What is a Public Sector Pension Worth?

Abstract

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.

Pension scheme redesign and wealth redistribution between the members and sponsor: The USS rule change in October 2011

“…Many empirical studies have tried to quantify the compensating wage differential, i.e. the size of the trade-off between pension benefits and wages, and recent examples of this literature include Disney et al (2009), Gerakos (2010 and Haynes and Sessions (2013). Attempts to quantify the wage-pension trade-off have encountered substantial econometric and data problems (Allen and Clark, 1987), but subject to these reservations, the empirical evidence suggests the trade-off is well below onefor-one.…”

Privatisation and pensions: what does this mean for women?

“…Also, while improvements in educational qualifications have enhanced women's private pensions (Disney et al, 2009), greater numbers of women in high-paid managerial and professional positions with access to occupational pension schemes have increased polarisation between the pension prospects of the lowest-and highestpaid women (Warren, 2003). However, although Disney et al (2009) found that social class has a significant impact on the likelihood of contributing to a private pension, Warren (2003) asserts that any advantages in pay and status that women have over men do not translate into an equivalent advantage in terms of pension wealth. Overall, women are less likely to contribute to private forms of pension provision than men (currently 38% of working-age women contribute to private pensions compared to 46% of men; DWP, 2005).…”

“…These schemes are most suited to those individuals with a high income prior to retirement, and for those with longevity of service, characteristics less likely to be associated with women, who tend to have a flatter earnings profile (Foster, 2010). In addition, DB pension plans often include provisions for early retirement on a variety of grounds (such as ill-health) and are more likely to include benefits for spouses on death (Disney et al, 2009). One fifth of all contributions to private pensions come from tax relief (PPI, 2004).…”

“…Lack of private pension income among minority ethnic groups may, in part, stem from shorter employment records in the UK and discriminatory processes in the labour market (Ginn, 2003). Also, while improvements in educational qualifications have enhanced women's private pensions (Disney et al, 2009), greater numbers of women in high-paid managerial and professional positions with access to occupational pension schemes have increased polarisation between the pension prospects of the lowest-and highestpaid women (Warren, 2003). However, although Disney et al (2009) found that social class has a significant impact on the likelihood of contributing to a private pension, Warren (2003) asserts that any advantages in pay and status that women have over men do not translate into an equivalent advantage in terms of pension wealth.…”

“…Actuarial calculations, which take into account women's greater longevity, currently result in the same fund buying an annuity for a woman that is about 10% less than for a man (Ginn, 2003). (The European Court of Justice has ruled that insurers cannot price products based on gender from December 2012, including annuities.The employee takes on the investment risk throughout the accumulation phase and the annuity rate risk at the point of withdrawal (Disney et al, 2009). However, in some respects, DC schemes may be more suitable to women as they are more portable.…”