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.

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.

That is sort of true but you’ve completely misunderstood it. The commons is sovereign and the sovereign can overturn a prior decision. However, decisions always include future obligations, so later Parliaments can have their hands tied insofar as to how much and how fast they can overturn or reverse an earlier law.

For example, when Parliament B overturns the state pension age of Parliament A by raising it to 70, they are required by law to consider the impact to the people and implementing a mechanism so that there is fairness. This is why their dates set for the pension age going up, are set in the future and there are legal guidelines as to what is considered fair and just. The Ministry of Justice can strike down any law Parliament passes that does not meet basic constitutional rights (difficult in England as the constitution is largely based on common law and case precedent rather than a formal signed & sealed document like other countries)

DB pensions are not insane. The insanity is that these were and are unfunded commitments that can be inherited in full by a spouse. Other countries that have public and/or private DB pensions usually require that they be funded and that inheritance- or survivor benefit is capped at 50% or less for long term partnerships only. Generally the attrition of people in such a large pool (attrition meaning dying before they collect a pension) and the contributions of more workers to pensioners means these funds are perfectly viable and often in surplus. DB funds are also superior to DC funds in that professionals manage them and so there is less risk of loss of investment plus workers are better able to plan for retirement and not end up reliant on welfare benefits including a state pension in their old age.

The country can’t afford higher salaries or higher DC pensions for their civil servants. It’s too late to switch from an unfunded model to a funded one. BTW, DC pensions can also be unfunded- see various pension scandals where companies closed and workers/retirees lost their pension savings.

The insanity is having unfunded promises.

Quite different from the government of 5 years' time being forced to pay another 20y of pension for someone who retired 5 years before they even came into power and had no control of the hiring of.

Your criticism of the above is also insane. You can’t allow a government to play with people’s lives like that it completely destroys the social contract and regresses us to Henry VIII state of affairs in regards to human rights.

One of my concerns, which is why I referenced the "binding of future parliaments" thing, is that a future government which decided it wanted to reduce the amount of spending on pensions wouldn't be able to do it, because the payments today are deferred payments for past work.

But later Parliaments have indeed reduced pensions passed by earlier Parliaments to save costs. How do think the final salary pension gradually got chipped away at? Look at any government department and you will see older workers tend to be on better older DB pension plans, with younger workers on less generous, newer pension plans. They can and do reduce pension costs, they just can’t flip it like a light switch because it quite literally affects the lives of millions of people.

Editing to add, pension payments are not deferred payments for past work other than colloquially. In an accounting and taxation sense, they are not at all.

They haven’t been final salary for decades though…….most of those who had that pension have already finished

Exactly, it’s shifted to average of x highest years, to average over all years and then that average has been further reduced by having each year count as less than 1. The minimum threshold to get any DB pension has gone up from say 20yrs of service to 30, 40 with minimum ages added in that generally were state pension age minus a # (also gradually reduced) so the school leavers that started an internship at 14 in ye good old days could not longer ‘retire’ with a pension at 34! Or that person who is 50 with 30yrs service,,,sorry you can’t retire either.

What counts as the salary for pension calculations has also been reduced from gross pay to base pay (a mechanism where any sort of higher salary for being in a high cost living area ie Whitehall or posted abroad with higher wages and things like housing allowances don’t get included in determining the salary). This put a stop to career civil servants scrambling to finish their career at HQ London or some plushy, very expensive and highly paid overseas post in Singapore or the UN in NYC.

ie old DB pension based on final salary in some cases was as high as 80% of highest salary paid for life after only 25yrs service at any age!

Today, many are more like (as an hypothetical example) minimum age 57 and minimum 20 years service. Pension is 1% times years of service times average career base pay which is then reduced by 0.25% per year you retire below state pension age of 67.

DB civil service pensions today are a tiny fraction compared to what they were for the boomers. Just another ladder being pulled up behind them like the paid to get a Uni degree ladder was pulled up and replaced with the highest student loan debt burden per student in the OECD.

Try claiming your golden plated public pension - i think you will find thousands of people who are being royally fucked over right now. Just google it

I'm optimistic that the UK will be around for a while. Are you saying it can be done, it'll just take 70 years?

I could be convinced that it would be acceptable to have ringfenced, actuarially-funded DB pensions to allow the government to pool the risk around the group. Correct me if I'm wrong, but this might have some advantages in that you would need to save slightly less per person due to the lower pooled risk? Compared to named DC pots.

Where I have strong objections is that the current system constrains future governments in a whole lot of different ways that aren't related to pension, for example, we must keep the population at a certain level or must keep the public sector at a certain level.

To me, one of the reasons I find the general concept of parliamentary sovereignty appealing is that I think it creates a society less likely to feel the need for radical revolution, because it will always be possible to change course democratically. I think if so much is tied up in these very long-term commitments with far-reaching restrictions on other policy areas ("we have to have more immigration to fund the pensions" etc), that's significantly at risk and should therefore be seen as contrary to good governance.

Do you think it's possible then to get to a world where there are still DB pensions but they're funded in advance? Even if it took 70 years?

@ concertinacornflake & @OneAmberFinch

I think there’s a bit of crossed wires here about what “one Parliament can’t bind another” actually means.

It’s a legal principle, not a “governments can’t make long‑term decisions” principle. All it means is: Any future Parliament can change or repeal any law a previous Parliament passed.

That’s it. It doesn’t mean governments can’t make choices that have long‑lasting consequences. They absolutely can - and do - all the time. Brexit is the perfect example: legally we could rejoin tomorrow if Parliament voted for it, but politically and diplomatically it would be a nightmare. That’s the difference between legal sovereignty and real‑world consequences.

So when posters say “you’re confusing law with policy”, that’s what they’re getting at. A government can make a policy decision that’s very hard to unwind later, but that doesn’t mean Parliament is legally bound forever.

Which is why your thread title (“DB pensions should be illegal”) doesn’t quite make sense if taken literally. Parliament can make DB pensions illegal on Tuesday and a future Parliament can make them legal again on Wednesday.

There’s no such thing as “illegal forever” in a sovereign Parliament - just political choices that may be difficult to reverse.

Ha ha 🤣 You should be a comedian OP!! YABU!! Whenever anyone whinges about DB pensions, my standard answer is…why don’t you just join an organisation that offers one? If you can’t beat them, join them? I’ve got 21 years worth of a DB pension and am due to get a lovely pension 🙌

My contributions are 12%, and my salary considerably lower than private sector equivalent. Final salary schemes ended years ago, and replaced by career average, which penalises women who will often have reduced earnings due to childcare responsibilities. I will be well into my 80s before I will receive back what I have paid in to my pension. It’s only a few very high earners who end up with gold plated salaries (NHS).

You know civil servants are tax payers too?