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.

Most people who have the option choose not to save it, so comparing what people have at the end isn’t really that fair.

That makes no sense. Everybody has the option to participate or not in the pension scheme their employer offers whether it's DB or DC. Nobody is forced to do so. You seem to be intent on making arguments about things that are totally irrelevant.

That lack of compounding, alongside the vulnerability to changes in demographics that such a structure entails, is why they not unsustainable

Did you mean why they are not sustainable ?
@Marlhmarlol

Regarding the tax being deferred, which I agree applies to both pension types, if you can take 25% of your pension tax free as a lump sum surely that makes a difference to the overall tax paid? You haven't paid your 20% (or whatever rate) on the contributions, then you get 25% paid without having to pay tax on it.

Tax thresholds for higher rates are much lower than historically so this is meant to mitigate against the risk of ending up paying more tax on withdrawal than relief at the point of contribution. It is also a deliberate incentive to encourage pension saving because the Government desperately needs more people to be self-sufficient in retirement. Lump sums available from DB pension schemes are also tax free so again this is not relevant to a comparison between the two. DB schemes also received far more favourable tax treatment when the LTA was in place but fortunately at least that stupidity that actively discouraged saving/ working across both DB and DC schemes was abolished.

None of this has any relevance to the actual point of the thread as far as I can see.

You do seem a little fixed on comparing things to the annuity rates. Comparatively few pensions are now used to purchase an annuity though it's an option that any IFA should consider (and usually rejects, depending on individual circumstances). It was a heinous rule that DC pensions needed to be used to purchase an annuity, and a major blessing when that was stopped.

Yes, that was one very positive change made. Ridiculous to force people to purchase annuities from private savings. But yes I have been referring to the equivalent value of DB scheme annuities in terms of what you'd have to pay to purchase one from a DC fund on the same terms because there is no other realistic manner in which their equivalent values can be compared, to highlight what a saver in a DC scheme would have to save in order to achieve the same pension outcome as somebody in a DB scheme. This is hardly contentious and is the standard method of comparison which presumably you're familiar with if you did indeed work as an administrator for an organisation facilitating scheme transfers.

The £30k was her final salary, not her pension. If you read further down that post, you will see that I specified that the pension itself was around £15k,

Ok. Then she'd have to make pension contributions of roughly £20k per year over the 25 years she worked to have contributed the equivalent value of the annuity that she received at retirement. If she was earning £30k when she retired that doesn't sound likely.

That is the point being made: due to the structure of the schemes there is no compounding and given the generous risk-free and index-linked amounts promised there is no way these schemes can ever pay for themselves. Add in demographic changes and you have a time bomb of unfunded promises which taxpayers cannot afford to continue to pay to top up when current contributions increasingly do not cover withdrawals and this gap grows year on year. That is why the model is unsustainable.

For funded schemes where compounding happens it is possible for DB schemes to be sustained if they are well-managed. Clearly the tax changes made by Gordon Brown caused many to collapse and made this much harder, hence most private sector DB schemes being closed and the remaining public sector ones becoming less generous.

However, fundamentally the unfunded scheme model results in trillions of pounds of unfunded liabilities that are held off balance sheet to obscure the extent of the problem from the public because they aren't included in the national debt figure and successive Governments know that they have no plan in place that will enable these liabilities to be paid. It is an idiotic way to structure any pension scheme and eventually reality bites when the ponzi scheme can no longer be maintained, as it always does. The longer the issue is left unaddressed the worse it will be when it is no longer possible to kick the can down the road.

Yes, sorry!

Tired today! 🥱 🤦🏻‍♀️

The argument proposed in the OP is nothing to do with whether they are sustainable, it's suggesting that all public servants on a DB scheme have their pensions cut significantly.

This is based on the unfounded idea that all public service employees get massive pensions for no contributions. Whether that is sustainable or not, a number of subsequent posters (me included) have tried to show that from the employee point of view this would be extremely unfair as those who ARE on unfunded DB schemes have been promised these pensions in return for accepting a much lower salary. The problem then comes that to shift the current employees onto a funded pension means that the current contributions need to go into that, leaving a financial black hole to fund existing pensioners.

