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What is a Public Sector Pension Worth?

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  • Richard Disney
  • Carl Emmerson
  • Gemma Tetlow

Abstract

We measure accruals in defined benefit (DB) pension plans for public and private sector workers in Britain, using typical differences in scheme rules and sector‐specific lifetime age‐wage profiles by sex and educational group. We show not just that coverage by DB pension plans is greater in the public sector but that median pension accruals as a percentage of salary are more than 6% higher among DB‐covered public sector workers than covered private sector workers. This is largely driven by earlier normal pension (retirement) ages but also by differences in earnings profiles across the sectors.

Suggested Citation

  • Richard Disney & Carl Emmerson & Gemma Tetlow, 2009. "What is a Public Sector Pension Worth?," Economic Journal, Royal Economic Society, vol. 119(541), pages 517-535, November.
    • Handle: RePEc:wly:econjl:v:119:y:2009:i:541:p:f517-f535
    DOI: 10.1111/j.1468-0297.2009.02320.x
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    3. Danzer, Alexander M. & Dolton, Peter J., 2012. "Total Reward and pensions in the UK in the public and private sectors," Labour Economics, Elsevier, vol. 19(4), pages 584-594.
    4. Bonaccolto-Töpfer, Marina & Castagnetti, Carolina & Prümer, Stephanie, 2022. "Understanding the public-private sector wage gap in Germany: New evidence from a Fixed Effects quantile Approach∗," Economic Modelling, Elsevier, vol. 116(C).
    5. David Sturrock, 2023. "Wealth and welfare across generations," IFS Working Papers W23/15, Institute for Fiscal Studies.
    6. Rowena Crawford & Polly Simpson, 2020. "The impact of house prices on pension saving in early adulthood," IFS Working Papers W20/38, Institute for Fiscal Studies.
    7. Antoine Bozio, 2017. "Taking contributions into account in public‑private comparison of pensions. Comment on “Differences between public and private sector pensions: an analysis based on career profile simulations”," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 491-492, pages 41-46.
    8. Marco Bertoni & Giorgio Brunello, 2016. "Later-borns Don’t Give Up: The Temporary Effects of Birth Order on European Earnings," Demography, Springer;Population Association of America (PAA), vol. 53(2), pages 449-470, April.
    9. Peter Levell & Barra Roantree & Jonathan Shaw, 2021. "Mobility and the lifetime distributional impact of tax and transfer reforms," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(4), pages 751-793, August.
    10. Meijdam, A.C. & Ponds, E.H.M., 2013. "On the Optimal Degree Of Funding Of Public Sector Pension Plans," Other publications TiSEM 1c5b7af1-e1ee-4d01-a341-f, Tilburg University, School of Economics and Management.
    11. Etheridge, Ben, 2015. "A test of the household income process using consumption and wealth data," European Economic Review, Elsevier, vol. 78(C), pages 129-157.
    12. Ponds, E.H.M. & Severinson, C. & Yermo, J., 2012. "Implicit debt in public sector plans : An international comparison," Other publications TiSEM 8263bb65-8b50-4890-9252-0, Tilburg University, School of Economics and Management.
    13. Eduard Ponds & Clara Severinson & Juan Yermo, 2011. "Funding in Public Sector Pension Plans - International Evidence," NBER Working Papers 17082, National Bureau of Economic Research, Inc.
    14. Platanakis, Emmanouil & Sutcliffe, Charles, 2016. "Pension scheme redesign and wealth redistribution between the members and sponsor: The USS rule change in October 2011," Insurance: Mathematics and Economics, Elsevier, vol. 69(C), pages 14-28.
    15. Wang, Wen & Shi, Hongyu & Li, Qiang, 2023. "Pension gap between the Chinese public and nonpublic sectors： evidence in the context of the integration of dual-track pension schemes," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 664-688.
    16. Philip Murphy & David Blackaby & Nigel O'Leary & Anita Staneva, 2020. "Understanding What Has Been Happening to the Public‐Sector Pay Premium in Great Britain: A Distributional Approach Based on the Labour Force Survey," British Journal of Industrial Relations, London School of Economics, vol. 58(2), pages 273-300, June.
    17. Eich, Frank, 2009. "Evaluating public and private sector pensions: The importance of sectoral pay differentials," EconStor Preprints 54561, ZBW - Leibniz Information Centre for Economics.
    18. Bertoni, Marco & Brunello, Giorgio, 2013. "Laterborns Don't Give Up: The Effects of Birth Order on Earnings in Europe," IZA Discussion Papers 7679, Institute of Labor Economics (IZA).
    19. Danzer, Alexander M. & Dolton, Peter, 2011. "Total Reward in the UK in the Public and Private Sectors," IZA Discussion Papers 5656, Institute of Labor Economics (IZA).
    20. Fabien Postel-Vinay, 2015. "Does it pay to be a public-sector employee?," IZA World of Labor, Institute of Labor Economics (IZA), pages 156-156, June.
    21. Gomes, Pedro Maia & Wellschmied, Felix, 2020. "Public-Sector Compensation over the Life Cycle," IZA Discussion Papers 13042, Institute of Labor Economics (IZA).
    22. Max Schanzenbach, 2015. "Explaining the Public-Sector Pay Gap: The Role of Skill and College Major," Journal of Human Capital, University of Chicago Press, vol. 9(1), pages 1-44.

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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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