The cost and value of UK pensions

Sweeting, Paul (2017) The cost and value of UK pensions. Annals of Actuarial Science, 12 (1). pp. 49-66. ISSN 1748-4995. E-ISSN 1748-5002. (doi:10.1017/S1748499517000082)

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Abstract

Over the last twenty 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 longevi ty - 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.

Item Type: Article
DOI/Identification number: 10.1017/S1748499517000082
Uncontrolled keywords: Defined benefit; Defined contribution; Pension; Longevity; Interest rates
Divisions: Faculties > Sciences > School of Mathematics Statistics and Actuarial Science
Faculties > Sciences > School of Mathematics Statistics and Actuarial Science > Actuarial Science
Depositing User: P. Sweeting
Date Deposited: 02 May 2017 08:51 UTC
Last Modified: 29 May 2019 19:01 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/61590 (The current URI for this page, for reference purposes)
Sweeting, Paul: https://orcid.org/0000-0001-6214-9239
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