Integrating Retirement and Permanent Disability in NDC Pension Schemes
Applied Economics incorporating Applied Financial Economics, DOI:10.1080/00036846.2015.1093084 Published online: 30 Sep 2015
29 Pages Posted: 31 Mar 2014 Last revised: 26 Nov 2015
Date Written: November 25, 2015
Abstract
In this paper we develop a theoretical basis for integrating retirement and permanent disability using a generic NDC framework. The methodology used 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.
Keywords: NDC, Pay-as-you-go, Retirement, Disability Insurance, Social Security, Sweden
JEL Classification: G22, H55, J26
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