Authors: Ki-Hong Choi(NPS)

Abstract

This study derives the indicators of intergenerational equity and sustainability for the social security pension from generational accounting. The characteristic of this generational accounting can be summarized by two aspects. First, it follows the “sustainability approach” instead of the conventional “residual approach.” Second, all the generational accounts cover their entire lifetime using both the actuarial projection model and the administrative data, which are available in the most social security pension schemes. According to a demonstration analysis, the cohort profitabilities, an indicator of intergenerational equity, are decreasing as birth year increases. The reason is that the special benefits in the early stage phased out and the effects of the two reforms in 1998, 2007 are gradually increasing. The more desirable indicator of per capita net benefits show the highest value around the cohort born in 1975 due to their larger coverage rates and longer contribution years despite their lower profitabilities. Next, all the proposed indicators of sustainability display values less than half of those values of the OASDI. Finally, a simulation shows that the 15% contribution rate, considered as a long-run actuarially fair rate, is not sufficient for the sustainability. It means a combination of diverse reform measures are required to recover the sustainability of current scheme.