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Pension Buyouts: What Can We Learn From the UK Experience?


  • Ashby H.B. Monk


Over the past half century, employer-sponsored defined benefit (DB) pensions have been crucial sources of retirement income and security. However, the popularity of DB pensions in the private sector has dwindled, and competitive pressures may drive DB plans from the private sector altogether. Significantly, this burden is not only a US phenomenon, as UK private plan sponsors are also struggling to manage their DB pension commitments. Nonetheless, a fundamental difference of opinion exists between UK and US policymakers about how to address the decline of the DB system. In the United Kingdom, DB stakeholders have accepted the plans’ decline as inevitable and are now promoting alternative mechanisms to shore up retirement security. For example, in the Pensions Act of 2008, the UK government mandated that employers enroll eligible employees into a workplace pension and created a new second pillar pension institution, the Personal Accounts Delivery Authority (PADA), to facilitate the new policy. In addition, UK policymakers, and indeed most DB stakeholders, have endorsed the use of pension buyouts as a way to manage the decline of this once important institution. A buyout allows firms to pay an insurance company a fee to take over the assets and liabilities of their plan, thereby freeing them from their DB obligations. As such, UK policymakers perceive buyouts to be part of the process of unwinding an unsustainable institution, and most see the rising popularity of pension buyouts as a direct response to the increasingly burdensome nature of DB pensions...

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  • Ashby H.B. Monk, 2009. "Pension Buyouts: What Can We Learn From the UK Experience?," Issues in Brief ib2009-9-21, Center for Retirement Research, revised Oct 2009.
  • Handle: RePEc:crr:issbrf:ib2009-9-21

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    1. Ashby H. B. Monk, 2008. "The Knot of Contracts: The Corporate Geography of Legacy Costs," Economic Geography, Clark University, vol. 84(2), pages 211-235, April.
    2. Blake David & Cairns Andrew & Dowd Kevin, 2008. "The Birth of the Life Market," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 3(1), pages 1-32, September.
    3. Alicia H. Munnell & Mauricio Soto, 2007. "Why Are Companies Freezing Their Pensions?," Working Papers, Center for Retirement Research at Boston College wp2007-22, Center for Retirement Research, revised Dec 2007.
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