We measure accruals in defined benefit (DB) pension plans for public and private sector workers in Britain, using typical differences in scheme rules and sector-specific lifetime age-earnings profiles by sex and educational group. We show not just that coverage by DB pension plans is greater in the public sector, but that median pension accruals as a % of salary are almost 5% higher among DB-covered public sector workers than covered private sector workers. This is largely driven by earlier normal pension (retirement) ages. For workers of different ages in the two sectors, marginal accruals also vary as a result of differences in earnings profiles across the sectors. The differences in earnings profiles across sectors should induce caution in using calculated coefficients on wages from cross sections of data in order to estimate sectoral wage effects.
The financial crisis of 2008 and associated recession led to a permanent deterioration in the outlook for the UK's public finances. As part of the fiscal consolidation implemented by the UK government, grants to local authorities in England were cut by more than a third in real terms between 2009–10 and 2014–15. With limited revenue‐raising powers, these cuts meant drastic reductions in local authority spending in total and per person: local authority spending per person fell in real terms by 23.4 per cent over this period. But the size of spending cuts per person differed greatly across local authorities, ranging from 46.3 per cent to 6.2 per cent. On average, the distribution of the cuts across authorities does not seem to reflect the principle of ‘equalisation’ that was, at least in theory, in place up until 2013–14; the local authorities with least revenue‐raising capacity (which are typically the most deprived) have on average actually seen the largest spending cuts. Moreover, this pattern looks set to continue over the next five years, with those authorities that have seen the largest cuts to date also expected to see the largest cuts in future.
This Briefing Note describes state pension provision in the United Kingdom from the inception of the basic state pension in 1948, following the Beveridge Report, to Pensions Act 2007 and the plans of the Conservative/Liberal Democrat coalition government. The main objective is to provide a comprehensive description of the rules that currently determine pension benefits as well as those that have been in place in the past. However, we also provide a brief historical overview of the dilemmas facing policymakers when contemplating pension reforms and a summary of the most recent reforms. The history of the UK pension system is the story of a mainly non-contributory system, periodically tempted by the higher replacement rate of social insurance schemes, but always frightened once the costs become apparent. Recent reforms have tilted the system further in the direction of a universal flat-rate benefit, abandoning any social insurance design. This confirms that the main objective of the UK state pension system is to reduce poverty at old age. These flat-rate pensions will also reduce the reliance of the system on means-tested benefits, somewhat reinforcing the Beveridgean design of the system. Given these clarifications, it is unfortunate that the latest reforms have still sought to maintain much of the complex structure of the pre-existing system instead of reforming and rationalising it. However, once issues of transition have been dealt with, there may yet be scope for simplifying the presentation of the rules. * This paper was funded by the ESRC Centre for the Microeconomic Analysis of Public Policy at the Institute for Fiscal Studies (RES-544-28-5001). The authors would like to thank Carl Emmerson for useful comments on an earlier draft of this Briefing Note and Judith Payne for copy-editing. All remaining errors are the responsibility of the authors.
Executive summary• This briefing note focuses on net spending by local authorities on public services.We exclude spending on police and fire and rescue as this is not directly under the control of single-tier and county councils. We also exclude spending on education, public health and a small component of social care as local authorities' responsibilities for these areas have been changing over time. During this parliament, this measure of spending by local authorities in England has been cut significantly in real terms. Between 2009---10 and 2014---15, it was cut by 20.4% after accounting for economy-wide inflation. Taking into account population growth over this period, spending per person was cut by 23.4%.• These cuts to local authority spending were similar in magnitude to those seen on average across central government departments outside protected areas such as the NHS, schools and official development assistance.• Local authorities have had to cut spending in the face of falls in their main sources of revenue. Grants from central government to local government (excluding housing benefit grant and those specifically for education, public health, police, and fire and rescue services and the housing benefit grant) have been cut by 36.3% overall (and by 38.7% per person) in real terms between 2009---10 and 2014---15. Total council tax revenues have grown slightly in real terms over this period (3.2%), although this still represents a decline of 0.7% per person. Taking grants and council tax revenues together, local authorities' total revenues have fallen by 19.9% overall (or 22.9% per person) in real terms. Council tax revenues funded just over half of local government spending in 2014---15, up from 41% in 2009---10. • Even though revenues have fallen significantly, on average local authorities have spent less than they received from grants and council tax over the last five years, meaning that on average they have increased their reserves rather than drawn from them. The average increase in reserves across local authorities in England was an increase equal to 5% of annual spending in 2009---10.
We provide new empirical evidence on the importance of defined contribution pension wealth in England, and the nature of annuitization decisions taken by older adults who retire with such sources of wealth. Other things equal, financial literacy, and numeracy in particular, are important factors governing individuals’ choices over whether to shop around for an annuity as opposed to taking the ‘path of least resistance’ option and purchasing from their original pension fund provider. This has important policy and welfare implications given that buying an annuity on the open market has significant financial benefits for most people. In the context of the increasing reliance on private provision for retirement, the importance of individuals having the financial literacy to successfully navigate complex financial decisions late in life should not be underestimated.
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