The value of teachers' pensions

Richard Disney (), Carl Emmerson () and Gemma Tetlow
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Richard Disney: Institute for Fiscal Studies and University of Sussex
Carl Emmerson: Institute for Fiscal Studies and Institute for Fiscal Studies

No W09/07, IFS Working Papers from Institute for Fiscal Studies

Abstract:

As private sector employers have moved away from providing final salary defined benefit (DB) pensions to their employees, attention has increasingly focused on the public sector's continued provision of such pensions and the value of these pension promises to public sector employees. The estimated underlying liabilities of such plans have increased sharply in recent years, at least in part due to unanticipated increases in longevity. This has led to reforms of all the major public sector pension schemes, the net result of which has been to reduce the level of benefits offered by the schemes (predominantly to new, rather than existing members).

This paper examines, in the context of the Teachers' Pension Scheme (TPS), how much the pension promises are worth and what effect the change in scheme rules has had on them. This paper also addresses a number of other issues that are important when valuing DB pension rights and their relation to overall remuneration. First, how increases in current pay feed through into pension values. Second, how the age profile of earnings affects the profile of pension accrual. Finally, how the value of pension rights in DB schemes compares to that in a stylised defined contribution (DC) scheme.

The figures presented in this paper relate specifically to the composition of members and the specific scheme rules of the TPS. However, the issues raised apply equally to other DB schemes, both public and private sector.

Date: 2009-03-04
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Citations: View citations in EconPapers (2)

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