Public Sector Pensions Are Affordable And Set The Standard For Others

[Injin]

How will that work?

The hedge funds will have paid most of it to senior staff and the gov't will claw the rest back to pay off the private sector debt way before I retire... I don't know what I'm paying for at all. Still it makes some people happy.

I'll leave you to your economic ignorance and fantasy of a benevolent state, I think.

Been a long day.

[Charlie Don't Surf]

@absolutezero

Hope you can feel my jealousy oozing!

You are defending the indefensible! Generous public sector salaries are funded by the private sector. As for deferred salary - I think you'll find the public sector are more than generously compensated for their sterling work.

Anyway, moot point as the money isn't there to pay them in 20 years time!

[Goat]

If you take out that benefit then the average Civil service 40/80 pension on is not much better than any surviving private sector final salary scheme and almost certainly far worse than those on offer to company directors in the banks etc who are almost certainly getting 40/60 of their final salary.

Believe it or not, not everyone in the private sector is a director of a bank.

Not better than private sector final salary schemes: agreed. How many of those are there left now? How much better is it than the arrangements for the 90%+ of private sector workers who are outside of an FS scheme?

Edited July 31, 2009 by Young Goat

[Charterhouse]

Charterhouse - is it not true that, prior to the last 5 yrs, your dad, as a public sector employee, probably earned sub-average wages for his skills, compensated by an excellent pension?

My main truck is with recent events where public sector salaries can be really excellent PLUS the excellent subsidised pension

My dad was army, for many years he was paid pretty awfully and even when he was paid quite well, his wages were indeed pretty small compared to what he earned in peacekeeping consultancy since official retirement.

I don't think anyone tends to begrudge the army/nurses/firemen, it's the civil servant types that tend to attract the ire, where as you say, the salaries seem to be pretty good as well as the pension.

[Guest absolutezero]

@absolutezero

Hope you can feel my jealousy oozing!

You are defending the indefensible! Generous public sector salaries are funded by the private sector. As for deferred salary - I think you'll find the public sector are more than generously compensated for their sterling work.

Been there. Done that. Do keep up at the back...

[Goat]

I don't think anyone tends to begrudge the army/nurses/firemen, it's the civil servant types that tend to attract the ire, where as you say, the salaries seem to be pretty good as well as the pension.

Not so sure about that; army yes, but firemen, I have my doubts and there's plenty of lazy incompetent nurses out there.

[grizzly bear]

How so?

Take a nurse. Nurses can purchase 1/80th of their final salary for the length of their retirement by paying 6% of their current salary, and can retire at 60. I beleive that's common for other public sector professions. If the nurse spends 20 years retired (that's about right, life expectancy is close to 80 these days and still going up), then the 1/80th of their final salary is actually every year is 25% of their last year's pay packet in total over the retirement. So by paying 6% of their current salary a nurse can purchase 25 % of their final salary. Assuming their pay goes up over their carrer, then for every pound they put in they get more than 4 pounds back.

Ok, you might be right in that it's "affordable", but only because the government will have the power to levy taxes on the whole working population to pay for the short fall. It's certainly not self funding as the times article suggests. Nowhere near.

My company had a final salary scheme - I am not in it as it has been closed for many years to new joiners. But there was such a big deficit on it and they have just made two changes to it:

a) raised retirement age to 65

rather than final salary its a weighted salary scheme

Re: the nurses, another way to look at it is that they pay 6% of their salary and their employer pays in an additional notional 20% - but the question is how are the NHS accounting for the notional 20%?

[Si1]

My dad was army, for many years he was paid pretty awfully and even when he was paid quite well, his wages were indeed pretty small compared to what he earned in peacekeeping consultancy since official retirement.

I don't think anyone tends to begrudge the army/nurses/firemen, it's the civil servant types that tend to attract the ire, where as you say, the salaries seem to be pretty good as well as the pension.

