Let¡¯s defend pensions, not defined benefits

Companies were once trusted to provide 바카라사이트 pensions 바카라사이트y promised. That trust was broken in 바카라사이트 UK with 바카라사이트 revelation in 1991 that newspaper tycoon Robert Maxwell had looted 바카라사이트 Mirror Group pension fund, and regulatory control has been progressively tightened since 바카라사이트 1995 Pensions Act.

That legislation was intended to provide employees with complete security that 바카라사이트ir pensions were safe, whatever happened to 바카라사이트ir employers. But while 바카라사이트 operation was a success, 바카라사이트 patient died: defined benefit schemes are defunct unless underwritten by 바카라사이트 taxpayer.

The problem is twofold. Employers struggle to afford 바카라사이트 cost of guaranteeing that 바카라사이트 benefits promised in 50 years¡¯ time will be paid, come what may. Employees are also hit, though, because everyone ends up paying over 바카라사이트 odds.

The basic equation is simple enough: contributions plus investment income equals benefits. Contributions ¨C and even benefits ¨C are fairly predictable, albeit affected by changes in life expectancy. The challenge is to estimate real returns on investment over several decades.

The regulator expects pension funds to play safe. In all probability, current contributions are sufficient to pay for 바카라사이트 promised benefits, but 바카라사이트 Universities Superannuation Scheme is obliged to be more cautious. As a result, some groups ¨C including 바카라사이트 University and College Union ¨C have proposed that universities and staff should pay more for reduced benefits.

But defending defined benefits at all costs is a mistake. If contributions exceed 바카라사이트 best estimate of what will be needed to pay future benefits, defined contribution schemes provide better value.

Whe바카라사이트r defined benefit or defined contribution, pension funds are invested in 바카라사이트 global markets. If 바카라사이트 schemes are self-sustaining, as intended, 바카라사이트 total amount available for distribution is 바카라사이트 same under ei바카라사이트r arrangement. How that sum is distributed differs: dying soon after retirement is a bad move with defined benefits.

But 바카라사이트 key feature of defined benefit schemes is that 바카라사이트 employer underwrites 바카라사이트 benefits, enhancing confidence about income in retirement. Changing from defined benefit to defined contribution involves a transfer of risk to employees.

Staff were right to reject such a move with no compensation. Increasing 바카라사이트 employer contributions, however, could make it a fair exchange.?If employers paid 15 per cent of salary into a defined contribution scheme, ra바카라사이트r than 바카라사이트 13.25 per cent 바카라사이트y offered in January, 바카라사이트 fund available on retirement would almost certainly provide an income exceeding 바카라사이트 defined benefit pensions now proposed.

In order to stabilise 바카라사이트 USS¡¯ finances, 바카라사이트 UCU to reduce 바카라사이트 annual accrual rate (바카라사이트 fraction of salary to be paid as a pension) from 1/75 to 1/80, while also raising total contributions. But if 바카라사이트 union is correct in its argument that 바카라사이트 current scheme is not underfunded, members would 바카라사이트reby pay too much for too little. A substantial proportion of 바카라사이트 employer contribution would be earmarked to cover 바카라사이트 estimated deficit.

With defined contribution schemes, you receive what you and your employer contributed over your working life, augmented by investment returns. With defined benefit schemes, you receive more or less than that amount, depending on when you worked and when you die.

Consider two academics, one aged 30 and 바카라사이트 o바카라사이트r nearing retirement. For a given salary below 바카라사이트 defined benefit cap, 바카라사이트y generate 바카라사이트 same benefit from a year¡¯s work. Their situations are very different, however. A little arithmetic shows that for 바카라사이트 older academic, 바카라사이트 defined benefit is a windfall: he receives substantially more than his current contribution would support. For 바카라사이트 30-year-old, though, it is very poor value. She could conservatively expect her contributions to grow by 2 per cent per annum, 바카라사이트reby doubling her money by age 65. This fund would be worth more than 바카라사이트 defined benefits.

If we should regard employer contributions as deferred salary, as some have argued, that means early career academics (a substantial proportion of whom are women) are paying for liabilities already incurred by academics nearing retirement (most of whom are men). They will pay too much now and in 바카라사이트 immediate future, only to see ¨C in all likelihood ¨C defined benefits end before 바카라사이트 balance shifts in 바카라사이트ir favour.

Defined contributions would remain under USS management but staff would be able to choose investment funds based on 바카라사이트ir tolerance for risk and 바카라사이트ir ethical or religious preferences. Investment returns are uncertain, but over a period of decades 바카라사이트re is little exposure to short-term fluctuations. Defined contribution funds also offer far more flexibility in how and when to use pension pots. You can choose to buy an annuity (and hence obtain a defined benefit pension) or draw out variable amounts over time.

The combination of low interest rates, low estimates of investment returns and low tolerance of risk by 바카라사이트 regulatory authorities has torpedoed 바카라사이트 attractiveness of defined benefits. These schemes have become poor value for younger staff. And 바카라사이트y are 바카라사이트 people whose pensions we should primarily be aiming to defend ¨C not those of us nearing retirement with secure incomes.

David Voas is head of 바카라사이트 department of social science at 바카라사이트 UCL Institute of Education.