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Differential mortality and redistribution in the Italian notional defined contribution system

Published online by Cambridge University Press:  01 June 2012

CARLO MAZZAFERRO ,
MARCELLO MORCIANO  and
MARCO SAVEGNAGO
CARLO MAZZAFERRO
Affiliation:
Department of Economics, University of Bologna, CAPP and CHILD
MARCELLO MORCIANO
Affiliation:
Health Economics Group, University of East Anglia, CAPP and ISER
MARCO SAVEGNAGO
Affiliation:
Bank of Italy1 and University of Rome ‘Tor Vergata’
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Abstract

In this paper, we adopt a financial measure (net present value ratio) to assess the extent of the redistribution of lifetime earnings operated by the introduction of a notional defined contribution (NDC) system in the Italian PAYGO system. Our simulations are based on a representative sample of the Italian population consisting of individuals born between 1975 and 2000. We identify three channels of redistribution: between genders (from men to women), along educational lines (from the less-well-educated to the highly educated) and between diverse lifetime-earnings quintiles (from the poor to the rich). This happens because certain groups of individuals systematically live shorter-than-average lives (men, the less well-educated and the poor), whereas others live longer-than-average lives (women, the highly educated and the rich) and, at the same time, the NDC system does not take into account such differences. Comparison between the old defined benefit system and the reformed NDC one shows that intergenerational fairness has improved sensibly but differences between gender and educational levels remained nearly the same. Sensitivity analysis and the consideration of survival pensions in our simulations confirm the general trends of our base case.

Keywords

H55I38J11differential mortalityNDCre-distributionmicro-simulation
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 11 , Issue 4 , October 2012 , pp. 500 - 530
Copyright
Copyright © Cambridge University Press 2012

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