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Box A: Implications of the transition from Defined Benefit to Defined Contribution pensions in the UK

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  • Francisco Sebastian

Abstract

This box discusses the ongoing shift in the UK funded occupational pension landscape from Defined Benefit (DB) to Defined Contribution (DC) schemes, which carries significant implications for financial markets and the broader UK macroeconomic environment. Within the cyclical horizon, this transition is anticipated to result in a decline in real pension savings and a redirection of capital away from domestic use. The financial repercussions extend to funding pressures on the UK central government and to corporate sectors involved with infrastructure, such as utilities and housing. Additionally, it makes long-term interest rates more volatile and fosters a procyclical relationship with sterling. The key macroeconomic repercussion is an erosion of resources and willingness to invest domestically, from both private and public sources. Recent policy attempts to induce domestic investment from private pension funds are well intentioned. The bigger opportunity for the UK Government to nurture investment lays with occupational pensions in the public sector.

Suggested Citation

  • Francisco Sebastian, 2024. "Box A: Implications of the transition from Defined Benefit to Defined Contribution pensions in the UK," National Institute UK Economic Outlook, National Institute of Economic and Social Research, issue 13, pages 29-33.
    • Handle: RePEc:nsr:niesra:i:13:y:2024:p:29-33
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    References listed on IDEAS

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    1. Joseph Vavra & Erik Hurst & Andreas Fuster & Martin Beraja, 2017. "Regional Heterogeneity and Monetary Policy," 2017 Meeting Papers 270, Society for Economic Dynamics.
    2. Bhattacharjee, Arnab & Szendrei, Tibor, 2021. "Box E: Distributional impacts of Covid-19 and potential for policy intervention," National Institute UK Economic Outlook, National Institute of Economic and Social Research, vol. 0(4), pages 41-44.
    3. Bhattacharjee, Arnab & Szendrei, Tibor, 2021. "Box E: Distributional impacts of Covid-19 and potential for policy intervention," National Institute UK Economic Outlook, National Institute of Economic and Social Research, issue 4, pages 41-44.
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