An actuarial balance model for DB PAYG pension systems with disability and retirement contingencies

Abstract

In this paper we develop the theoretical basis for drawing up the �Swedish� actuarial balance of a defined benefit pay-as-you-go (DB PAYG) scheme with retirement and disability benefits. Our model enables us to obtain the system's average turnover duration, measure the scheme's solvency and explore the phenomenon identified as �pension reclassification�, an unhealthy practice that masks the system's real status and makes it very difficult to obtain accurate actuarial results by contingency. Additionally, the proposed model has practical implications which could be of interest not only to DB systems but also to notional defined contribution schemes (NDC) and policy-makers.