NDC Schemes and Heterogeneity in Longevity : Proposals for Redesign
A positive relationship between lifetime income and life expectancy leads to a redistribution mechanism when the average cohort life expectancy is applied for annuity calculation. Such a distortion puts into doubt the main features of the NDC (nonf...
| Main Authors: | , , , |
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| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/551391556883357303/NDC-Schemes-and-Heterogeneity-in-Longevity-Proposals-for-Redesign http://hdl.handle.net/10986/31637 |
| Summary: | A positive relationship between lifetime
income and life expectancy leads to a redistribution
mechanism when the average cohort life expectancy is applied
for annuity calculation. Such a distortion puts into doubt
the main features of the NDC (nonfinancial defined
contribution) scheme and calls for alternative designs to
compensate for the heterogeneity. This paper explores five
key mechanisms of compensation: individualized annuities;
individualized contribution rates; a two-tier contribution
structure with socialized and individual rates; and two
supplementary two-tier approaches to deal with the income
distribution tails. Using unique American and British data,
the analysis indicates that both individualized annuities
and two-tier contribution schemes are feasible and effective
and thus promising policy options. A de-pooling by gender
will be required, however. |
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