The social security institution applies automatic adjustment mechanisms in accordance with the laws and regulations governing the scheme. The social security institution analyses how the application of these adjustment mechanisms affects benefit adequacy and/or the financial sustainability of the scheme.
Automatic adjustment mechanisms link certain decisions on benefits and financing to internal or external parameters or indicators. This guideline should be read together with Guideline 43.
Guideline code
ACT_02100
Mechanism
Mechanism
- The social security institution should ask the actuary to analyse the impact of the automatic adjustment. Depending on the design of the automatic adjustment mechanism, the actuary should decide whether this analysis should be performed using only best-estimate assumptions or using a combination of best-estimate assumptions and a probabilistic distribution of outcomes. Sensitivity analysis should be carried out.
- The social security institution should communicate in advance to members the automatic adjustment mechanisms, their purpose, how they function, and the result and impact of the automatic adjustment mechanisms, particularly on benefit levels (e.g. the percentage of the adjustment and how it is calculated). Guidelines 27 and 28 as well as the ISSA Guidelines on Communication by Social Security Administrations should be followed.
Structure
Principles
- The purpose of automatic adjustment mechanisms is generally to ensure that the adequacy of benefits and/or the financial sustainability of a scheme appropriately reflect changes in internal or external parameters. The aim may include streamlining decision-making mechanisms, supporting sustainability and improving the security and adequacy of benefits. Although some countries seek to ensure that important decisions are independent of political or other interference, for other countries the recommendations arising from the application of automatic adjustment mechanisms are subject to (political) approval.
- The actuary should be involved in the development of appropriate automatic adjustment mechanisms and their application.
- The actuary should assess the impact of the automatic adjustment on benefit adequacy and the financial sustainability of the system after any automatic adjustment takes place or is proposed.
- Good communication to members is necessary in order to maintain their confidence in the scheme, and the actuary should be involved in the formulation of this information.
Title HTML
Guideline 19. Automatic adjustment mechanisms
Type
Guideline_1
Weight
24