Annuity Divisor - Comparison Between Different Computational Methods

University essay from KTH/Matematisk statistik

Author: Karl Birkholz; [2013]

Keywords: ;

Abstract: This thesis is focused on a vital component of the Swedish national pension system called Annuity Divisor which determines the annual pension amount. It is based on the life expectancy of the whole population and it also includes a set discount rate. There are however two different formulas used within the Swedish national pension system and these different methods are also based on different data, historical and prognostic. The political aspects regarding the Annuity Divisor are also considered.   The process from raw data until the final value is shown and compared with methods used in Finland, Norway and Poland. It is shown that the different formulas used in the Swedish national pension system yield similar results and that the main difference arises as a consequence of the different data used.   By using the Finnish formula for the Annuity Divisor, which is slightly easier, the result can be improved in respect to continuous discounting.

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