Notes on using the hidden asset or the contribution asset to compile the actuarial balance for pay-as-you-go pension systems

The aim of this paper is twofold: to determine the connection between the �contribution asset� and the �hidden asset� and to discover whether using either of them to compile the actuarial balance in Swedish-type pay-as-you-go pension systems will provide a reliable solvency indicator. We develop an overlapping generations model and apply it to the defined benefit payas- you-go system, although it would be just as valid for defined contribution systems. On the theoretical side the main conclusion is that, despite their very different natures, in a simplified scenario the hidden asset and the contribution asset may nearly coincide under the assumption that, at the limit, r (the interest rate of the financial market) tends upwards towards G (the growth of the covered wage bill). On the applied side there are three main reasons why it would be better to use the contribution asset to calculate the Swedish-type actuarial balance as a solvency indicator: it has a financial-actuarial basics in the pay-as-you-go pension system as there is no need to use the real rate of interest; it is simple to calculate as there is no need for projections to be made; and it is clear in diagnosing solvency, whereas the hidden asset supplies a solvency indicator which is not always consistent with the system's financial health.