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

55 Pages Posted: 30 Jan 2019

See all articles by Kenjiro Hori

Kenjiro Hori

Birkbeck, University of London

Stephen H. Wright

Birkbeck College, University of London

Date Written: January 3, 2019

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.

Keywords: defined benefit, pension contribution rate

JEL Classification: J32

Suggested Citation

Hori, Kenjiro and Wright, Stephen H., 'Sustainable and Affordable'? Actuarially Fair Contribution Rates for the USS Pension Scheme (January 3, 2019). Available at SSRN: https://ssrn.com/abstract=3318357 or http://dx.doi.org/10.2139/ssrn.3318357

Kenjiro Hori

Birkbeck, University of London ( email )

Malet Street
London, London WC1
United Kingdom

Stephen H. Wright (Contact Author)

Birkbeck College, University of London ( email )

Malet St
London, WC1 E7HX
United Kingdom

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