Report of the Director General's Inquiry into Pensions

Abstract

Abstract This study examines pensions portability and the preservation of pensions rightsin the U.K. We review the economic theory underlying pension schemes and thearguments for and against more pensions portability. We show that the effect ofcurrent laws and actuarial practice is to penalize young early leavers heavily, sothat they can lose up to 30% of the pension that they might have expected whenthey retire. We propose a policy to reduce this early leaver penalty according to asliding scale that involves determining transfer values for younger workers on thebasis of actual contributionspaid rather than on notional accrued benefits, but withaccrued benefits having a more significant weight in calculating the transfer valuesof older early leavers. The effects of the various actuarial valuation methods andassumptions used as well as the discretion allowed to actuaries are discussed indetail. We also compare the position of early leavers in the U.S., Canada, theNetherlands, and Japan. Acknowledgments

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