I feel this way:

this problem has become significant in the last 5 yrs, as public sector salaries have outstripped private sector - especially in white collar areas, and then again in management/mandarin/civil servant areas

So we have to be careful not to tar all public sector workers with the same brush - in many (prob most) cases the good pension is fair in return for lower wages over previous decades

Furthermore, the way they are funded, from future taxes, seems sensible IF NOT ABUSED. ie taking money for your pension out of, say, an index tracker pension stockmarket fund extracts the same £ capital from the economy as direct taxation funding the same pension, direct taxation having the ADVANTAGE of zero fees, and the DISADVANTAGE of it being potentially difficult limit the future liabilities.

So given this, if the mandarin/management class in the public sector are paid, say, 50% more than they would have been otherwise in the old-fashioned public sector, then they would expect 50% more pension in proportion. The increase in numbers employed may not be such a big deal as they will have collected less 'years' pension entitlement and porbably entered on less generous terms. However I look at it, even taking into consideration increased numbers working in the public sector, this does not seem more than approx 1/3 of the current promised pension unfunded liability - ie not more than 1/3 is additional bloat from the last 5 yrs, so 2/3 seems justified and earned. Very broad brush.

The problem now comes, that even 70% of the unfunded liability unaffordable by the country, post-credit-crunch.

Broadly speaking, these promises, even the justified ones, were made in anticipation of a wealthier country - in the coming age of austerity I would expect a somewhat blunt popular political crutch used to beat down opposition - and cut - across the board - public sector pensions by more than the 1/3, possibly more like a half, just by inflation, over the next decade.

[Si1]

cutting back to the original post, and its external reference:

" Public Sector Pensions Are Affordable And Set The Standard For Others"

well, (1) affordable? - no

(2) - only if you think money grows on trees 'set the standard for others', in what way? what does this mean? set what standard?

[Goat]

cutting back to the original post, and its external reference:

" Public Sector Pensions Are Affordable And Set The Standard For Others"

well, (1) affordable? - no

(2) - only if you think money grows on trees 'set the standard for others', in what way? what does this mean? set what standard?

Agreed, back to the original post, my view is if a trades union leader says it I automatically believe the opposite.

Edited July 31, 2009 by Young Goat

[Guest happy?]

Public sector workers are lower than paedophiles and almost as low as estate agents. Everyone on HPC holds this to be a universal truth.

[pie-eater]

Public sector workers are lower than paedophiles and almost as low as estate agents. Everyone on HPC holds this to be a universal truth.

As long as I'm not held in regard as low as an EA, I'm happy.

Paedophiles aren't paid for by the public purse, though. Not until caught...

[South Lorne]

http://www.timesonline.co.uk/tol/comment/c...icle6733949.ece

Is this the author?

And we can all trust Treasury forecasts.

So there we are just big numbers don't matter as the bill isn't due for 28 days, presumably economic growth will solve all the problems.

We have nothing to worry about the public sector pension liability is affordable and it's critics are scare mongers.

...who else would write this article but a high level union man from 'the want something for nothing brigade' ....they do not understand that public servants will not even exist unless we as a Nation start earning to repay debt ....we are moving as a Nation under Nulabour fast ...backwards...!.....down the ladder with no hope of return....unless we get them out ! and let us start again...!...

[R K]

Divide and conquer.

The problem isn't public sector pensions.

The problem is private sector pensions (or lack of them) and the (rather) speedy collapse of our living standards due to globalisation (which we are continually told is good for us) and China (and others) supressing their currencies to force us to take real pay cuts.

I don't understand why the anger which this engenders is directed at teachers, nurses etc etc and not at the Chinese and Indians and our politicians who are selling us into slavery.

The only long-term way out of this is to stop sending our jobs and earnings overseas and to realise that if we continue down this path then it doesn't matter whether you work for a 'global' company or govt. you're going to be living on beans and rice, with no healthcare, no pension, a piece of tin to shelter under, get around on an old bike, and have 1 pair of shoes with holes in them.

Globalism is slavery - for all of us.

