Compiling the actuarial balance for pay-as-you-go pension systems. Is it better to use the hidden asset or the contribution asset?

Carlos Vidal-Meliá, María del Carmen Boado-Penas

Research output: Contribution to journalArticlepeer-review

16 Citations (Scopus)

Abstract

The aim of this article is twofold: to establish the connection between the 'Contribution Asset' (CA) and the 'Hidden Asset' (HA) and to determine whether using either of them to compile the Actuarial Balance (AB) sheet in the Pay-As-You-Go (PAYG) pension system will provide a reliable solvency indicator. With these aims in mind, we develop a model based on those first put forward by Settergren and Mikula (2005) and Boado-Penas et al. (2008) to obtain the analytical properties of the CA and to confirm its soundness as a measure of the assets of a PAYG scheme. Our model also enables us to explore whether, and to what extent, the HA can be considered a second alternative measure of the assets for PAYG schemes. The main theoretical finding is that, despite their very different natures, the HA and the CA may nearly coincide at the limit when the interest rate of the financial market approaches the growth of the covered wage bill from above, but the HA supplies a solvency indicator which is not always consistent with the system's financial health.

Original languageEnglish
Pages (from-to)1303-1320
Number of pages18
JournalApplied Economics
Volume45
Issue number10
DOIs
Publication statusPublished - Apr 2013

Keywords

  • Defined benefits
  • Sweden
  • Transparency
  • USA

ASJC Scopus subject areas

  • Economics and Econometrics

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