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Improving Sweden's Automatic Pension Adjustment Mechanism
The public pension world has seen two innovations in recent years. One is the emergence of notional defined contribution (NDC) plans. The other is the introduction of automatic adjustment mechanisms to help keep pension systems solvent when the economy weakens. This brief looks at the Swedish system to demonstrate how NDCs work and evaluates the workÂings of the automatic adjustment mechanism in the wake of the 2008 financial crisis. Sweden passed reform legislation in 1994 that inÂtroduced a partially-funded NDC plan.1 The arrangeÂment is conceptually similar to a defined contribution plan in that contributions are accumulated in indiÂvidual accounts, but different in that the accounts are not fully funded and may be financed entirely on a pay-as-you-go basis. In this setting, the rate of return credited on the account assets is based on a rule rathÂer than on actual returns. The Swedish system uses a notional interest rate equal to the rate of growth of average earnings. However, if a calculation suggests a potential deficit, the notional interest rate is autoÂmatically reduced through a âbrakeâ mechanism. The recent financial crisis has highlighted ways in which the brake mechanism could be improved. This brief proceeds as follows. The first section describes Swedenâs NDC plan. The second describes the Swedish brake mechanism. The third describes two problems with the current adjustment procedure: 1) it creates the likelihood of large shocks for retirÂees; and 2) while disadvantaging retirees, it tends to advantage workers. The fourth section presents posÂsible fixes for the current problems. The final section concludes that the Swedish NDC plan could function more effectively with modest changes to the brake mechanism.
The economics of pensions.
This paper sets out the economic analytics of pensions. After introductory discussion, successive sections consider the effects of different pension arrangements on labour markets, on national savings and growth, and on the distribution of burdens and benefits. These areas are controversial and politically highly salient. While we are open about expressing our own views, the main purpose of the paper is to set out the analytical process by which we reach them, to enable readers to form their own conclusions.
The Distribution of the first Eigenvalue Spacing at the Hard Edge of the Laguerre Unitary Ensemble
The distribution function for the first eigenvalue spacing in the Laguerre
unitary ensemble of finite rank random matrices is found in terms of a
Painlev\'e V system, and the solution of its associated linear isomonodromic
system. In particular it is characterised by the polynomial solutions to the
isomonodromic equations which are also orthogonal with respect to a deformation
of the Laguerre weight. In the scaling to the hard edge regime we find an
analogous situation where a certain Painlev\'e \IIId system and its associated
linear isomonodromic system characterise the scaled distribution. We undertake
extensive analytical studies of this system and use this knowledge to
accurately compute the distribution and its moments for various values of the
parameter . In particular choosing allows the first
eigenvalue spacing distribution for random real orthogonal matrices to be
computed.Comment: 65 pages, 1 eps figure, typos and references correcte
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