Non-Financial Defined Contribution Pension Schemes: Is a Survivor Dividend Necessary to Make the System Balanced?

12 Pages Posted: 11 Oct 2013 Last revised: 4 Sep 2015

See all articles by María el Carmen Boado-Penas

María el Carmen Boado-Penas

University of Liverpool

Carlos Vidal-Meliá

University of Valencia - Department of Financial Economics

Date Written: October 10, 2013

Abstract

The survivor dividend, at a specific age, is the portion of participants' credited account balances that is distributed on a birth cohort basis from the account balances of participants who do not survive to retirement. This paper develops a model to show whether it would be justified to include the survivor dividend in the calculation of affiliate pension balances. The main findings are that the survivor dividend has a strong financial basis which enables the macro contribution rate applied to be the same as the individual credited rate, and that including the survivor dividend in the calculation of the initial pension is not irrelevant because the initial pension could rise by up to 21.84% depending on the mortality scenario used.

Keywords: Financial Equilibrium, Longevity Risk, Pay-As-You-Go, Public Pensions, Retirement, Transparency

JEL Classification: H55, J26

Suggested Citation

Boado-Penas, María del Carmen and Vidal-Meliá, Carlos, Non-Financial Defined Contribution Pension Schemes: Is a Survivor Dividend Necessary to Make the System Balanced? (October 10, 2013). Applied Economics Letters, 21:4, 242-247,, Available at SSRN: https://ssrn.com/abstract=2338412

María del Carmen Boado-Penas

University of Liverpool ( email )

Liverpool
United Kingdom

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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