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?

Yes this is what I'm saying - the OP is confused - no government is prevented from changing the law going forward, or from changing policy going forward. But every government is always bound by the contracts signed in the past.

Most private UK DB schemes are now in surplus, which is why a lot of them are now investing in insurance contracts.

Thats not what unfunded means.

Your public DB pension is an unfunded future obligation.

Your contributions in an unfunded DB pension do not go into a pension pot, they go to current pensioners.

In a funded public DB pension system, there is a core fund of usually some billions. The contributions from current employees go in, the pension payments for current retirees go out, the actuaries then calculate if the core fund is in surplus or deficit to meet the future pension payments of current employees given the portfolio, projections, and so on and then the government usually tops up any deficit from general taxation or scrapes away any surplus to use elsewhere annually.

Funded DB schemes are brilliant.

My pension is coming to me in exactly 15 days. A good lump sum and a lovely monthly income. I will keep paying into another private pension l have, drawing on that when l am 65 yrs old. I know l have earned every penny, working xmas days, & all the other bank holidays. Unlike the private sector, me and my colleagues are not able to strike, we just get on with things that are thrown our way, we have little to bargain with. But my time is coming to an end & l have loved my job & hope l have helped alot of people over the years.

No they don't mean public sector pensions, they mean the state pension. And those which have employer contributions (under 20%, not 30%) aren't anything to do with the welfare bill.

The average private sector worker works twice as hard as those in the public sector. Not from my experience of working in central government, local government and in the private sector in similar roles.

Then we have all the time off, paid annual leave, early retirement clauses, duvet days, general laziness, and incompetence that is NEVER tolerated in the private sector. Oooh, we have "paid time off i.e. annual leave - legal requirement. Early retirement = reduced pension; the only services that have special early retirement clauses are armed forces & police which by the very nature of the job are much harder or even impossible to do when elderly. Never had a "duvet day", though I've heard about them happening in private industry. Laziness? I work VERY hard indeed, as do all my team. Incompetence? We can get sacked for that & I know people who have been - assuming they pass their probation period in the first place.

They had to increase our salaries the last few years just to keep us a few pennies above minimum wage at the lower grades.

...workers resigned their jobs on Friday, got massive redundancy pay outs and when back to the same job but with a different contract on the following Monday. Not possible. I know someone who retired then came straight back, but by definition if a role is made redundant you can't employ someone to do that same job the next day as the post no longer exists.

Try reading up on the facts next time!

It's not future taxpayer money, it's future pension contributions from future public sector employees. The DB pensions of retired civil servants are paid from the current civil servants pension deductions.

Switching over to DC would be hugely expensive. Currently there is no money pot - money in goes straight to money out but the government can confidently promise today's 30yo civil servant what their benefit will be in 40 years time because they can be confident that there will be civil servants in 40+ years time. DC pensions require actual money to be invested for those 40+ years so any kind of switchover would require decades in which current retired people still need their pensions paid but the current contributions of the not-yet-retired civil servants are all being invested for their own future pensions and you cannot spend the same money twice - so it would cost billions, that we simply do not have.

DC and DB pensions aren't a cut and dried case of one being better than the other. Depending on the global economy, some DC pensions end up being more generous than the same contributions into a DB scheme. The big difference is who takes the risk. For people in a DC scheme, if the markets crash when they are a year or so from retirement, the individual people of that age cohort suffer that blow as the value of their investment pot is wiped out. With a DB scheme the risk is spread and the impact is absorbed by the employer rather than the individuals, which is fairer. The fact that one by one all the private sector employers have decided to foist the risk onto their employees and make the system more unfair should not be a good reason for the government to do the same.

All this chat about ‘gold plated pensions’ etc overlooks one simple fact. If i have an NHS pension paying for example 20k/year for life, thats roughly equivalent to someone having a 500000 ‘pot’ which they can withdraw at say 4% which would give the same amount. That 500000 has grown to that level through years of growth and jnvestments and will be passed on to spouse, kids, whoever you choose when you die. In the NHS pension scheme you have no pot. Theres a survivor pension of approx half - 10k in this example- if you die. If no spouse - no one gets anything. You will have paid hundreds of thousands of contributions and there is no legacy from this. Thats fine if you live 20 years but if you only live 6 years its a pretty raw deal for your family. So if you want something to pass on you have to save for it separately. But you still have to pay up to 12.5% of your salary to get your NHS pension. Also in a private pension and drawdown arrangement, you can keep investing and growing the money, all through your life

Perhaps you should consider another way to think about it. Everyone - including public and private sector workers- through tax is paying for the public services which, while they do have significant problems, are still fantastic and look around at some of the rest of the world to see what it could be like elsewhere - both good and bad- we are doing pretty well. We are payig for services. Your post makes it sound like private sector workers are just paying to keep public sector workers in a job, but doesnt recognise the value of that job. Really poor. The vast majority of public sector workers work incredibly hard and often in very difficult circumstances

