To think public sector pensions should be slashed?

[Monwmum]

I'm probably going to be slated for even suggesting it....but in the private sector, high percentage final salary pensions were phased out in the early 2000s because they are a money pit and unsustainable. They were continued in the public sector as a sweetener because (apparently) public sector jobs were lower paid.

This simply isn't the case anymore. After years of frozen pay or meagre 1 or 2% pay increases in much of the private sector versus mainly regular inflation based pay increases in the public sector, this gap has been reduced if not closed completely. However, public sector pensions are still getting contributions of the high 20% figures while private sector pensions range from 4% -10%.

Quite a difference! Am I being unreasonable to say this would be a good place to start saving some of our tax money? And before people start saying there would be outrage just remember this was done to every private sector employee in the early 2000s so it can be done.

Yeah that’s my point! Anyone worth their salt who joined for the Fast Stream leaves around that level because it’s a tiny amount of money compared to what they could get. In that case they could get 3-4x working for EDF as a consultant.

The Local Pension Scheme is a contributory scheme. Members pay into the scheme, and these funds are invested to cover their pensions. As a fully funded program, the scheme is owned by its members, not by taxpayers.
Public sector employment does not make these pensions public property. Members have the sole claim over their pension funds and their investment decisions, as they contribute to and sustain the scheme. Consequently, no outside party has the right to dictate or interfere in how these funds should be invested — only the members, whose money it is.

Yes they absolutely should unless private are also raised. For a good chunk of my career so far I have been stuck in a pay freeze in what was already a poorly paid job. There are no bonuses either. Seriously, some people either need to start to appreciate public sector workers and the invaluable and largely unthanked work they do or they need to grumble in private.

State sector pensions run at a massive deficit. And the taxpayer tops them up. So after all the money paid in is invested it falls seriously short of the defined benefit committed to the state sector pensioners.

Currently the deficit is about £10-11billion per year

Just to top up retired state sector workers. Every year.

Its ridiculous. It's obscene. It's unsustainable.

LGPS are fully funded.

This means that the scheme aims to achieve solvency, that is, they are required to hold assets to cover the cost of the benefits (liabilities). It is also worth noting that LGPS is funded at local and employer level.
So the taxpayer is not funding it. They are self funded and are contributory pensions.

You need to distinguish which pension scheme you are referring to.

Reeves is mainly after Local government Pension Scheme which are fully funded to cover their liabilities.

They are contributed by its members.

Taxpayer are not funding them.

gummybear

yes, the local gov pension scheme is funded. I’ve never understood why other huge public sector pension schemes are not funded, and instead ties future generations to enormous promises, regardless of what is around the corner.

I also imagine that the fact that LGPS is funded is a reason why it has been easier in the past to outsource sections of work done by local government into the private sector - you don’t need thousands of future local government employees working to fund the pensions of retirees. But this is turn has led to degraded terms and conditions for eg care workers.

I’m also not sure what the plan is to cope with future workforce change in unfunded sectors eg what happens if you need to reduce headcount because of a recession or because AI takes away jobs and they are not replaced?

I only really ‘know’ about the TPS and there, the rise in employer (taxpayer) contributions over the last few years has been quite staggering. From 19% a few years ago to nearly 29% now. At the same time, the ‘deal’ has changed, from final salary to career average, and later retirement dates. It’s not the case that today’s teachers get 29% paid into their pensions. They (and we) are paying the final salary pensions of their ex-colleagues.

At least we will always need teachers, so there will be a stream of future teachers to fund these pensions, as long as the economy doesn’t shrink.

All very complicated. I’ve no idea what the answer is.

Singleandproud, well put.

Maybe you need to pay more into your pension. I am far from privileged, The problem is that people don’t understand that they need to save. A lot of people in my profession don’t live that long as by the time we do retire are quite worn out.

@Ritasueandbobtoo9 but you are privileged, because your pension is not fully financed by you/your job. The tax payer takes money that could be spent on other things and tops up your pension to a guaranteed amount.

Any person without a defined benefits pension scheme can pay more in, as you suggest, but may not get any more out as their returns are not guaranteed and underwritten by the taxpayer.

It seems that many people do not realise the extent to which DB schemes are more generous than DC schemes. Once we have a generation of people retiring with insufficiently funded DC schemes this situation will become a political hot potato and have to be addressed.

There will be a perfect storm of many more people retiring with much too little saved in DC schemes because auto-enrollment contributions are far too low; a much higher proportion of pensioners still having mortgage/ rent to pay than in previous generations; higher taxes at lower thresholds than in previous generations, poor public finances due to decades if economic mismanagement in the UK, and demographic changes due to longer life expectancies and falling birthrates meaning there is no realistic way to fund the unfunded promises of public sector schemes because there will be too few current workers to keep he ponzi schemes going and it not being viable for other taxpayers to make up the growing shortfall (including other pensioners who, in some cases, could never have achieved even if they'd saved the entirety of their salary throughout working life). This disparity has obviously been made even worse by successive Governments raiding the pensions of those with DC schemes with extra taxes which discourage saving further.

