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CEPAR researchers Professor Robert Holzmann and Drs Jennifer Alonso-García, Héloïse Labit Hardy and Andrés Villegas have been recognised with the Best Paper Award in the IAA Section Colloquium 2019 by the Pensions, Benefits and Social Security Section (PBSS) of the International Actuarial Association (IAA).
The CEPAR researchers were awarded for their research on NDC Schemes and Heterogeneity in Longevity: Proposals for Redesign.
The paper explores in depth key policy options to address heterogeneity in longevity in nonfinancial defined contribution (NDC) schemes.
“Evidence across countries shows that longevity is highly heterogeneous in key socioeconomic characteristics, including income” the paper reads.
“The scope and trend of such heterogeneity in longevity regarding measures of lifetime income create a major concern for providers of lifetime annuities – namely, private insurance companies under voluntary and mandated funded defined contribution (FDS) schemes, and the rising number of countries that did or plan to adopt a NDC scheme.”
“When heterogeneity exists in the remaining life expectancy, some individuals profit at the expense of others in the social insurance pool.”
“Left unaddressed, the risks associated with heterogeneity in life expectancy are threefold: invalidates or at least reduces the rationale for an NDC reform; renders an increase in retirement age as the key approach to deal with population ageing less powerful and highly regressive; and creates an adverse redistribution, an outcome the NDC approach seeks to eliminate.”
The results of the paper move the analytical and policy discussion forward, using unique data from the United States and England and Wales that are able to present the whole distribution space on the link between life expectancy and measures of lifetime income.
The authors’ research analysis of five key mechanisms of compensation indicates that both individualized annuities and a two-tier contribution scheme are feasible and effective and thus promising policy options.
Holzmann R; Alonso Garcia J; Labit Hardy H; Villegas Ramirez A (2019) 'NDC Schemes and Heterogeneity in Longevity: Proposals for Redesign’, in Holzmann R; Palmer E; Palacios R; Sacchi S (ed.), In Progress and Challenges of Nonfinancial Defined Pension Schemes. Volume 1: Addressing Marginalization, Polarization, and the Labor Market, edn. Work Bank.