Automatic Balancing Mechanisms for Notional Defined Contribution Accounts in the Presence of Uncertainty

Scandinavian Actuarial Journal, 2018:2, 85-108, DOI: 10.1080/03461238.2017.1304984

30 Pages Posted: 2 Jun 2020

See all articles by Jennifer Alonso-García

Jennifer Alonso-García

Université Libre de Bruxelles (ULB) - Department of Mathematics; ARC Centre of Excellence in Population Ageing Research; Netspar

María el Carmen Boado-Penas

University of Liverpool

Pierre Devolder

Catholic University of Louvain

Date Written: February 14, 2017

Abstract

The notional defined contribution model combines pay-as-you-go financing and a defined contribution pension formula. This paper aims to demonstrate the extent to which liquidity and solvency indicators are affected by fluctuations in economic and demographic conditions and to explore the introduction of an automatic balancing mechanism (ABM) into the pension scheme. We demonstrate that the introduction of an ABM reduces the volatility of the buffer fund and that, in most cases, the automatic mechanism that re-establishes solvency produces the highest value of the risk-adjusted notional factor.

Keywords: Actuarial analysis, public pensions, retirement, solvency, stochastic processes, risk

JEL Classification: H55, H75, J32

Suggested Citation

Alonso-García, Jennifer and Boado-Penas, María del Carmen and Devolder, Pierre, Automatic Balancing Mechanisms for Notional Defined Contribution Accounts in the Presence of Uncertainty (February 14, 2017). Scandinavian Actuarial Journal, 2018:2, 85-108, DOI: 10.1080/03461238.2017.1304984, Available at SSRN: https://ssrn.com/abstract=3592601

Jennifer Alonso-García (Contact Author)

Université Libre de Bruxelles (ULB) - Department of Mathematics ( email )

Brussels
Belgium

ARC Centre of Excellence in Population Ageing Research ( email )

Level 6, Central Lobby (enter via East Lobby)
Australian School of Business Building
Sydney, New South Wales NSW 2052
Australia

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

María del Carmen Boado-Penas

University of Liverpool ( email )

Liverpool
United Kingdom

Pierre Devolder

Catholic University of Louvain ( email )

Place Montesquieu, 3
B-1348 Louvain-la-Neuve, 1348
Belgium

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