Regarding unfunded and funded schemes, the general rule is that if you are in a funded scheme you can transfer out of the scheme into a DC scheme with a notional amount (depending on various rules and regs about taxation, age etc) and that you can't transfer out of a government unfunded scheme except to an approved DB scheme. From memory, those that come under the "only to an approved DB scheme" include the central Civil Service, MoD/armed forces, NHS including doctors, I think teachers maybe.

The argument proposed in the OP is nothing to do with whether they are sustainable, it's suggesting that all public servants on a DB scheme have their pensions cut significantly.

I thought that is why she was saying this? Nobody would be proposing this if it wasn't for the necessity to transition to a sustainable funding model.

Whether that is sustainable or not, a number of subsequent posters (me included) have tried to show that from the employee point of view this would be extremely unfair as those who ARE on unfunded DB schemes have been promised these pensions in return for accepting a much lower salary. The problem then comes that to shift the current employees onto a funded pension means that the current contributions need to go into that, leaving a financial black hole to fund existing pensioners.

Indeed. That's the problem with ponzi schemes. And the longer they go on the higher the unfunded and unfundable liabilities become and the more awful the outcome when the chickens come home to roost, which is why our Governments ignoring the issue and allowing it to escalate knowing it will eventually collapse is scandalous and, as you say, extremely unfair on those making contributions to these schemes in good faith in the mistake. belief that there is a plan in place to pay them what they've been promised.

To be honest, it came over to me (and I think many other posters) that the OP was suggesting that it would be OK to do this because all public servants get massive free pensions, and the reasons for this are no longer there because private sector has had little or no pay increases in recent years whereas public servants have had inflation busting increases thereby eroding the pay differential to nothing.

Whereas of course the vast majority of public servants have had zero or 1% pay rises only for the last decade and more. For the few occupations who have had a half decent rise this year, that still didn't make up for there being no rise at all for so long.

Teachers in the West Midlands in Local Authority managed schools are in the same funded pension scheme as me, however as most schools are now part of Academy groups they have pensions supplied by a trust not central government! Likewise higher and further education is not funded by central government pension schemes.

When I previously worked for a government agency that was also a funded scheme… as it was outside the Civil Service! The agency was focused on the Environment and lots of eyebrows were raised by staff as it held substantial shares in the fossil fuel industry as part of its portfolio and was run by Capita.

If you look at planning applications for regeneration schemes you often see Local Government Pensions (by region or city) as the applicant as it’s one way that they can secure a good return on the pension investment.

It’s important to remember that most people who work in the public sector are not civil servants and not benefiting from a ‘generous’ pension in retirement!

To be perfectly honest I don’t begrudge nurses, civil servants and the armed forces a pension that hopefully won’t see them retire in absolute poverty!

These are hard working professionals that we rely on, and the salaries are not as good as those in other countries like Australia and New Zealand, and there is a huge risk that we will loose highly competent and fully trained experienced staff!

If people feel that the public sector is rewarded better than the private sector, they could always start applying for those jobs!

So @envbeckyc out of curiosity, if your pension is public sector and is funded through investments and they fail are they underwritten by the Government or would you loose your pension funds? If you have ever read about the Royal Mail pension defecits and where the defecits landed and were absorbed, then you will understand the pension concern.

I guess I would loose some of the value of my pension- my pension fund has frequently been in the news because they are not paying people who have recently retired. There hasn’t been any government support for them at all!

www.bbc.com/news/articles/c74j2d8k3y4o.amp

And my issue with the new IHT provisions are that on death, if have been fortunate to build that 875-1.05m fund, it's now part of IHT estate. The DB is not part of the estate so the funding stream isn't reduced by 40%.

No, you would not lose your pension. The issues West Midlands pension fund is having paying people is due to a change of administration system, nothing to do with how much money the fund has or how the investments have performed.

