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

Kenjiro Hori and Stephen Wright

No 1901, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

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.

JEL-codes: J32 (search for similar items in EconPapers)
Date: 2019-01
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https://eprints.bbk.ac.uk/id/eprint/26674 First version, 2019

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