.worldbank.org/curated/en/551391556883357303/pdf/NDC-Schemes-and-Heterogeneity-in-Longevity-Proposals-for-Redesign.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ayuso, Mercedes & Bravo, Jorge M. & Holzmann, Robert, 2021. "Getting life expectancy estimates right for pension policy: period versus cohort approach," Journal of Pension Economics and Finance, Cambridge University Press, vol. 20(2), pages 212-231, April.
    2. Edward Whitehouse & Asghar Zaidi, 2008. "Socio-Economic Differences in Mortality: Implications for Pensions Policy," OECD Social, Employment and Migration Working Papers 71, OECD Publishing.
    3. Vicki Freedman & Linda Martin, 1999. "The role of education in explaining and forecasting trends in functional limitations among older Americans," Demography, Springer;Population Association of America (PAA), vol. 36(4), pages 461-473, November.
    4. Silles, Mary A., 2009. "The causal effect of education on health: Evidence from the United Kingdom," Economics of Education Review, Elsevier, vol. 28(1), pages 122-128, February.
    5. Courtney Coile & Kevin Milligan & David A. Wise, 2017. "Health Capacity to Work at Older Ages: Evidence from the United States," NBER Chapters, in: Social Security Programs and Retirement around the World: The Capacity to Work at Older Ages, pages 359-394, National Bureau of Economic Research, Inc.
    6. Tammy Schirle, 2008. "Why Have the Labor Force Participation Rates of Older Men Increased since the Mid-1990s?," Journal of Labor Economics, University of Chicago Press, vol. 26(4), pages 549-594, October.
    7. Adriana Lleras-Muney, 2005. "The Relationship Between Education and Adult Mortality in the United States," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(1), pages 189-221.
    8. David A. Wise, 2017. "Social Security Programs and Retirement around the World: The Capacity to Work at Older Ages," NBER Books, National Bureau of Economic Research, Inc, number wise-22.
    9. Victor R. Fuchs, 2018. "The New Demographic Transition: Most Gains in Life Expectancy Now Realized Late in Life," World Scientific Book Chapters, in: Health Economics and Policy Selected Writings by Victor Fuchs, chapter 32, pages 379-401, World Scientific Publishing Co. Pte. Ltd..
    10. Eileen M. Crimmins & Hiram Beltrán-Sánchez, 2010. "Mortality and Morbidity Trends: Is There Compression of Morbidity?," The Journals of Gerontology: Series B, The Gerontological Society of America, vol. 66(1), pages 75-86.
    11. Peter Scherer, 2002. "Age of Withdrawal from the Labour Force in OECD Countries," OECD Labour Market and Social Policy Occasional Papers 49, OECD Publishing.
    12. Madrigal, A. M. & Matthews, F. E. & Patel, D. D. & Gaches, A. T. & Baxter, S. D., 2011. "What Longevity Predictors Should Be Allowed for When Valuing Pension Scheme Liabilities?," British Actuarial Journal, Cambridge University Press, vol. 16(1), pages 1-38, March.
    13. Holzmann,Robert & Robalino,David A. & Winkler,Hernan Jorge, 2019. "NDC Schemes and the Labor Market : Issues and Options," Social Protection Discussion Papers and Notes 136565, The World Bank.
    14. Baxter, Steven, 2011. "What Longevity Predictors Should be Allowed for When Valuing Pension Scheme Liabilities? ‐ Abstract of the Discussion," British Actuarial Journal, Cambridge University Press, vol. 16(1), pages 39-62, March.
    15. Tsang, Eric W. K., 2014. "Old and New," Management and Organization Review, Cambridge University Press, vol. 10(03), pages 390-390, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. De Santis Gustavo, 2024. "Demography, Economy and Policy Choices: The Three Corners of the Pension Conundrum," Statistics, Politics and Policy, De Gruyter, vol. 15(2), pages 169-200.
    2. Bravo, Jorge M. & Ayuso, Mercedes & Holzmann, Robert & Palmer, Edward, 2021. "Addressing the life expectancy gap in pension policy," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 200-221.
    3. 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).
    4. Sanchez-Romero, Miguel & Lee, Ronald D. & Prskawetz, Alexia, 2020. "Redistributive effects of different pension systems when longevity varies by socioeconomic status," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    5. Ayuso, Mercedes & Bravo, Jorge M. & Holzmann, Robert, 2021. "Getting life expectancy estimates right for pension policy: period versus cohort approach," Journal of Pension Economics and Finance, Cambridge University Press, vol. 20(2), pages 212-231, April.