The contributions you pay in cover very roughly a third of the cost of the benefits that you are promised. Investment returns make up a bit of the rest, but largely the remaining two thirds of the cost of your benefits is funded by your employer. And largely, the employers that participate in the Local Government Pension Scheme get most of their funding from central government one way or another. So yes, even in the LGPS the ultimate risk of paying pensions due lies with Government. It’s just not as stark as it is for the other public sector schemes which are unfunded.

When the financial crash of 2010 happened it did affect my pension as my projected annuity decreased by about 25% - with my previous public sector pension.

I don't think it’s 100% protected which is why you get a projection of annuity when you retire, rather than a guaranteed income at retirement age when you look at your annual statement.

If you suggest that my employer is covering two thirds of the cost of my pension, I also don’t think that’s completely true either!

I also highlight that not all public sector income comes from the tax payer, rather councils hold shares and investments (such as shares in the local airport) and other projects and has a substantial land portfolio, and secures income from car parking, licences and other services.

I would wager that every company also therefore is funding pensions as ultimately every one who purchases goods or services from a private company is a tax payer and they will each be paying towards a private pension as part of the price for services or goods.

Posters keep saying that public sector salaries are paid for by the tax payer! Yes they are but we do actually have to work to earn the salary! Some of you seem to think it’s free money just given out to the lucky ones ! And we are also tax payers🙄🙄 My NHS pension to which I contribute over £300 pm is currently forecast to be less than £6k a year! Can’t wait to live it up on that bloated pension 🙄🙄

Believe what you like but I work within the LGPS so I know that what I have said is correct.

Once you have accrued your pension, it cannot be taken away. Projections are always based on assumptions e.g. that you will continue working to X date on X salary so yes those will change if you leave earlier/your pay changes.

Annuities are subject to market changes. But the amount of pension pot you have - the actual pot itself which would be used to buy an annuity - is not subject to market forces.

E.g. a public sector pension pot of £100k would always be £100k regardless of what's happening in the markets. Whereas a private DC pension would be subject to market forces - so it could be £100k on Monday, and then a Liz Truss mini budget could see it valued at £89k by Friday.

Even with worse annuity rates you are still better off IYSWIM, as you have more money in your pot to buy the annuity (if an annuity was what you wanted to do).

Mine was worse than minimum maternity pay provisions because the government has one rule for private places and loads of ways to reduce costs when they have to foot the bill. I didn’t get the 4 weeks full pay everyone is entitled to. My point wasn’t about maternity pay - only that I couldn’t afford my pension during maternity leave as they were going to take 11% of my £184 a week and no option to reduce the %. I’d agree with reducing sick pay in the public sector.

@envbeckyc Your pension will depend on your future salary growth, and future inflation if it's a CARE scheme. So pension projections have to make an assumption for these which will vary over time e.g. following the financial crash, they may have assumed (correctly as we now know) that future salary increases would be lower and therefore your final pensions is expected to be be lower. But the general promise - what % of your salary you have earned each year as a pension didn't change.

You linked to an investment report upthread and said this is how the West Midlands pension scheme invests your contributions. In fact, they take all the employer and employee contributions and invest the whole fund as described in this report. The aim is to achieve enough returns on the funds to cover the pensions promised. But if that doesn't work out as planned e.g. investment returns are lower, inflation is higher, life expectancy increases etc then the employer i.e. the council, has to cover the difference because they still have to pay out the pensions promised. So yes they're funded in advance, but that doesn't mean there won't be a need for extra funding in future.

