An Actuarial Balance Sheet Model for Defined Benefit Pay-As-You-Go Pension Systems with Disability and Retirement Contingencies

Abstract

In this paper we develop a theoretical basis for drawing up a “Swedish” type actuarial balance sheet for a defined benefit pay-as-you-go (DB PAYG) scheme with retirement and disability benefits. Our model enables us to obtain the system's expected average turnover duration, measure the scheme's solvency and explore the phenomenon identified as “pension reclassification”, a widespread practice that masks the system's real status unless further pension information becomes available. The model is clearly linked to actuarial practice in social security and gives partial support to the practical adaptation of Swedish methodology carried out by OSFI (2012) in applying the concept of the contribution asset to the Canadian Pension Plan (CPP) balance sheet, which includes disability and survivor benefits.

Keywords: Actuarial Balance, Disability, Retirement, Solvency, Sweden, Transparency

JEL Classification: H55, H83, J26, M49