    6. Bernd Genser & Robert Holzmann, 2019. "National Pension Policy and Globalization: A New Approach to Strive for Efficient Portability and Equitable Taxation," Working Paper Series of the Department of Economics, University of Konstanz 2019-04, Department of Economics, University of Konstanz.
    7. Holzmann, Robert & Ayuso, Mercedes & Alaminos, Estefanía & Bravo, Jorge Miguel, 2019. "Life Cycle Saving and Dissaving Revisited across Three-Tiered Income Groups: Starting Hypotheses, Refinement through Literature Review, and Ideas for Empirical Testing," IZA Discussion Papers 12655, Institute of Labor Economics (IZA).
    8. Wang, Suxin & Lu, Yi, 2019. "Optimal investment strategies and risk-sharing arrangements for a hybrid pension plan," Insurance: Mathematics and Economics, Elsevier, vol. 89(C), pages 46-62.
    9. Eytan Sheshinski & Frank N. Caliendo, 2021. "Social Security and the increasing longevity gap," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(1), pages 29-52, February.
    10. Jesús-Adrián Álvarez & Malene Kallestrup-Lamb & Søren Kjærgaard, 2020. "Linking retirement age to life expectancy does not lessen the demographic implications of unequal lifespans," CREATES Research Papers 2020-17, Department of Economics and Business Economics, Aarhus University.
    11. Simonovits, András & Lackó, Mária, 2021. "A várható élettartam-jövedelem kapcsolat egyszerű ökonometriai becslése - újraelosztás a nyugdíjrendszerben [A simple estimate of the longevity gap and redistribution in the pension system]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1162-1170.
    12. Hieber, Peter & Lucas, Nathalie, 2020. "Life-Care Tontines," LIDAM Discussion Papers ISBA 2020026, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    13. Bravo, Jorge M. & Ayuso, Mercedes & Holzmann, Robert & Palmer, Edward, 2023. "Intergenerational actuarial fairness when longevity increases: Amending the retirement age," Insurance: Mathematics and Economics, Elsevier, vol. 113(C), pages 161-184.
    14. Fabrizio Culotta, 2021. "Life Expectancy Heterogeneity and Pension Fairness: An Italian North-South Divide," Risks, MDPI, vol. 9(3), pages 1-22, March.
    15. Mikkel Barslund, 2020. "Pension Systems in the EU — Some Policy Issues," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 55(2), pages 69-72, March.
    16. Milevsky, Moshe A., 2020. "Swimming with wealthy sharks: longevity, volatility and the value of risk pooling," Journal of Pension Economics and Finance, Cambridge University Press, vol. 19(2), pages 217-246, April.
    17. Alvarez, Jesús-Adrián & Kallestrup-Lamb, Malene & Kjærgaard, Søren, 2021. "Linking retirement age to life expectancy does not lessen the demographic implications of unequal lifespans," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 363-375.
    18. Keivan Diakite & Pierre Devolder, 2021. "Progressive Pension Formula and Life Expectancy Heterogeneity," Risks, MDPI, vol. 9(7), pages 1-19, July.
    19. Daniele Franco & Pietro Tommasino, 2020. "Lessons From Italy: A Good Pension System Needs an Effective Broader Social Policy Framework," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 55(2), pages 73-81, March.
    20. Alonso-García, Jennifer & Devolder, Pierre, 2019. "Continuous time model for notional defined contribution pension schemes: Liquidity and solvency," Insurance: Mathematics and Economics, Elsevier, vol. 88(C), pages 57-76.
    21. 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.
    22. Mercedes Ayuso & Jorge M. Bravo & Robert Holzmann & Edward Palmer, 2021. "Automatic Indexation of the Pension Age to Life Expectancy: When Policy Design Matters," Risks, MDPI, vol. 9(5), pages 1-28, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Courtney Coile, 2018. "Working Longer in the U.S.: Trends and Explanations," NBER Working Papers 24576, National Bureau of Economic Research, Inc.
    2. Courtney C. Coile, 2018. "Working Longer in the United States: Trends and Explanations," NBER Chapters, in: Social Security Programs and Retirement around the World: Working Longer, pages 299-324, National Bureau of Economic Research, Inc.
