Improving the Equity, Transparency, and Solvency of Pay-as-You-Go Pension Systems: NDCs, the AB, and ABMs

The aim of this chapter is to show the advisability of introducing instruments for improving equity, transparency, and solvency into the pay-as-you-go (PAYG) pension system. is is in line with the trend seen in some countries of applying actuarial analysis methodology to the eld of public PAYG pension system management. With this aim in mind, we explain and analytically develop various aspects of notional de ned-contribution accounts (NDCs), the actuarial balance (AB), and automatic balance mechanisms (ABMs). e main conclusion reached is that these tools are not simply unrealistic theoretical concepts but a response to the growing social demand for transparency in the area of public nance management, the need to minimize the political risk faced by PAYG systems, the desire to set the pension system rmly on the road to long-term nancial solvency, and the wish to increase contributors’ and pensioners’ con dence in the system in the sense that promises of pension payments will be respected.