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The value of teachers' pensions

Author

Listed:
  • Richard Disney

    (Institute for Fiscal Studies and University of Sussex)

  • Carl Emmerson

    (Institute for Fiscal Studies and Institute for Fiscal Studies)

  • Gemma Tetlow

    (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.

Suggested Citation

  • Richard Disney & Carl Emmerson & Gemma Tetlow, 2009. "The value of teachers' pensions," IFS Working Papers W09/07, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:09/07
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    File URL: http://www.ifs.org.uk/wps/wp0907.pdf
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    References listed on IDEAS

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    1. Peter Dolton & Tsung-Ping Chung, 2004. "The Rate of Return to Teaching: How does it Compare to other Graduate Jobs?," National Institute Economic Review, National Institute of Economic and Social Research, vol. 190(1), pages 89-103, October.
    2. Dolton, Peter J & van der Klaauw, Wilbert, 1995. "Leaving Teaching in the UK: A Duration Analysis," Economic Journal, Royal Economic Society, vol. 105(429), pages 431-444, March.
    3. Peter Dolton & Wilbert van der Klaauw, 1999. "The Turnover of Teachers: A Competing Risks Explanation," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 543-550, August.
    4. Dolton, Peter & van der Klaauw, Wilbert, 1994. "The Turnover of UK Teachers: A Competing Risks Analysis," Working Papers 94-21, C.V. Starr Center for Applied Economics, New York University.
    5. Arnaud Chevalier & Peter Dolton, 2004. "The Labour Market for Teachers," Working Papers 200411, School of Economics, University College Dublin.
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    Cited by:

    1. Haynes, Jonathan B. & Sessions, John G., 2013. "Work now, pay later? An empirical analysis of the pension–pay trade off," Economic Modelling, Elsevier, vol. 30(C), pages 835-843.

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