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

See all articles by Manuel Ventura-Marco

Manuel Ventura-Marco

University of Valencia - Faculty of Economics

Carlos Vidal-Meliá

University of Valencia - Department of Financial Economics

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

Suggested Citation

Ventura-Marco, Manuel and Vidal-Meliá, Carlos, Integrating Retirement and Permanent Disability in NDC Pension Schemes (November 25, 2015). Applied Economics incorporating Applied Financial Economics, DOI:10.1080/00036846.2015.1093084 Published online: 30 Sep 2015, Available at SSRN: https://ssrn.com/abstract=2418147 or http://dx.doi.org/10.2139/ssrn.2418147

Manuel Ventura-Marco

University of Valencia - Faculty of Economics ( email )

Valencia, E-46022
Spain

Carlos Vidal-Meliá (Contact Author)

University of Valencia - Department of Financial Economics ( email )

Avda. del Tarongers, s/n
46022 Valencia
Spain

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