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    Pension scheme redesign and wealth redistribution between the members and sponsor: The USS rule change in October 2011

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    End of Embargo
    2017-10-16
    Author
    Platanakis, Emmanouil
    Sutcliffe, C.
    Keyword
    Defined benefit; Pension scheme; Redistribution; USS; Scheme design; Risk shifting; Risk management
    Rights
    © 2016 Elsevier. Reproduced in accordance with the publisher's self-archiving policy. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
    Peer-Reviewed
    Yes
    
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    Abstract
    The redesign of defined benefit pension schemes usually results in a substantial redistribution of wealth between age cohorts of members, pensioners, and the sponsor. This is the first study to quantify the redistributive effects of a rule change by a real world scheme (the Universities Superannuation Scheme, USS) where the sponsor underwrites the pension promise. In October 2011 USS closed its final salary scheme to new members, opened a career average revalued earnings (CARE) section, and moved to ‘cap and share’ contribution rates. We find that the pre-October 2011 scheme was not viable in the long run, while the post-October 2011 scheme is probably viable in the long run, but faces medium term problems. In October 2011 future members of USS lost 65% of their pension wealth (or roughly £100,000 per head), equivalent to a reduction of roughly 11% in their total compensation, while those aged over 57 years lost almost nothing. The riskiness of the pension wealth of future members increased by a third, while the riskiness of the present value of the sponsor’s future contributions reduced by 10%. Finally, the sponsor’s wealth increased by about £32.5 billion, equivalent to a reduction of 26% in their pension costs.
    URI
    http://hdl.handle.net/10454/8145
    Version
    Author's final draft
    Citation
    Platanakis E and Sutcliffe C (2016) Pension scheme redesign and wealth redistribution between the members and sponsor: The USS rule change in October 2011. Insurance: Mathematics and Economics. 69: 14-28.
    Link to publisher’s version
    http://dx.doi.org/10.1016/j.insmatheco.2016.04.001
    Type
    Article
    Notes
    The full text will be available at the end of the publisher's embargo; Oct 16 2017
    Collections
    Management and Law Publications

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