Automatic balancing mechanisms for Notional Defined Contribution Accounts in the presence of uncertainty

Alonso Garcia, Jennifer;Boado-Penas, María del Carmen;Devolder, Pierre
(2014) , 33 pages

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Authors
  • Alonso Garcia, JenniferUCLouvain
    Author
  • Boado-Penas, María del Carmen
    Author
  • Devolder, PierreUCLouvain
    Author
Abstract
The notional defined contribution model combines pay-as-you-go financing and a defined contribution pension formula. This paper aims to demonstrate the extent to which liquidity and solvency indicators are affected by fluctuations in economic and demographic conditions and to explore the introduction of an automatic balancing mechanism into the pension system. We demonstrate that the introduction of an automatic balancing mechanism reduces the volatility of the buffer fund and that, in most cases, the automatic mechanism that re-establishes solvency produces the lowest variance of the notional factor with the lowest expected value.
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Alonso Garcia, J., Boado-Penas, M. d. C., & Devolder, P. (2014). Automatic balancing mechanisms for Notional Defined Contribution Accounts in the presence of uncertainty (Discussion Paper 2014/38). https://hdl.handle.net/2078.5/195357