期刊名称：Cardiff Economics Working Papers / Cardiff University, Cardiff Business School
印刷版ISSN：1749-6101
出版年度：2018
期号：22
语种：English
出版社：Cardiff University
摘要：This article shows that the cost of defined benefit (DB) schemes is grossly overestimated by current low interest rates, which have been depressed because of quantitative easings and technical buying by pension funds. For the DB scheme studied in this article, the indexlinked gilt yield on 31 March 2020 implies 58.6% of payroll is required to pay for inflationlinked benefits at 1/75 accrual rate, but the cost of guarantee can be met by members’ contributions not more than 34.7% of payroll. The low interest rate also causes increased exposure to risky assets and significant welfare reduction for defined contribution schemes, whereas the loss in welfare is relatively small for DB schemes. Using the proposed surplus over volatility measure, this article illustrates how insolvency risk of a DB scheme can be mitigated by higher funding ratio, reduced cash outflow and long horizon investment. Finally, a simulation study is presented to show various possible long-term funding targets for the studied DB scheme. This is achieved by using surplus due to prudence to gradually lower future service cost and raise benefits from an initial 26% of payroll contribution and 1/75 accrual rate respectively, thereby solving the problem of younger generation’s high opt-out rates due to affordability issue.
