Abstract

http://ssrn.com/abstract=1617951
 


 



Notes on Using the Hidden Asset or the Contribution Asset to Compile the Actuarial Balance for Pay-as-You-Go Pension Systems


Carlos Vidal-Meliá


University of Valencia - Faculty of Economics

María el Carmen Boado-Penas


University of Liverpool

May 30, 2010


Abstract:     
The aim of this paper is twofold: to determine the connection between the “contribution asset” and the “hidden asset” and to discover whether using either of them to compile the actuarial balance in Swedish-type pay-as-you-go pension systems will provide a reliable solvency indicator. We develop an overlapping generations model and apply it to the defined benefit pay-as-you-go system, although it would be just as valid for NDC systems. On the theoretical side the main conclusion is that, despite their very different natures, in a simplified scenario the contribution asset and the hidden asset could coincide if r - the real rate of interest - is equal to the growth in the wage bill. On the applied side there are three main reasons why it would be better to use the contribution asset to calculate the Swedish-type actuarial balance as a solvency indicator: it has a financial-actuarial basics in the pay-as-you-go pension system as there is no need to use the real rate of interest; it is simple to calculate as there is no need for projections to be made; and it is clear in diagnosing solvency, whereas the hidden asset supplies a solvency indicator which is not always consistent with the system's financial health.

Number of Pages in PDF File: 31

Keywords: Defined Benefits, Sweden, USA, Transparency

JEL Classification: H55, H83, J26, M49

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Date posted: May 30, 2010  

Suggested Citation

Vidal-Meliá, Carlos and Boado-Penas, María el Carmen, Notes on Using the Hidden Asset or the Contribution Asset to Compile the Actuarial Balance for Pay-as-You-Go Pension Systems (May 30, 2010). Available at SSRN: http://ssrn.com/abstract=1617951 or http://dx.doi.org/10.2139/ssrn.1617951

Contact Information

Carlos Vidal-Meliá (Contact Author)
University of Valencia - Faculty of Economics ( email )
Valencia, E-46022
Spain
María del Carmen Boado-Penas
University of Liverpool ( email )
Liverpool
United Kingdom
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