2012年-BIS国际清算银行_The_sustainability_of_pension_schemes_25页_539kb

Summary of "The Sustainability of Pension Schemes" by Srichander Ramaswamy

Core Content

This paper examines the sustainability of pension schemes, particularly defined benefit (DB) and defined contribution (DC) schemes, in the context of recent economic developments. It highlights the challenges posed by low financial market returns, reduced long-term real interest rates, and demographic changes such as increased longevity and aging populations. The paper also explores the impact of macroeconomic variables and pension accounting reforms on the design and sustainability of pension schemes.

Main Points

• Pension Scheme Types:

  • Defined Benefit (DB) schemes promise a specific retirement income based on salary and years of service, and are typically unfunded or pay-as-you-go (PAYG) in public schemes.
  • Defined Contribution (DC) schemes involve fixed contributions, with retirement benefits determined at the time of retirement.

• Financial Market and Macroeconomic Factors:

  • Poor financial market returns and low long-term real interest rates have affected the sustainability of DB schemes.
  • The long-term real interest rate is a key factor in determining the actuarial present value of pension liabilities.
  • The growth rate of real wages and the rate of real GDP growth are also important variables influencing the service cost of pension schemes.

• Actuarial Model and Service Cost:

  • A projected unit credit method is used to estimate pension liabilities and service costs.
  • The service cost is defined as the actuarial present value of the benefits earned by employees during a year, expressed as a percentage of the total pensionable salary expense.
  • The service cost depends on the real yield, real wage growth, inflation rate, and the annuity factor, which is influenced by mortality rates, retirement age, and longevity.

• Macro Trends:

  • Real wage growth has historically been around 75% of the growth in labour productivity in the UK and US.
  • Long-term real interest rates have declined significantly in recent years, from 2.5–3.5% to 0–2%, which affects the cost of funding pension liabilities.
  • The expected return on equities is assumed to be in the range of 4.5–5.5%, based on the Gordon model.

• Input Variables and Assumptions:

  • The service cost is calculated using the formula:
    $$
    S C = \sum_ {i = 1} ^ {N} S _ {i} \times (1 + g + \pi) ^ {T - x _ {i}} \times (1 + r + \pi) ^ {x _ {i} - T} \times A (T) \times \Delta b
    $$
  • Key input variables include:
    • Real wage growth rate (g)
    • Long-term real interest rate (r)
    • Inflation rate (π)
    • Accrued benefits per year of service (Δb)
    • Annuity factor (A(T)), which incorporates survival probabilities and real yields.

• Representative Service Cost Estimates:

  • Based on typical assumptions, the service cost for DB schemes is estimated to be in the range of 18–27%.
  • A service cost of 21% corresponds to a scenario where:
    • $ r = 2% $
    • $ g = 1% $
    • $ \Delta b = 1.5% $
    • $ \pi = 3% $
    • $ T = 65 $ years
    • Average employee age = 43 years
  • If the accrued benefit factor increases by 0.25%, the service cost rises to nearly 25%.

• Impact of Changes:

  • Lower real GDP growth and higher old-age dependency ratios increase the burden on PAYG schemes and may lead to higher sovereign liabilities.
  • Changes in pension accounting standards and derivative market reforms can influence the design of occupational pension plans and the post-employment benefits they provide.

• Policy Implications:

  • The paper concludes with policy perspectives, emphasizing the need for sustainable pension design in light of current macroeconomic and demographic trends.
  • It suggests that understanding the relationship between input variables and service cost is crucial for designing sustainable pension schemes.
  • Similar challenges are relevant for emerging market economies as well.

Key Information

• Service Cost: The actuarial present value of benefits earned by employees, expressed as a percentage of the total pensionable salary.
• Macro Variables:
  • Real GDP growth rate
  • Labour productivity growth rate
  • Real wage growth rate
  • Long-term real interest rate
• Demographic Factors:
  • Longevity
  • Retirement age
  • Old-age dependency ratio
• Pension Accounting:
  • Amendments to pension accounting rules have increased investor awareness of pension risk exposure.
  • The service cost is based on the assumption that the return on pension assets equals the discount rate used for valuing liabilities.

Conclusion

The paper provides a quantitative framework for estimating the service cost of pension schemes and highlights the interplay between macroeconomic trends, demographic changes, and pension design. It underscores the importance of considering long-term real interest rates, real wage growth, and demographic shifts when assessing the sustainability of pension systems. The analysis also suggests that policy discussions should be informed by these estimates to ensure the long-term viability of pension schemes.