It isn't public sector workers' fault, or that they don't "deserve" a generous pension. Many people who don't have a DB scheme also "deserve" a better pension and won't receive one. The situation is the result of the poorly structured and unsustainable system and politicians burying their heads in the sand about it for decades even though it's clear that it cannot be funded in its current form. It's not going to be pretty, that's for sure. The rage evident on this thread just discussing the topic shows that! But unfortunately economic reality will bite.

YANBU, I’d personally prefer all pensions to be DC and wages to rise in the CS if necessary to compensate. There is a huge and unfair disparity at the moment between public and private sector pensions. I think with today’s population demographic any form of guaranteed pension (unless a privately purchased annuity) is utter financial madness for a company or the state.

ETA - it’s disingenuous to pretend pensions are the only benefit of working in the CS. There’s also very generous sick pay, a lot of flexible working, many workers rights since it’s heavily unionised and the most non frontline roles are low pressure and notoriously difficult to be sacked from.

Absolutely this
Very shortsighted the " If I can't have it, no-one should" navel gazing mentality.
It isn't a race to the bottom
Do these people think suddenly everything will be rosy when they retire when they are actually calling for pensions to be slashed?
If public pensions,are cut it leads the way for private to be cut also

But they've worked and paid for them in the first place. You deserve to be 'slammed ' .

@VoteDappy because it's unaffordable!

£10 billion per year just for CS pensions to be topped up!

Where would the extra billions for every employee come from?! The maths doesn't work!

Works for me 😂

Who has paid for them? Civil servants have not paid for all of them.

I think the numbers are that CS pensions cost £40bn a year, of which the tax payer pays £10bn. So they get 25% on top of the money paid in and, arguably, worked for - assuming 'worked for' means do their job just like all private sector workers do too.

Please tell me you're not a maths teacher

There have been pay increases in some public sectors (healthcare, education etc) where increases have been bought up in line of inflation. In other public sectors, the pay increases have been below the level of inflation and have amounted to years of cuts.

Some people (like me) want improvement/fairness for all and IMO the way to do this would be to make all pensions DC and increase mandatory employer contributions into DC schemes.

OK, so let's say the taxpayer stops paying that pension top-up.

Without the decent pension, the public sector would be completely unable to recruit skilled professionals. I work in the civil service, in a profession that requires masters level qualifications and constant study/CPD (which my employer does not fund).

My pay is low compared to what I earned in the private sector - I could easily double my pay, maybe more, by going back to my old (private sector) employer. What keeps me in my job is the pension and flexibility. Remove the pension, and I wouldn't stay.

So what would the public sector need to do? It would need to increase salary to compensate, otherwise it would simply be unable to recruit to skilled roles. So the money that is 'saved' on pensions would be spent on salary instead. Either that or public services would go down the toilet because there would be no-one to do the work.

At lower grades (i.e. the less skilled roles) the public sector probably pays as much, or maybe even more than, private sector employers. But once you start to look at the skilled professional roles (the ones that are hard to fill because they require specialist training), there is a huge disparity. A tax lawyer working in HMRC will be earning less than a third of what their private counterparts are earning. Do you want to lose those people?

Some people (like me) want improvement/fairness for all and IMO the way to do this would be to make all pensions DC and increase mandatory employer contributions into DC schemes.

Yes. This is what Australia and others did successfully decades ago. The problem in the UK with this issue and so many other things is always kicking the can down the road, making it worse. Eventually what you have stated is exactly what will have to happen but unfortunately the longer it is delayed the more painful it will be for people who had been misled to believe they will receive money that there is no plan in place to actually fund for them.

I have a DB/final salary scheme and a separate defined contribution scheme. To get the equivalent in percentage terms in my DC scheme I need to pay in 21 per cent of my salary. Traditionally companies that offered DB schemes paid less but it was still worth taking the lower salary.

So what would the public sector need to do? It would need to increase salary to compensate,

Well, yes. It will need to do that. Otherwise the brain drain will continue. UK salaries across the board both public and private have fallen way behind what used to be our comparator countries.

To be able to fund this without it being inflationary productivity has to rise. That means huge reform of public services which are not currently fit for purpose. It also means creating economic conditions in the UK that encourage the investment required to make the economy more productive. And it will mean low and middle income earners accepting that they will have to pay a significantly higher proportion of their income as tax if they want continental-European standards of services, or alternatively accepting that if they will not then a much smaller state offering fewer services is the only other solution.

No politician wants to tell people these realities, however. Hence the current mess that the new Government seems intent on making even worse.

UK salaries across the board both public and private have fallen way behind what used to be our comparator countries.

This is depressingly true. With the exception of financial services, the UK has become a low-wage economy.

I want public sector pensions to stay high as we already have a crisis in recruiting good people but this makes you look very out of touch. Most people will have no chance of saving any near enough to have a 19k pension on top of their state one. You'd need to save around £300k and that's being optimistic about returns. I earn about the same as the prime minister (as it happens!) but only really started earning well in my 40s and I'll struggle to manage this level of saving.