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?

You are either pretending to believe all this to get a reaction or have found yourself misled into believing this nonsense.

😂

Private sector pay is a lot closer to public sector pay these days

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

Says it all really. It takes under 1 minute to google LGPS employer contribution rates showing a typical 16.6% of pensionable pay not 30%. Some employers in local government have reduced this further, to single figures - don't take my say so, just look on line. Employee contribution rates vary depending on the salary. 1/49 of each year's pensionable pay goes in to the pension calculations. Private sector contributions don't average 3%, that's the minimum and many employers pay more.

And read a few post above which explain that current Civil Service pensions are paid by the contributions of the current staff, not directly from taxation (which they pay as well).

50% of peanuts is still peanuts. A "gold plated" pittance is still a pittance

I don't know where you worked before, or how long ago it was, but I can assure you that staffing has been cut to the bone in most areas and workloads increased. We have to account for every single penny spent, and due to the accusations of members of the public that we aren't being careful with "their" money (we pay taxes & NI too remember) we have quite a large overhead in ensuring that we can be audited at any time with no notice. There's very little overtime available any more, and TOIL is impossible to take due to workload, so many of us just simply absorb the extra hours we end up working.

I have bad news for you.

We're still paying EU pensions. Even though we've left!

A contract's a contract and much depends on what the consequences of breaking it might be.

The cost of the anarchy resulting from having no police and health care from the lack of doctors and nurses would cost more than the pensions. On another thread, people described a £50-60k pension as paltry but most public sector people will only receive half that rate in pensions - my husband and I will only receive that amount between us after a lifetime of paying huge contributions and earning relatively poor salaries. Paying a higher salary and lower pensions would probably cost just as much and not benefit the country.

I've been busy lately so haven't been able to reply to each individual poster but I do appreciate those who've taken the robe to engage with the spirit of the question!Lots to mull over in my quest to find the perfect pension system.

I haven't changed my mind on my fundamental feeling that making promises based on the expectation of an environment being the same in 50+ years time (e.g., we will have the same number of civil servants then as now, in fact must) are essentially folly.

However several posters changed my mind (or gave me something to think about) in regards to the technicalities of DB vs DC, unfunded vs funded, how much flexibility exists to change existing pensions already, etc, thank you.

Everyone else, return to your regularly-scheduled discussion on civil servant duvet days ;)

No need for some magic 5 year fixed term contract.
Any government can hire and fire any employee whenever they want to, and they do
Just comply with employment law and/or change the law in parliament

e.g. The civil service went through a major reduction in staffing using “voluntary early release” VERS a number of years ago. The first round offered voluntary redundancies in line with contracts with a higher payout than enforced redundancy which was to follow if insufficient numbers volunteered.
After that round they passed legislation through parliament to change the maximum payments, so then round two was capped meaning that if you volunteered or were enforced then you hit the maximum cap either way

Another example is governments switching around different types of people in the same roles.
e.g. civil servants are employees and the government has all of the employers responsibilities. So tender out for contracts and TUPE the staff over - that cuts the number of civil servants in FOI counts, it does add a layer of expense by putting in a management layer with a company but makes things “easier” by passing away employer responsibility and may be cheaper in the longer term

Another way of using different types of people is across Defence - civilianise military posts, such as take an officer or a clerk out of the office. That benefits continuity as the individuals don’t move every 2 years, eases the headcount shortage when the services are smaller and is much cheaper to pay civil service wages than military pay and training to sit at a desk. Next contractorise the civilian

Or change a regular post into a full time reservist if you need the “military skills”. That eases the Regular head count shortage, can provide continuity past 2 years and is cheaper to pay a Reservist 5 days a week than a Regular (on a cheap rate 24 hour 7 day week 365 days a year contract). But that goes wrong when Reserves funding is tight and their days per year get capped

Or take soldiers off the gate - let them have rest time instead of being put on guard duty, with shifts on the gate rotating to sleeping on a bunk in the guard room
Grumpy soldiers that leave the army due to being messed about, and an expensive security guard looking at ID cards, whilst having shortages of headcount’s
Replace them with a civil servant security guard force on a shift contract. Much cheaper - even when there’s a shortage and their overtime goes up.

But as there’s a shortage being paid overtime take them away from Regular sites and tell the services to “guard yourself” if there’s a unit on site. Just keep the civil servant guards where there isn’t a decent sized unit or have the civilian on the counter booking in visitors and the soldier on the gate.
Go through multiple cycles of switching various security options of Regulars, civilians, MoD police, a Reserve armed guard service etc

What private schools have done isn't replicable in state schools.

What the govt did over the last 30-odd yeas recognise the huge cost of transitioning to a funded scheme and opted instead to reduce pension generosity, increase retirement age and increase employee contributions.

While at the same time more recently gently squeezing pay relative to 2008.

So any new moves to "reform" the teachers pension scheme would quite rightly be met with a high degree of suspicion.

In any case the employer contribution is reducing to a (still generous) 17.6% in April although this wont benefit state schools as this reduction is clawed back through lower budgets to schools.

Not too mention that in many areas of the public sector the workforce is female dominated so that due to child care responsibilities many have worked part-time. There are also, relatively, high levels of burnout, sometimes resulting in long term disability which impacts ability to work and pensions. Add into that the lower paid workers in ancillary services and you have a big swathes of public sector pensioners on extremely modest occupational pensions.

