Back to the Future: A Long Term Solution to the Occupational Pensions Crisis

31 Pages Posted: 5 Jun 2010

See all articles by Charles Sutcliffe

Charles Sutcliffe

University of Reading - ICMA Centre

Date Written: June 4, 2010

Abstract

In the UK and elsewhere, defined benefit (DB) schemes are being replaced by defined contribution (DC) schemes. However DC schemes have some substantial weaknesses, and a continuation of current policies will probably lead to another pensions crisis in a few decades. There is an alternative which avoids the major defects of DC schemes. It is proposed that, if UK employers wish to replace their DB schemes, they should do so with something that looks like a career average revalued earnings (CARE) DB scheme to the members, but is funded by single premium deferred annuities (SPDAs) and looks like a DC scheme to the employer. Pension provision is outsourced to specialist providers (insurance companies), with the risk (and the decisions that must be made by members of a DC scheme) managed by insurers, not the employer or members.

Keywords: Deferred Annuity, Defined Benefit, Defined Contribution, Single Premium Deferred Annuity, Insurers, Occupational Pension Scheme, Derisking, Two-Pension Fund Separation, Crisis

JEL Classification: G22, G23

Suggested Citation

Sutcliffe, Charles M., Back to the Future: A Long Term Solution to the Occupational Pensions Crisis (June 4, 2010). Available at SSRN: https://ssrn.com/abstract=1620994 or http://dx.doi.org/10.2139/ssrn.1620994

Charles M. Sutcliffe (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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