Here's the most recent valuation report for the West Midlands pension scheme. This compares the assets held against the expected pension costs.

https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=www.wmpfonline.com/sites/default/files/2023-04/230331West<a class="break-all" href="https://www.google.com/url?opi=89978449&rct=j&sa=t&source=web&url=https%3A%2F%2Fwww.wmpfonline.com%2Fsites%2Fdefault%2Ffiles%2F2023-04%2F230331_West_Midlands_Pension_Fund-2022_valuation_report%2528Final%2529v3.pdf&usg=AOvVaw0lZeUXhP2ssqB8stweczFN&ved=2ahUKEwiS6aLhk-SJAxUXBdsEHS-WFLUQFnoECAsQAQ" rel="nofollow" target="blank">MidlandsPensionFund-2022valuationreport%2528Final%2529v3.pdf&ved=2ahUKEwiS6aLhk-SJAxUXBdsEHS-WFLUQFnoECAsQAQ&usg=AOvVaw0lZeUXhP2ssqB8stweczFN

On page 3, it shows the primary employer contribution rate as 21.8% of pay. This has increased from the rate of 20.4% of pay calculated three years ago, which it says is due to the recent high inflation. Employee contributions are then in addition to this. I don't know what you have to pay as a pension contribution but if it's around 10%, then the pp's comment that the employer meets about two thirds of the cost would be about right currently.

Apologies for the long post - pensions are complicated!

Of course the DB isn't part of the estate - there IS no remaining fund as such. When you die, depending on the conditions of the fund even as little as 5 years after retiring, any surviving dependants/widow/widower may get a reduced amount for a length of time, but for someone like me who is single with no dependants that's it - nothing. That's why I worked on so many DB to DC transfers of people with life limiting conditions, at least that way their spouse would get a decent chunk of money whether taxed or not.

Have you actually had people who work in the public sector tell you they believe private sector workers are better paid?
Or is it just your perception?
I have worked in both private (banking for 10 years) then public (teaching for 15 years).
In banking people were convinced public sector workers had it better (they don't, I can assure you).
In public sector I haven't come across people speculating in that way, but certainly in education which is my field, people are less money driven.

I have seen posts on here about nurses who can't afford their HA rent or food on their salary. I work in education and there are drastic shortages of teachers (especially in more senior roles than require substantial experience, which can't be fixed with recruitment initiatives). In my LA we have 3 schools that we can't recruit heads for. I don't think we need to be making those roles even less attractive right now, that's not in anyone's interest.

I also get very irritated by the 'well we pay your wages'. Well we all pay tax and NI so we pay ourselves. We make purchases at shops thus funding their workers' salaries. We drive cars and pay for all the services etc that requires this funding other business' employees. Pay insurance, have building work done etc etc. It is a very childish viewpoint.

I’m in public sector and if they slashed our pension I would be leaving in an instant as would many others. For what I do the wage isn’t great but i offset that because of the flexibility and the fact my pension is half decent. So by all means we could save your money by cutting our pension although bare in mind we also pay tax etc. However don’t complain when the NHS, police and all those other public funded services you use free of charge are in an even worse state than they are now because the staff are leaving in droves. I always find that baffling how private sector worker feel like they are the only ones that pay our wage and say we should be paid less or have worse benefits but are usually the first to moan when th service they receive from public bodies isn’t top notch. You can’t have it all ways pay people peanuts, get monkeys!

And you don't think that applies to the private sector also? Why do you think so many people are slackers and don't bother to do their jobs properly in those jobs as well or opt out entirely and live off the rest of us just like public sector retirees do?

Why do you think others should continue to work really hard to pay pensions for you because you work hard, when they will never be able to earn such a pension themselves even if they contribute MORE than you to their pension?

It's just not sustainable, I'm afraid, no matter how much you think you "deserve" it, unless a funding model that actually funds it from your contributions is put in place like has to be the case by definition for all of those with DC pensions.

If the salaries and pensions are too low across the board in both public and private sector (which in my opinion and based on international comparisons they are) then the only sustainable answer is to raise productivity so that living standards can rise without salary increases simply fuelling inflation that cancels them out and makes us all even poorer given our dependence on imports for essentials like food and fuel. But apparently getting people to grasp this basic economic fact or expecting politicians to implement policies to achieve this is too much to ask, you'd rather continue to scrabble over your fight for redistributing the crumbs of the wreckage.