Abstract :
[en] The paper provides a framework for the conceptualization, definition and measurement of the legacy
costs that needs to be addressed in a reform that transforms an unfunded (or non‐financial) defined
benefit (NDB) scheme into an equally unfunded notional (or non‐financial) defined contribution (NDC)
scheme. During a transition from NDB to NDC a financing gap typically arises due to accrued to date
liabilities from the old system in excess of the NDC scheme’s sustainable flow of benefits. This gap ‐ or
legacy cost ‐ needs to be estimated and financed. We illustrate different techniques to gauge the scope
of the cost. The paper applies the proposed approach to a hypothetical NDC reform in China.
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