To think public sector DB pensions should be illegal

[OneAmberFinch]

Everyone seems to accept that it's obvious that the private sector, speaking very generally, pays better salaries in-year but the public sector makes up for it in excellent defined benefit (DB) pensions.

As in, you get a certain amount paid to you indefinitely, based on how many years of service, your level reached, average or final salary, etc.

Everyone acts like this is normal but it is actually insane!

Growing up in school I was always taught that it was a fundamental principle of a parliamentary democracy that one parliament cannot bind another. Parliament should be able to override anything a previous parliament did, so that voters always have the ability to change course democratically and nothing is locked in forever.

But having DB pensions for public sector workers is binding future parliaments into very large financial commitments that will leave them increasingly less wriggle room.

It would be one thing if they were defined contribution pots that were in each individual's name. That would operate independently and doesn't represent an obligation on future governments to pay out pensions out of future taxpayer money, maybe future taxpayers who have different priorities for what they want to spend the money on.

AIBU to think public sector salary culture should, if anything, be the reverse: high salaries now, because the government is legally not allowed to commit to future compensation in another government's name?

Why don't the people complaining about public sector pensions, change career?

Really, do you work in the civil service?

Hmm, and you have figures to back that up do you?

DB pensions are a HUGE and uncapped liability.

Think of it like this. You pay into pension all your working life, say from 20 to 60 (40 years). And you claim pension from 60 until you die, which might well be aged 100, ie 40 years.
BUT contributions are based on your salary at the time, whereas pension payments are based on your final salary. Also, your contributions are, what, 5% of salary? Whereas your pension is 40% of final salary.

NOW do you see the problem?

Youd have to pay redundancy ontop, not just the notice period which is probably at least a years wage.

The reality of having to make my whole team redundant would be considerable.

I have friends in the civil service - they're paid c£25k pa less than an equivalent role in industry. The pension they get will never make this loss up.

Also the pension is based on final salary, not everyone stays. I didn't. My pension would have been far more had it been in a standard investment plan - mines a Co pension btw, not a LG or Cs pension, they still do exist...

No, they’re in the Teachers Pension Fund (TPS)

99% of pensions in CS are now career average. The final salary stopped for new joiners sometime in the 2000s I think.
@Morelovelyandtemperate its not “easy” to be off sick, I have to produce a sick note like any other working person. Only working your contracting hours is a legal right. Often in defence you are required to be on call for a pittance if anything at all extra. Of course you can refuse but you’d be a bit of a dick when people serving need your help!

It would be a pot of about £200k depending on the type of pension.

DB are not all they are cracked up to be. If your salary isn't great then 32/60th or whatever the calculation is pretty crap. Plus they are based on the length of time employed. So if you've taken a career break to raise kids, been part time, it hits the amount you get. Plus the pot never grows.

If I use me as an example, I worked 20 in the corporate world for an insurance company and worked out that on the defined benefits scheme I'd have to live to 122 to get back what was put in. That was based on taking the pension at 62. Because I didn't work 35 years I was only going to get approx 2/3 of my pension, which itself was only 2/3 of my final salary. So I transferred to a private pension, in 5 years the pot has doubled, I have complete flexibility on how I take it...I could have it all tomorrow if I want (subject to tax).

My retirement will be much much better than if I remained in the scheme which when I took i was told was brilliant.

I get your point (and am in receipt of a pension, or will be) but I am a low earner and contribute about 6.8%, my husband is a higher earner and pays nearly 10%. Not denying it is still a good pension though.

You don’t need population growth to fund the state pension, you need population stability which we don’t have as the pool of pensioners gets ever larger and working age people gets smaller with the falling birth rate. The cost will also be coming down over time as more of the benefit is paid based on the less generous scheme rather than historic more expensive schemes.

Honestly no I don’t think your vision is possible. How do you propose to keep paying current and already accrued benefits while also funding DC pensions for current employees and higher salaries? That creates a black hole that must be in the trillions in the government finances which would send the markets into chaos, it would be so irresponsible. It would also be so politically unpopular, no public sector worker is going to vote for a party proposing to remove their secure pension. Similar I don’t think the state pension will be means tested, it would be political suicide and that party would never be reelected.

Say a 25 year old teacher has some DB pension accrued, you can’t force them to change it to a DC set up, they have to opt in so not all would. You’d then have to pay that small DB pension until that person dies (even if you change their future service pension) which might not be for another 70 years, it’s such a long term project and would be financially disastrous.

to your other point on whether you could make an actuarially equivalent DC benefit to the current DB benefit - you could in theory but it would be based on so many assumptions that there would be inevitable winners and losers (people living longer/shorter, what future inflation and investment returns are etc). No individual is average in that sense and it’s quite a hard sell because it’s so complicated to explain so I don’t think that really works either on such a wide scale.

Just no, really.

You are proposing an unstable, short-termist approach, both in general and on this specific issue.

It would be extremely disruptive to have public servants flitting off every time someone offered them a slightly higher salary.

We want long term thinking, not constant disruption and change.

All working age people should be paying into exactly the same pension scheme. It should pay out at the same age and offer the same terms. If somebody wants to live it up in retirement they can buy an additional private pension to do that.
BTW private salaries are not keeping pace with inflation whilst more are doing in the public sector. In real terms the vast majority of salaries are reducing so more of us are all feeling the pinch.

Mines a 49th. Currently….

I pay just over 2k a year in contributions. I think my pension will be around 15k. I will have been in it for approx 25 years and half of that was at a lower salary (if I retire at 67). Doesn’t seem a bad return to me? But I’m happy to hear how I can improve it!

You need to speak to a financial advisor, if it's public sector I don't think you can transfer out. Also the pension companies are jittery about doing it now because you know what the next overdraft charges,ppi, car emissions, car finance scandal will be "I've spent all my pension and it's your fault you shouldn't have let me move it"

So you definitely need proper advice

Thanks - tbh, I don’t think I’d do much better out of it.