Actuarial involvement is required when both parametric and structural changes to the social security scheme are considered.
Changes in social security schemes are often triggered by concerns regarding future financial sustainability and current and future benefit adequacy. Reforms to programmes and the overall system may be parametric, i.e. mainly concerned with changes in eligibility criteria, benefit levels and the financing of the scheme. Structural reforms refer to more significant changes in the nature of benefits, including the introduction of new social insurance schemes, adopting new benefit provisions (e.g. covering new contingencies) or other changes to the nature of benefits (e.g. a move from defined benefit to defined contribution provision).
Guideline code
ACT_05300
Mechanism
Mechanism
- Material changes to the scheme should require a dedicated actuarial report and calculations. This report should present decision-makers and all other stakeholders with the financial impacts as well as the impact on benefit adequacy of the proposed changes.
- Modifications of other benefit components in a multi-pillar system often need an evaluation by an actuary in order to assess the impact on overall benefit adequacy. The actuary should present in the actuarial report long-term demographic and financial impacts of any proposed modifications. These projections should be compared with those produced under current legal provisions.
- Guideline 41 on the valuation of a new scheme should be referred to when structural reforms are proposed or introduced (e.g. new contingency benefits, the extension of coverage to new categories of workers, etc.).
- Material changes in the design of the scheme should be clearly communicated to beneficiaries. More details on communication are provided in Part D, especially Guideline 27.
Structure
Principles
- Scheme changes should be discussed with all stakeholders, including tripartite partners, and decisions should be made through a dialogue process. Decisions regarding structural and/or parametric reforms should be based on actuarial valuations and other actuarial calculations which may be performed on an ad-hoc basis to consider the impacts of proposed changes.
- Actuarial valuations and calculations should be performed using appropriate methodologies and a range of assumptions. They should produce results that can be used to measure the financial impact of proposed changes on the sustainability of the scheme and the adequacy of benefits.
- Parametric changes to a social security scheme may concern benefit eligibility conditions, the package and/or level of benefits, the inclusion of a new category of insured population, and/or financing provisions (including changes in the contribution rate).
- In the case of multi-pillar systems, modifications to other components of retirement and health benefits (such as introduction of or changes to mandatory occupational retirement schemes, private health schemes) may also require a review of the benefit provisions of the social security scheme.
- The actuary should provide recommendations regarding modifications to the scheme provisions based on the results of actuarial valuations and other calculations.
- The introduction of structural reforms may also have an impact on other branches of the social security system. The actuary should perform extensive analysis to assist stakeholders in making informed decisions.
- When structural or parametric changes are introduced to the social security scheme, it is important for the social security institution as well as other stakeholders to address the question of protection of accrued rights. An actuarial valuation should be conducted to assess the degree of protection of accrued rights resulting from structural reforms.
- Changes in benefits and financing can affect several generations. In introducing changes to the scheme, it is important to provide a sufficient transition period prior to the full implementation of changes in order for people to have enough time to adjust their behaviour. Actuarial input into the implications of different reform proposals on adequacy and financing costs will feed into this analysis.
Title HTML
Guideline 46. Implications of changes and reforms in benefits and financing
Type
Guideline_1
Weight
56