    3. Martin Fischer & Martin Karlsson & Therese Nilsson, 2013. "Effects of Compulsory Schooling on Mortality: Evidence from Sweden," IJERPH, MDPI, vol. 10(8), pages 1-23, August.
    4. Tansel, Aysit & Keskin, Halil Ibrahim, 2017. "Education Effects on Days Hospitalized and Days out of Work by Gender: Evidence from Turkey," IZA Discussion Papers 11210, Institute of Labor Economics (IZA).
    5. Albarrán, Pedro & Hidalgo-Hidalgo, Marisa & Iturbe-Ormaetxe, Iñigo, 2020. "Education and adult health: Is there a causal effect?," Social Science & Medicine, Elsevier, vol. 249(C).
    6. Pedro Albarran Pérez & Marisa Hidalgo Hidalgo & Iñigo Iturbe-Ormaetxe Kortajarene, 2017. "Schooling and adult health: Can education overcome bad early-life conditions?," Working Papers. Serie AD 2017-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    7. Raquel Fonseca Benito & Yuhui Zheng, 2011. "The Effect of Education on Health Cross-Country Evidence," Working Papers WR-864, RAND Corporation.
    8. Rahi Abouk & Keshar M. Ghimire & Johanna Catherine Maclean & David Powell, 2023. "Pain Management and Work Capacity: Evidence From Workers’ Compensation and Marijuana Legalization," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 42(3), pages 737-770, June.
    9. Patrick Button, 2017. "Seniors for Hire? Age Discrimination, "Sex-Plus-Age" Discrimination, and the Effectiveness of Age Discrimination Laws," Working Papers 1715, Tulane University, Department of Economics.
    10. Cuffe, H.E. & Harbaugh, W.T. & Lindo, J.M. & Musto, G. & Waddell, G.R., 2012. "Evidence on the efficacy of school-based incentives for healthy living," Economics of Education Review, Elsevier, vol. 31(6), pages 1028-1036.
    11. Katherine Eriksson, 2015. "Access to Schooling and the Black-White Incarceration Gap in the Early 20th Century US South: Evidence from Rosenwald Schools," NBER Working Papers 21727, National Bureau of Economic Research, Inc.
    12. Andrew Jones & Nigel Rice & Pedro Rosa Dias, 2012. "Quality of schooling and inequality of opportunity in health," Empirical Economics, Springer, vol. 42(2), pages 369-394, April.
    13. Tatjana Begerow & Hendrik Jürges, 2022. "Does compulsory schooling affect health? Evidence from ambulatory claims data," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 23(6), pages 953-968, August.
    14. Crespo, Laura & López-Noval, Borja & Mira, Pedro, 2014. "Compulsory schooling, education, depression and memory: New evidence from SHARELIFE," Economics of Education Review, Elsevier, vol. 43(C), pages 36-46.
    15. Maria Gheorghe & Susan Picavet & Monique Verschuren & Werner B. F. Brouwer & Pieter H. M. Baal, 2017. "Health losses at the end of life: a Bayesian mixed beta regression approach," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 180(3), pages 723-749, June.
    16. Lisa Laun & Mårten Palme, 2018. "The Recent Rise of Labor Force Participation of Older Workers in Sweden," NBER Chapters, in: Social Security Programs and Retirement around the World: Working Longer, pages 231-265, National Bureau of Economic Research, Inc.
    17. Kim, Dohyung, 2019. "Health Capacity to Work at Older Ages in South Korea: Estimates and Implications for Public Pension Policies," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 41(2), pages 41-58.
    18. Heckman, James J. & Humphries, John Eric & Veramendi, Gregory & Urzua, Sergio, 2014. "Education, Health and Wages," IZA Discussion Papers 8027, Institute of Labor Economics (IZA).
    19. Hippolyte d'Albis & Loesse Jacques Esso & Héctor Pifarré I Arolas, 2012. "Mortality Convergence Across High-Income Countries : An Econometric Approach," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00755682, HAL.
    20. Nattavudh Powdthavee, 2010. "Does Education Reduce the Risk of Hypertension? Estimating the Biomarker Effect of Compulsory Schooling in England," Journal of Human Capital, University of Chicago Press, vol. 4(2), pages 173-202.

    More about this item

    Keywords

    Gender and Development; Pensions&Retirement Systems; Law and Justice Institutions; Population&Development;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:hdnspu:136564. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Aaron F Buchsbaum (email available below). General contact details of provider: https://edirc.repec.org/data/wrldbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.