[Helena Handbasket]

Science teacher.

Yes, I am a VI - mentioned elsewhere.

But I work on the principle, don't water other people's conditions down, try to improve your own.

The problem is, if you're teaching the next gernation of high-science techno-earning-tax-payers then you can have all the pension you like.

If, however, you're just teaching the next generation of science teachers, then sadly, our survey says no.

[Guest absolutezero]

The problem is, if you're teaching the next gernation of high-science techno-earning-tax-payers then you can have all the pension you like.

If, however, you're just teaching the next generation of science teachers, then sadly, our survey says no.

As far as I know I'm doing a bit of both.

Problem is it takes a few years and then you never really find out what they become.

[Si1]

Public sector workers are lower than paedophiles and almost as low as estate agents. Everyone on HPC holds this to be a universal truth.

look. only Injin thinks that. The rest of us are fine with them, minus the national debt - we think many of them do a great job, really!

[Si1]

As far as I know I'm doing a bit of both.

Problem is it takes a few years and then you never really find out what they become.

a bit like the economy, which we all have to share the fruits (or not) of

[Wayo]

A few salient points, in particular for the benefit of those nibbling at the public sector teat.

1) No final salary pension is ever funded. The payments during the career are not linked to the benefits dervied from the 'final' salary so unless salaries were somehow random, rather than increasing over time, this would never happen. Tales abound of people retiring with benefits many times out of proportion to what they contributed because of what happened at the end of the career, and this is especially true of the senior management, but equally so for all.

2) The employer contribution (as well as salary) is paid for out of taxation by those in the private sector who get few if any contributions from their employer. As the private sector competes in a global marketplace this again demonstrates how the nation cannot afford unfunded retirement.

3) A pension is not a deferred salary, but it may make some people feel less guilty calling it that. A salary is paid for work and a pension is not. Adding 20% to the current public sector wage bill would provide a more simple demonstration to the less intelligent how unaffordable public sector pensions are.

4) Very noble as it is to tell private sector people to stand up for their rights, the private sector ditched final salary pensions because they cannot be funded and reduced other pension benefits because they are unaffordable.

5) Anyone who thinks they can spend 20-25 years in comfortable retirement spending 6.4%, 3.9% of their salary or whatever scheme they are in is taking the p**s! These schemes were devised when life expectancy was barely higher retirement age.

6) Just because ~£500bn is not due within 28 days does not mean it is not due nor that we will ever have that sort of money.

7) Final salary pensions are unfair to their members let alone the taxpayer because benefits are scarcely linked to contributions.

8) Redefining benefits for existing members is probably not illegal as many heavily unionised industries have already done this without adverse judgement.

9) The civil service scheme where for example employees pay 3.9%, employers 20% and final salary is accrued at 1/43 per annum is neither fair nor equitable.

Something a bit less factual:

I don't pretend to be an actuary but, assuming 20% tax relief on contributions, net investment gains of 5% p.a salary rises of 5% p.a, inflation of 3% p.a to buy an RPI linked annuity is currently £4,470 per £100k of pension fund for a 65yr old male.

Someone starting out today on 20k would need a fund of approx £1.6m [edit] to buy an annuity worth £20k p.a [/edit] in real terms in 43 years and £3.6m to get £20k increased in line with my average earnings of 5% p.a.

To achieve £1.6m in 43 years (which would be a pretty lousy pension as incomes for everybody else will have increased above 3% for 43 years!):

You would need to pay 25% of your gross salary, say 12.5% equally split.

To get a pension equal to the pay of a reasonably junior manager in 43 years (5% increase) or the £3.6m you are talking between 57-58% of your gross pay. A woman would need to save even more!

And don't forget that's to buy a £20k annuity in todays money, which would rise only with RPI like the state pension falling further behind average earnings each and every year, leaving you on means tested benefits most likely by age 80?

Because of compund interest and annuity rates, the effect of doing a mere 40 years work and having an extra 5 in retirement? Well I shan't bother working that one out....

Edited July 31, 2009 by Wayo

[Si1]

I don't pretend to be an actuary but, assuming 20% tax relief on contributions, net investment gains of 5% p.a salary rises of 5% p.a, inflation of 3% p.a to buy an RPI linked annuity is currently £4,470 per £100k of pension fund for a 65yr old male.

Someone starting out today on 20k would need a fund of approx £1.6m [edit] to buy an annuity worth �20k p.a [/edit] in real terms in 43 years and £3.6m to get £20k increased in line with my average earnings of 5% p.a.

a few qs:

(1) are you assuming annuity rates will fall in the future?

(2) do people really need that much for a comfortable retirement? there is a tax-advantage (lower income tax for pensioners) so 20k goes further anywaym, and many of the costs of a working life are circumvented

[R K]

Tosh or nosh and other words Noel would use.

So actuaries of final salary schemes today believe life expectancy of the scheme members is around what it was 70 years ago?

Utter c*ck.

If the businesses can't provide final salary pensions for their employees then they're not going concerns.

They're just pretending to be going concerns, hiding the fact that they're systematically driving down our living standards to those of the 3rd world.

We need to knock this whole globalist agenda on the head pretty damn soon, implement capital and currency controls and import tariffs and decide whether we value our families interests' above those of our competitor nations or we don't.

At the present time those we have elected are working against our interests.

Everything flows from that.

Hoping that you're one of the lucky few at the top of the pyramid who can try and pull the ladder up behind you isn't sustainable.

Sooner or later this becomes a life and death battle - Pensions are just a temporary symptom of that. It's going to be either you and your kids and family or those of someone 12,000 miles away. You better make your mind up pretty fast whose side you're on.

[Guest happy?]

A few salient points, in particular for the benefit of those nibbling at the public sector teat.

1) .... Tales abound of people retiring with benefits many times out of proportion to what they contributed because of what happened at the end of the career, and this is especially true of the senior management, but equally so for all...

As you say tales

2) The employer contribution (as well as salary) is paid for out of taxation by those in the private sector who get few if any contributions from their employer....

Nope. It's paid out of all taxation. There is no hypothecation which says fire service pensions are paid out of the taxation contributions of any inividual. as you allege.

3) A pension is not a deferred salary, but it may make some people feel less guilty calling it that.

Public service pensions are part of the full package - just as say a vehicle allowance is for a private sector employee, or a free gym membership.

Pensions are deferred payments - pretending otherwise is a delusion.

4) Very noble as it is to tell private sector people to stand up for their rights, the private sector ditched final salary pensions because they cannot be funded and reduced other pension benefits because they are unaffordable.

Private pensions were destroyed by greedy companies taking payment holidays during periods of growth - indeed several trade unions tried to challenge these holidays because they understood very well that the only way to fund the lean times was by investment during the good times. The trade unions lost and appeals to John Major's government fell on deaf ears. It was greed alone by managements raiding pensions funds which was the biggest single factor in the decline of such schemes.

5) Anyone who thinks they can spend 20-25 years in comfortable retirement spending 6.4%, 3.9% of their salary or whatever scheme they are in is taking the p**s! These schemes were devised when life expectancy was barely higher retirement age.

There's any number of ways to fund final salary schemes - this is just juvenile.

6) Just because ~£500bn is not due within 28 days does not mean it is not due nor that we will ever have that sort of money.

See reply to above.

7) Final salary pensions are unfair to their members let alone the taxpayer because benefits are scarcely linked to contributions.

Just Bizarre.

8) Redefining benefits for existing members is probably not illegal as many heavily unionised industries have already done this without adverse judgement.

See 5 above.

There seems to be a melange of confusion and hearsay in this posting. It's perfectly possible to fund final salary schemes, if you are arguing that they are currently not sustainable in the current form you need to be specific - which schemes and in which ways.

