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http://dx.doi.org/10.5351/CKSS.2009.16.4.557

Probabilistic Approach to Government Employee Pension System  

Kim, Joo-Yoo (Department of Statistics, Seoul National University)
Song, Seong-Joo (Department of Statistics, Korea University)
Publication Information
Communications for Statistical Applications and Methods / v.16, no.4, 2009 , pp. 557-572 More about this Journal
Abstract
This article examines the financial soundness of the government employee pension system(GEPS). We use a model that simplifies the existing GEPS considering survival probability distribution of the life of employees. Two approaches were selected for the research: One is the expected net value of pension for an individual employee and the other is the default probability of the system from Monte-carlo simulation. The outcome reveals following three possibilities. First of all, the individual expected net value presents unfairness between the retiree's premium and the benefit he/she receives. Secondly, the Monte-carlo simulation suggests that the default is highly likely to happen in less than 30 years. Thirdly, the governmental reserve and subsidy for GEPS should be required to a certain degree in order to alleviate the probability of default less than 5 percent for the next 30 years.
Keywords
Government employee pension system; expected net value; Monte carlo simulation; default probability;
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