Why Sweden’s Notional DC Pension System Does Not Need a Calculation Correction

Abstract

The critique of the asset value calculation in Sweden’s Notional DC pension system by Doug Andrews raises some interesting questions. The most obvious is whether Andrews’ critique of the calculation method is valid; this article argues that the method has been misunderstood, and explains why. The key to this explanation is the role that “turnover duration” plays in calculating asset value. The Swedish approach has been validated using a number of numerical examples, both inside and outside Sweden; moreover, the absence of guarantees in the benefits, in combination with the turnover duration innovations, have allowed Sweden’s inkomstpension to become what may be the world’s most transparent and fastest-reporting national pension plan.

Keywords: Actuarial Accounting, Financial Sustainability, Pension Fund