One of the most common pension schemes which had emerged in the twentieth century is the traditional pension scheme. It has proven to be a very useful and effective pension scheme for the employers and the employees. But, it has been observed that in the recent times in the labour force of USA, UK and other nations, there has been a decline in the traditional pension schemes. In this kind of scheme, the precious measurement of retirement security is paid to the people by paying annuity for life. They can help in attracting and retaining the people who may be committed to the employer for a long term. This is because the people will be getting the good amount of money in the form of the traditional pension at the time of retirement. To ensure that the same happens successfully, one doesn’t changes his or her job too often. Therefore, in traditional pension plans, the present value related to the benefits may actually grow at a slower rate in the early career of the employer and it accelerates slowly and steadily.
Factors responsible for the declination of traditional pension plan:A large number of reasons have been identified for the declination of the traditional pension plan in the recent times. This includes the supply side factors and the demand side factors. Change in Demand: Whenever there is a change in the characteristic of the workers, there may be a change in their demands. Increasing aggregate Longevity risk: As a result of the better life and health facilities, there has been an increase in the life expectancy of a person. According to the estimate by OECD, the life expectancy of women in Japan has increased by 8.1 years. Because of the same, the companies are shifting away from the traditional pensions. Underperforming/ Volatile market: The market is completely volatile. There is always a risk associated in this kind of market. Historic interest rate lows: The lower interest rates have had a severe impact on the pension plans. The decline in the rates has further led to the entailment of the concurrent and large increase in the present value which is related to the liabilities.