Automatic Balance Mechanisms in an NDC Pension System with Disability Benefits

The aging population is currently impacting several countries worldwide, generating socio-economic needs such as long-term care (LTC) in old age. Developing a strategy linking these care needs to the pension scheme can help in managing the increasing cost of care of pensioners affected by disability. This paper presents a model in which the LTC benefit is integrated into a notional-defined contribution (NDC) pension system. The model’s financial sustainability is investigated without and with the application of an automatic balance mechanism (ABM) founded on a Liquidity Ratio. Economic and demographic variables (including the new disability risk element generated by the LTC) are modeled in a stochastic environment.