Skip to main content Accessibility help
×
Home
Hostname: page-component-544b6db54f-lmg95 Total loading time: 0.307 Render date: 2021-10-22T09:55:03.182Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": true, "newCiteModal": false, "newCitedByModal": true, "newEcommerce": true, "newUsageEvents": true }

The cost and value of UK pensions

Published online by Cambridge University Press:  13 June 2017

Paul J. Sweeting*
Affiliation:
School of Mathematics, Statistics and Actuarial Science (SMSAS), University of Kent, Sibson Building, Parkwood Road, Canterbury CT2 7FS, UK
*
*Correspondence to: Paul J. Sweeting, School of Mathematics, Statistics and Actuarial Science (SMSAS), University of Kent, Sibson Building, Parkwood Road, Canterbury, CT2 7FS, UK. Tel: 01227 82 3508; E-mail: p.j.sweeting@kent.ac.uk

Abstract

Over the last 20 years, the extent of defined benefit provision has declined substantially in the United Kingdom. Whilst most of the focus has been on deficits relating to past benefit accrual, the increasing cost of future benefit accrual is also important. There are two reasons for this. First, the change in the cost of defined benefit accrual represents the difference in the earnings for employees with membership of a defined benefit scheme and those with membership of a defined contribution scheme. Second, the current cost of defined benefit accrual gives an indication of the cost of an adequate pension. As such, it can be compared with levels of contribution to defined contribution schemes to determine whether these are adequate. I therefore look at how the cost of pensions has changed relative to the cost of non-pensions earnings. I also look at the main components of the change in pensions cost – those relating to benefits payable, discount rates and longevity – to analyse their relative importance. I find that the cost of employing a member of defined benefit pension scheme has consistently outpaced the cost of employing someone in a defined contribution arrangement. I also find that the current cost of accrual is significantly higher than the average level of payments to defined contribution schemes.

Type
Papers
Copyright
© Institute and Faculty of Actuaries 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Breedon, F., Chadha, J.S. & Water, A. (2012). The financial market impact of UK quantitative easing, BIS Paper No. 65, Basel.Google Scholar
Bridges, J. & Thomas, R. (2012). The impact of QE on the UK economy – some supportive monetarist arithmetic, Bank of England Working Paper No. 442, London.Google Scholar
Christensen, J.H.E. & Rudebusch, G.D. (2012). The response of interest rates to U.S. and U.K quantitative easing, Federal Reserve Bank of San Francisco Working Paper No. 2012-06, San Francisco.Google Scholar
Cribb, J. & Emmerson, C. (2016a). Workplace pensions and remuneration in the public and private sectors in the UK. National Institute Economic Review, 237, 3037.CrossRefGoogle Scholar
Cribb, J. & Emmerson, C. (2016b). What happens when employers are obliged to nudge? Automatic enrolment and pension saving in the UK, IFS Working Paper No. W16/19, London.Google Scholar
Cumbo, J. (2016). MPs to consider allowing pension schemes to break inflation promises, Financial Times, 30 September (retrieved from FT.com).Google Scholar
Danzer, A. & Dolton, P. (2012). Total reward and pensions in the UK in the public and private sectors. Labour Economics, 19, 584594.CrossRefGoogle Scholar
Disney, R., Emmerson, C. & Tetlow, G. (2009). What is a public sector pension worth? Economic Journal, 119, 517535.CrossRefGoogle Scholar
HM Revenue & Customs (2015). Personal pensions: estimated number of individuals contributing and average contribution by status. Personal pensions: contribution and tax relief statistics. Available online at the address https://www.gov.uk/government/statistics/personal-pensions-estimated-number-of-individuals-contributing-by-gender-and-age Google Scholar
Human Mortality Database (2016). University of California, Berkeley (USA), and Max Planck Institute for Demographic Research (Germany). Available online at the address www.mortality.org, www.humanmortality.de [accessed 13-Jun-2016].Google Scholar
Joyce, M.A.S., Lasaosa, A., Stevens, I. & Tong, M. (2011). The financial market impact of quantitative easing in the United Kingdom, International Journal of Central Banking.Google Scholar
Kapetanios, G., Mumtaz, H., Stevens, I. & Theodoridis, K. (2012). Assessing the economy-wide effects of quantitative easing, Bank of England Working Paper No. 443, London.Google Scholar
Lee, R. & Carter, L. (1992). Modeling and forecasting US mortality. Journal of the American Statistical Association, 87(419), 659671.Google Scholar
Meier, A. (2009). Panacea, curse or nonevent? Unconventional monetary policy in the United Kingdom, International Monetary Fund Working Paper No. 09/163, Washington, D.C.Google Scholar
Office for National Statistics (2003), Occupational Pension Scheme Survey, 2000 Annual Report.Google Scholar
Office for National Statistics (2015). Occupational pension schemes survey, 2014.Google Scholar
Office for National Statistics (2016). Occupational pension schemes survey, 2015.Google Scholar
Pension Protection Fund (2015). The Purple Book, 2015. Available online at the address http://www.pensionprotectionfund.org.uk/Pages/ThePurpleBook.aspx Google Scholar
The Pensions Regulator (2016). Scheme funding statistics: valuations and recovery plans of UK defined benefit and hybrid pension schemes. Available online at the address http://www.thepensionsregulator.gov.uk/docs/scheme-funding-2016.pdf Google Scholar
Sweeting, P. (2008). The cost and value of UK defined benefit provision. Journal of Pension Economics and Finance, 7(2), 134.CrossRefGoogle Scholar
Sweeting, P., Christie, A. & Gladwyn, E. (2013). Not drowning but waving? Quantitative easing and UK pension schemes, J.P Morgan Asset Management Insight Paper, London.Google Scholar

Send article to Kindle

To send this article to your Kindle, first ensure no-reply@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

Note you can select to send to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

The cost and value of UK pensions
Available formats
×

Send article to Dropbox

To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

The cost and value of UK pensions
Available formats
×

Send article to Google Drive

To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

The cost and value of UK pensions
Available formats
×
×

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *