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Public Sector Braced For Pension Levy Which Has Created £1Trillion Black Hole

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Ouch!

who would have thought, these were suppose to be bullet proof!!!

or not as the case is,

whats the guarantee that it will be paying much/ any at your retirement?

Aren't they just using it to fund current shortfall but can't guarantee for the future?

Public sector braced for pension levy which has created £1trillion black hole

By James Chapman

Last updated at 1:37 AM on 21st June 2010

Millions of public sector workers are facing a painful levy to fund their 'unsustainable' gold-plated pensions.

The Government has recruited ex-Labour Cabinet minister John Hutton to take the axe to state employees' retirement funds, which have created a staggering £1trillion black hole in the public finances.

He is expected to draw up plans to hit public sector workers with a 'pensions levy', which would require them to contribute far more if they want to continue to enjoy the benefits of their schemes.

Charging an extra 2.5 per cent of salary in pension contributions will raise about £3.2billion a year.

Effectively, such a move would be a pay cut for more than six million employed by the state.

Meanwhile Chancellor George Osborne warned that Britain is 'on the road to ruin' without ' determined and concerted action' in tomorrow's emergency Budget.

The package - the hardest-hitting for decades - is expected to leave middle earners more than £800 a year worse off. Key measures signalled by the Chancellor in what is already being dubbed the 'bloodbath Budget' include:

A bigger-than- expected supertax on banks, raising £3billion a year or more;

An unprecedented welfare crackdown, which will see key benefits frozen or cut;

A rise in capital gains tax to around 40 per cent;

A public sector pay freeze for at least one year.

Families earning £30,000 or more will be stripped of child tax credits, while anyone earning more than around £40,000 will be hit by a 1 per cent National Insurance rise announced by the last government but not being reversed by the coalition.

Mr Osborne said yesterday that no Chancellor had ever inherited such appalling public finances as those left behind by Labour.

He insisted he had to accelerate austerity measures to avoid a collapse in international confidence in Britain's ability to repay its debts.

He pleaded with voters not to judge the Budget at once - but in the 'years to come' on whether it has created prosperity while ensuring that Britain lives within its means.

'I think the country understands that we can't go on piling up the debts,' Mr Osborne told the BBC's Andrew Marr.

The tax rises announced tomorrow are expected to total £10billion, with a rise in VAT - probably deferred until next year - all but certain.

The Chancellor revealed that Mr Hutton, Labour's work and pensions secretary, has agreed to head a commission which will look for savings in public sector pensions.

The appointment prompted apoplexy in Labour circles, since it helps bind all three parties into looming cuts to retirement schemes.

Labour former deputy prime minister John Prescott accused Mr Hutton and other ex-Labour ministers of acting as 'human shields' for Tory cuts and hit out at Labour 'collaborators'.

Frank Field has been recruited by the Government to examine anti-poverty policies and Kate Hoey is Tory London mayor Boris Johnson's Sports Commissioner.

Enlarge

'Now we have the unedifying spectacle of John Hutton chairing a new Independent Pensions Commission with the obvious aim to dismantle state pensions,' Mr Prescott wrote on his blog.

'They've now turned a Con-Lib Government to a Con-Lib-Lab one and made themselves human shields for the most savage and heartless Tory policies in 20 years.

'I would ask if they can live with their conscience but I'd question whether they even had one to begin with.'

Labour leadership contender Diane Abbott said Mr Hutton would be the Government's 'pensions- slasher-in- chief ', while Left-wing Labour MP Paul Flynn said 'collaborator' was 'too nice a word' for him.

More...Pictured: Chris Huhne with his mistress just before he revealed to the world was leaving his wife of 26 years

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MAIL COMMENT: Budget pain can make Britain stronger

Mr Hutton, who was awarded a peerage in the dissolution honours list, and Tory Defence Secretary Liam Fox are understood to be determined to protect the armed forces scheme, the only one that requires its members to make no contribution at all.

But all other state employees can expect be hit. Most enjoy an index-linked pension based on two-thirds of the salary they earn when they retire.

Current contribution rates vary, but some in the civil service pay as little as 3.5 per cent. The Government is expected to increase contributions to an average of 7.5 per cent of salary.

Read more: http://www.dailymail.co.uk/news/article-1288200/Public-sector-braced-pension-levy-created-1trillion-black-hole.html#ixzz0rRdxZXel

Edited by DisQ

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this is the same method utilised to shore up holes in private sector final sal schemes 5-10 years ago. perfectly reasonable.

in fact the private sect ones I knew had a 3% levy so 2.5% is generous by compariosn for the public sector.

this is effectively 3% less pay for the rest of the employee's career whilst paying into that pension scheme, it represents a lot of money, asd it does for private sector pension scheme members for the past 5-10 years.

Add in what also happened in the private sector - below economic growth, and sometimes below inflation, payrises - and this can add up to a really large hit. Further factor in no more cushdie early retirement deals.

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Ouch!

who would have thought, these were suppose to be bullet proof!!!

naive in the extreme. are you a boomer?

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naive in the extreme. are you a boomer?

you do understand final salary schemes or do you!

these are guaranteed by employers thats why most have withdrawn for the very reason.

not the same thing as private pensions, which is linked to your contributions & market/ivestment performence hence any shortfall will require to increase contribution or face reduce pension.

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you do understand final salary schemes or do you!

these are guaranteed by employers thats why most have withdrawn for the very reason.

not the same thing as private pensions, which is linked to your contributions & market/ivestment performence hence any shortfall will require to increase contribution or face reduce pension.

I was not referring to PERSONAL PENSIONS. I think you are confused between these and PRIVATE SECTOR EMPLOYER FINAL SALARY PENSIONS. I was referring to these, that all saw such amendements 5-10 years ago - I fully understand they are guaranteed by employers - upto a point, depending on the solvency of the scheme itself. Pre-existing contributions must be honoured - but they can refuse to take further contributions if they so wish.

I see no sign of pre-existing contributions not being honoured in the proposed changes to PUBLIC SECTOR FINAL SALARY SCHEMES. What I do see is amendments to the conditions underlying the options to further contribute to the scheme. This is entirely above board legal etc.

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I was not referring to PERSONAL PENSIONS. I think you are confused between these and PRIVATE SECTOR EMPLOYER FINAL SALARY PENSIONS. I was referring to these, that all saw such amendements 5-10 years ago - I fully understand they are guaranteed by employers - upto a point, depending on the solvency of the scheme itself. Pre-existing contributions must be honoured - but they can refuse to take further contributions if they so wish.

I see no sign of pre-existing contributions not being honoured in the proposed changes to PUBLIC SECTOR FINAL SALARY SCHEMES. What I do see is amendments to the conditions underlying the options to further contribute to the scheme. This is entirely above board legal etc.

point taken.

however, as blackhole widens all round western world there are rumours that govrnments will dip into pension funds using whatever excuse, lets see when that starts.

Anyway I believe we're slowly heading towards Injin's world so it all becomes meaningless...

Edited by DisQ

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It is a good start as the excuse people on generous pensions use is 'I have been paying in all my life'. Ok then lets make sure they are actually paying enough in.

One minor problem though they said the pension liability may be £1,000 billion. And this levy would raise £3.2 billion a year. Over 20 years this will then raise £64 billion. A far cry from the £1,000 billion but a step to closing it nonetheless.

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It is a good start as the excuse people on generous pensions use is 'I have been paying in all my life'. Ok then lets make sure they are actually paying enough in.

One minor problem though they said the pension liability may be £1,000 billion. And this levy would raise £3.2 billion a year. Over 20 years this will then raise £64 billion. A far cry from the £1,000 billion but a step to closing it nonetheless.

I think £1,000 billion is the liability ( ie the amount the govt has to pay out) not the hole per se.

What we'll see and rightly in my view is all these public secotr benefits gradually being washed away.

yes they should pay more into their pensions

yes their pensions should be money purchase rather than guaranteed final salary.

Those that can't be changed to fmoney purchase should go to salary average.

No redundancy packages beyond that required by law or their contracts.

And an extension of retirement ages will probably be on the way.

I can understand the public sector bleating about this but the current arrangement is unaffordable and so has to change....... if they feel post change that theres too little in the job to be worth while then they can quit... I can pretty much guarantee there will be legions to take their place. I would like to see decent salaries maintianed for front line staff but lets face it if we cannot afford our servnats then the bills must be cut somehow. if this means we lose some then so be it theres really no other option.

And by the by I think MP's should be amongst the first to lose their overly generous pensions arrangements, its not going to possible to make the chnage without first cutting the benefits of MP's back at least to where the axe will fall for others in public service.

Edited by abharrisson

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What is going to happen to wage demands when the promise of future payments in lieu of todays full pay is no longer believed in?

Edited by Injin

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point taken.

however, as blackhole widens all round western world there are rumours that govrnments will dip into pension funds using whatever excuse, lets see when that starts.

this happened in Argentina.

yeah, possible, hopefully this will happen in tinpot countries like Spain and the UK will get its house in order before that is forced upon us.

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It is a good start as the excuse people on generous pensions use is 'I have been paying in all my life'. Ok then lets make sure they are actually paying enough in.

One minor problem though they said the pension liability may be £1,000 billion. And this levy would raise £3.2 billion a year. Over 20 years this will then raise £64 billion. A far cry from the £1,000 billion but a step to closing it nonetheless.

the liability is probably overstated - a bit of economic growth can cover upo an awful lot of that. Which would not happen if some control was not exerted at this point, incoming investment did not happen, and future economic growth was halted.

so make it 500 billion. 64 billion off that. And another 100 billion off it by allowing public sector salaries to stagnate over the next decade. that makes less than 350 billion. That is within the realms of affordability. Tho they are still great pensions, it is less of a disaster for later generations.

Edited by Si1

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I think £1,000 billion is the liability ( ie the amount the govt has to pay out) not the hole per se.

No, the "hole" is in excess of £1,200 billion.

And that's just the civil service.... it doesn't include state pensions and SERPS unfunded liabilities.

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No, the "hole" is in excess of £1,200 billion.

And that's just the civil service.... it doesn't include state pensions and SERPS unfunded liabilities.

I wonder what the total liability is then for all govt funded public sector pensions ( not local council), as I had thought that essentially the whole amount was the hole as there was little to no pensions pot being built up by the govt to offset future liabilities... you appear to be implying that the govt has prudently set aside quite a bit of cash leaving only a hole which needs to be filled ( albeit a rather large one).

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this is the same method utilised to shore up holes in private sector final sal schemes 5-10 years ago. perfectly reasonable.

in fact the private sect ones I knew had a 3% levy so 2.5% is generous by compariosn for the public sector.

this is effectively 3% less pay for the rest of the employee's career whilst paying into that pension scheme, it represents a lot of money, asd it does for private sector pension scheme members for the past 5-10 years.

Add in what also happened in the private sector - below economic growth, and sometimes below inflation, payrises - and this can add up to a really large hit. Further factor in no more cushdie early retirement deals.

You can just about make the numbers for an average salary scheme work with 10% employee, 15% employer contributions. As an example the local government pension scheme is at around 6% employee contributions for average salaries (not a lot is it?) so a further 2.5% wouldn't be a million miles wide of the mark if they deleted the final from salary.

What you do about all the accrued losses from those lost decades of even lower employee contributions is anyones guess.

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Something I thought is if public sector pensions became defined contribution it might - might slow down some of the NIMBYism. There is something like 8 million current public sector workers and many millions more retirees.

If their pension was dependent on the growth of our economy and the profits of our great corporations it might change their anti-development bias in our democratic society. If only meagre amounts of capital investment was allowed to go forward and only meagre economic activity allowed like very limited development on the green space.. Then the defined contribution pensions would also be meagre.

On the otehr hand if our economy was roaring forward, bounding upwards with activity and investment a defined contribution scheme could pay off big time.

Right now there is no correlation between the outcome of our economy and the retired peoples income. Not only are they guarunteed a high minimum.. but the other side is also true. Their defined benefit remains the same even if we became a new Norway.

Every thought must be made for policy in a democratic society.. aligning the interests of the people.

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