Most people dont have dependent children at this stage of life. Many do not have a spouse. There is no pot so nothing to pass on

No one is saying public sector workers don’t do a good job, but for that the6 should he5vpaid in the same way as everyone else, ie a market rate and a DC pension that they can choose how much or little to contribute to. With life expectancy having increased so much the pension could be a 30 year pension. So public sector worker works from 18-55 , ie 37 years, and then receives a pension at average salary for another 30 plus years. The country cannot afford it , we have less young people working,
The significant majority of private companies stopped their DB pensions decades ago. It is time the public sector aligned with the private sector, the only reason it hasn’t is every single government is frightened of what it will mean for them in terms of votes, but that doesn’t mean it isn’t the long term smart answer.

This assumes that many civil servants jobs won’t be taken by AI which I think is highly optimistic. In reality there will be significantly less in future paying for the pensions of the many , who are all living materially longer than they were. So instead of an average pension being paid for eg 7 years ( my grandparents) , it’s being paid for 20 - 30 years ( my parents generation)

It would be difficult but is doable, many private companies and many private schools have done it over the last 30 years. All new employees go onto the new scheme and a compensation agreement is worked on that freezes DB , moves to DC but in return there is a higher salary going forward, and a better quality pension that you could direct where you wanted and is yours to access/ direct

But they don't work in jobs that are in the market.

They are not private sector roles, they are not market roles.

Is this genuine lack of understanding of the role of public servants, or deliberate misrepresentation from those who want to remove more of the state so there will be fewer state services for everyone in future?

I did not know it was unfunded, that is outrageous.

Who is retiring at 55? I’m 47 and my retirement age - and the age I can receive TPS - is 68.

When someone thinks 5% pay-in (make that 9% in the case I know of), that retirement is at 60 (er, no, 67 and guaranteed to rise), that the average person dies at 100 (83 for women, 79 for men) and that the civil service offer final salary pensions, instead of career average... it does give a clear notion of where we are in this.

All companies used to offer final salary pensions, 30 years ago. The fact that has been hollowed out, and most people left worse off than recent generations, is undeniable. I'm just not sure blaming those still in receipt of them, instead of questioning the removal for everyone else, is the way forward.

As for the idea that past Parliaments can't tie subsequent ones... we paid off WW2 debts for decades. We'll be paying Covid off for decades. And PFI contracts from the Blair years, which were how they funded the massive infrastructure improvements, are costing the taxpayer 10 billion every single year - the final contract doesn't end till 2048. So no, it is not rare for the state to pay bills run up by policy in the past. It is utterly normal.

I think the OP has a point but may be I benefir. When I reach 60 and if I am still in employment I will receive a 25K pension to add to my salary. I might enjoy a better lifestyle or invest for retirement at 67. Loads of people in the same situation. We just got a good deal back in the day...

Forgot to say NHS

Public sector pensions are forecast to generate a surplus of close to 4 billion by 2029, meaning more paid into the system than out.

This is tilting at windmills.

As an aside, illegal and unlawful are not the same thing.

All companies used to offer final salary pensions, 30 years ago

No they didn’t. Many companies, even large ones, provided no pension at all. That’s why the Pension Act was passed in 2008.

I do think those pensions are something else that we, as a country, can’t afford and, moving forward, will have to be changed.
And I’m not sure that the argument that people won’t join those professions if they do change the pension conditions, holds much weight. When the insistence to “tax the rich” is met with the very real possibility that those people will just leave, the consensus on here is “good riddance”. By that mindset, anyone who doesn’t want to join a public sector organisation because the pension isn’t what they expect? Good riddance! We are in the middle of a worsening unemployment crisis, people will gravitate to whatever jobs are available.

Ah, apologies. I should have said, "companies who offered pensions."

Still staggers me that eg Ladbrokes offered final salary back then, and now it's seen as a wildly extravagant civil service anomaly.

I’m not even bothering to replies to your lies & propaganda.

Google IR35 public sector abuses.

Everyone knows public sector workers have whopping gold plated pensions, with 30% employer contribution, when private sector pensions average 3% employer contributions.

Public sector pensions paid for by PRIVATE SECTOR workers.

Don’t even start me on public sector skiving, waste, unaccountability, bloat.

I just can’t wait for the country to go bust due to all this 30% pay hikes to doctors and train drivers last year, and for doctors, seemingly year-on-year.

Then the whole public sector pension sector will be finished. Not a moment too soon. Greedy lazy fuckers.

and yes, I used to work in the public sector. I never saw so much waste, unaccountability, incompetence and laziness. Bring on AI is what I say and get rid of millions of non-jobs on big fat wages.

Amen.

You sound awfully angry for first thing in the morning.

You can’t wait for the country to go bust? You want a huge section of the population unemployed - and then presumably need to claim unemployment benefits?