Measuring & balancing adequacy & sustainability in social security programs

Measuring & balancing adequacy & sustainability in social security programs

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Speaker(s): Aldona Skucaite (Vilnius University), Asia Billig (Office of the Superintendent of Financial Institutions Canda)

Social Security benefits in most developed countries continue to be a major source of income during the retirement years. Therefore, the need to ensure the financial stability of Social Security pension systems as well as the adequacy of benefits is crucial. Measures of benefit adequacy and long-term sustainability may be used as important indicators to assess the financial health of a Social Security pension system. However, it is quite difficult to set unique mutually agreed-upon definitions of both sustainability and adequacy since these definitions may depend on the perspective of the ultimate user and other factors. Directly related to the definitions of benefit adequacy and long-term sustainability are the many measures (metrics) used to determine sustainability and adequacy; therefore, they also vary in practice. More importantly, since these two goals could be conflicting, some mechanisms addressing the balance between them may help to maintain the financial health of the system.

During recent years much media and public attention has been devoted to sustainability and / or adequacy of current and future public pensions, especially in the USA, EU and OECD countries. However, there are very few resources describing how stability and adequacy are defined and measured in different countries. While actuaries are heavily involved in sustainability, their involvement in assessing adequacy is limited.

In this paper we explore definitions and measures of sustainability and adequacy used in practice in some countries throughout the world and some mechanisms used to achieve balance between them. The idea is to analyze pros and cons of different methods in different social security pension schemes. Our analysis is based on a survey carried out by the Social Security Committee of the International Actuarial Association.

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