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"Sustainable and Affordable"? Actuarially Fair Contribution Rates for the USS Pension Scheme

Author

Listed:
  • Kenjiro Hori

    (Birkbeck, University of London)

  • Stephen Wright

    (Birkbeck, University of London)

Abstract

We compute actuarially fair contribution rates (aggregating both employers' and employees' contributions) for the USS pension scheme, using UK life tables and market yield curves. The fair rate is sensitive to life expectancy and the level of real yields, neither of which appears stationary. So any scheme predicated on a constant contribution rate is inherently unstable. We therefore argue that, to survive, defined benefit schemes such as USS must explicitly incorporate time variation in contribution rates, ideally along with some dependence on individual characteristics. Our formulae in principle provide an objective, verifiable and implementable methodology to calculate such fair contribution rates.

Suggested Citation

  • Kenjiro Hori & Stephen Wright, 2019. ""Sustainable and Affordable"? Actuarially Fair Contribution Rates for the USS Pension Scheme," Birkbeck Working Papers in Economics and Finance 1901, Birkbeck, Department of Economics, Mathematics & Statistics.
    • Handle: RePEc:bbk:bbkefp:1901
    as

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    File URL: https://eprints.bbk.ac.uk/id/eprint/26674
    File Function: First version, 2019
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    References listed on IDEAS

    as
    1. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
    2. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(4), pages 627-627, November.
    3. Alicia H. Munnell & Steven A. Sass, 2013. "New Brunswick’s New Shared Risk Pension Plan," Issues in Brief ibslp33, Center for Retirement Research.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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