Unpleasant Actuarial Arithmetic: Fair Contribution Rates for Defined Benefit Pension Schemes

Kenjiro Hori and Stephen Wright

No 2201, Birkbeck Working Papers in Economics and Finance from Birkbeck, Department of Economics, Mathematics & Statistics

Abstract: We derive key properties of the actuarially fair contribution rate for defined benefit (DB) schemes, that equates scheme assets to liabilities for any given scheme member. The unpleasant actuarial arithmetic of both increased life expectancy and (especially) negative real yields has resulted in a massive rise in the fair contribution rate over recent decades. At present there appears to be little prospect of these rises being reversed. We analyse the implications for the viability of DB schemes, and consider the (potentially significant) impact of incorporating systematic risk into benefits.

Keywords: defined benefit; pension contribution rate (search for similar items in EconPapers)
JEL-codes: J32 (search for similar items in EconPapers)
Date: 2022-02-22
New Economics Papers: this item is included in nep-age and nep-rmg
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https://eprints.bbk.ac.uk/id/eprint/47651 First version, 2022

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