A PAYOUT PRODUCT WITH INCREASING PAYMENTS IN THE OLD-AGE PENSION SAVING SCHEME IN SLOVAKIA

The Act 43/2004 Coll. on the Old-Age Pension Saving Scheme and on amendments and supplements to certain laws offers, among others, an old-age pension product with increasing annuity payments. In our model we consider a monthly paid annuity increasing yearly in geometric progression. Just the determination of the geometric progression quotient is a crucial task, especially when we consider valuation of the future cash-flows based on risk-free bond yield curves. On the basis of actuarial formulas we point out on a mutual relationship between the risk free bond yields and the yearly increase rate of the pension payments. In our contribution we also examine the impact of the increase rate on the overall benefit of the pensioner.