Mostly I suspect this is the politics of envy writ large - no-one gave a flying toss about public service salaries or pensions whilst the public sector were paid substantially below the private sector - those who worked in the public sector were held in contempt regardless of what they did. Now that the chill wind of economic decline is blowing for the first time in a generation it appears a whipping-boy is called for - and what better target than 'gold-plated' unfunded pensions.

[Guest absolutezero]

There seems to be a melange of confusion and hearsay in this posting. It's perfectly possible to fund final salary schemes, if you are arguing that they are currently not sustainable in the current form you need to be specific - which schemes and in which ways.

Mostly I suspect this is the politics of envy writ large - no-one gave a flying toss about public service salaries or pensions whilst the public sector were paid substantially below the private sector - those who worked in the public sector were held in contempt regardless of what they did. Now that the chill wind of economic decline is blowing for the first time in a generation it appears a whipping-boy is called for - and what better target than 'gold-plated' unfunded pensions.

Couldn't put it better myself.

[Si1]

no-one gave a flying toss about public service salaries or pensions whilst the public sector were paid substantially below the private sector - those who worked in the public sector were held in contempt regardless of what they did.

groundless hearsay

Now that the chill wind of economic decline is blowing for the first time in a generation it appears a whipping-boy is called for - and what better target than 'gold-plated' unfunded pensions.

that would be a shame if it were that simple. it's just the country's f*cking bankrupt and everyone else is having to make cutbacks - be the whipping boy, call it what you will

we're all equal in this - or we should be.

[Wayo]

There seems to be a melange of confusion and hearsay in this posting. It's perfectly possible to fund final salary schemes, if you are arguing that they are currently not sustainable in the current form you need to be specific - which schemes and in which ways.

Mostly I suspect this is the politics of envy writ large - no-one gave a flying toss about public service salaries or pensions whilst the public sector were paid substantially below the private sector - those who worked in the public sector were held in contempt regardless of what they did. Now that the chill wind of economic decline is blowing for the first time in a generation it appears a whipping-boy is called for - and what better target than 'gold-plated' unfunded pensions.

1) Salary progression towards the end of a career is the norm and you cannot seriously be arguing otherwise? The extreme case is the manager made director going from £50k to £200k before retiring, but the same principle applies to plenty more. You seem to suggest that even modest examples of this are hearsay?

2) The previous poster referred to pensions as deferred salaries not payments. They are not a salary, but they are a benefit or payment, but this is a very semantic debate owing more to people perceiving they have a right to a salary for their employment, but not added benefits on top.

3) Here is the real confusion! Payment holidays were not the death of final salary pensions - as I have illustrated they are unfunded and unsustainable even with full contributions. It's a bit like dropping a fiver down the sofa and falling behind on the mortgage.

4) To fund a pension, what goes in must equal what comes out. Using increasing membership to fund current benefits is more akin to a pyramid investment scheme.

As benefits are not related to contributions during membership final salary schemes aren't funded. A weighted average salary scheme could be funded assuming a way of stabilising investment returns, but not a final salary. See my first point that you snipped.

5) I've yet to see even an incredible proposal to fund the sort of pension benefits we currently see. I suggest you describe one or cease to advise us how easy it is.

6) In a funded scheme the members pay the benefits. If ever the two were equal there would still be huge redistribution between people whose salaries fell and those who rose. Of course they never would be except by great chance as the benefits are not related to the contributions.

7) You didn't answer the point on the legality of redefining benefits other than reference to John Major.

It is only a recent and fleeting fancy that Homosapien has decided that spending more than half its life contributing nothing to society is somehow affordable.

For the record I have no axe to grind with the public sector workforce per se, but people need to realise that 25-30 years of retirement cannot be funded by even 25% salary contributions.

Public and private sector should in the interests of equality fund their own retirements, with modest and affordable employer contributions which do not make it impossible for the country to compete in the global marketplace. That will inevitably mean employees paying more like 10-20% of pay and having much longer working lives and much shorter retirements. The sooner this happens the fairer it will be for everyone.