You’re definitely not a pension advisor.

No one is a tree, you can choose where you work, if you want a higher salary you apply to jobs that pay you more, workplace pensions are paid into over 40 years.

No it isn't a "great example", it's reductive bullshit.

Some universities are skint and laying off staff because fee income hasn't kept up with costs, government funding has been cut and the number of overseas students has dropped due to stricter visa requirements. Additionally a lot have massively overinvested in capital projects.

Still it fits your agenda so yeah, "great example".

Some back of the envelope figures:

600,000 UK teachers

Average pay £40000

Employee and employer contributions (from April 27) of 25%

Gives £6billion per year that pays current pensions.

If most of this was used instead to build up a fund or individual funds it would still need to be replaced. So, while we were waiting for us old teachers to die, there would be a slowly reducing bill in the billions each year to fulfill promises made.

That's where we are, rightly or wrongly.

Similar figures must apply to NHS, Civil Service, Armed Forces and police.

They’re hoping to save money by not paying more now with the realistic expectation that an amount the public work force won’t actually live to see their pensions.

It's funny how the answer to "public sector workers get better pensions than private sector workers" is never "so how do we improve private sector workers pensions" ?

Both of my parents were civil servants for over 40 years.

They both paid into pensions all of their working lives but were also both dead before they reached 70. The money they paid into the system far outweighed the money they ever received in pension.

It’s grim but I wonder how many public sector pensions are not or mostly unclaimed. I also know of more than one teacher who has retired then died within 2 years of retirement…

So there’s that. Morbid, I know!

Exactly this!!!

Some schools that are part of a multi academy trust have actually stopped TPS for some staff and new staff and moved them over to other pensions which are cheaper for the trust. There’s been uproar on many teacher forums about this. I’m an ex teacher of 25 years but much of that was part time and my pension sits at the equivalent of 12 years full time. Many women particularly end up with lower pensions than men working in the same sector as women are the ones to take leave and reduce hours. I’m now working for the LA in a non teaching low paid role and have just been enrolled into the LGPS.

Anybody with any financial noise who was designing the system from a fresh start would recommend a defined contribution based system. So on that basis I agree with the OP.

However, changing to that from where we are now would cost billions more in the medium term as the employer contributions would need to be paid to the new DC scheme along side existing retirees.

On that basis, I don’t think it’ll ever change to that. But in an ideal world I would advocate for higher public sector salaries on a DC based pension, purely to take away the unknown nature of future liabilities.

I don't think that's quite correct @celticprincess . English state schools can't force that on teaching staff. Independent schools can and have, using "fire and rehire". State schools can offer an alternative to TPS but they can't mandate that staff switch to it. The Trust in question is still fighting with the DfES over it.

Trust to go ahead with pension change despite DfE 'threats' https://share.google/lsUdrxtegQRYkhri3

This. Exactly this. And all this funded/unfunded talk is a bit meaningless. My DB pension is paid from a company pension fund, which ofc invests the money. And a big chunk of those investments (about £1.4 trillion) are in government bonds, because they're the safest. When people talk about "government borrowing" it's often portrayed - particularly by journalists - as a bad thing. They say stuff like "they're maxing out the country's credit card". But in fact the govt is borrowing money from - and paying interest to - UK pension funds, both public & private ones. That's an excellent thing for a government to do. It means our public services AND private industries can offer good, competitive pay & pension rates to employees, meaning they attract top talent. Helps keep us the 5th largest economy in the world when we are only the 22nd largest population.

The "unfunded" public sector pensions appear on the annual balance sheet as it were, and get people's backs up because they think, ooh look at all that money we're paying out! Couldn't that be better spent on other items on the balance sheet? Defence, health, whatever. But if they were made into "funded" pensions, like mine, the funds would invest in govt bonds & interest would be payable on those bonds. That's how pension funds stay solvent, keep pace with inflation. So the govt is still supporting those pensions, it would just appear elsewhere on the balance sheet, as part of borrowing.

Government supports both public pensions, "funded" or "unfunded" and private pensions, through interest and tax allowances. That's a very good thing for the UK. The problem's with the language, really. "Unfunded" makes it sound like a debt that you've got no money to pay. It's not that.

I don't disagree with anything @Gizzasec writes. But my situation is one where both partners in a marriage were self-employed from age 35. No company has put money into my pension since 1990. DH and I have one company and one professional practice, and frankly in 1994, both were very risky. But we persevered, and gradually we got our heads above water. There have been good years, but also long periods when we have taken nothing for almost 18 months to keep our people paid every month.

We bought a single industrial shed in a very good location and set up a SIPP to own it. Good tenant, long occupancy... mortgage paid, and in the honey. Company closed with the principals retirement. New tenant, wrecked the building and went bankrupt. We were £50k down in 18 months. Now we are rebuilding our pension fund. We are already 70, and although I enjoy the intellectual challenge of making it work, I can see that the endless administration demanded by HMRC is going to pall. Our heir is temperamentally unsuited to keeping it rolling. When that day comes, I know who will buy it.

This is not a whinge. It's an explanation of how and why some people make money. You think, you plan, you strategize. If you are right, you come out ahead, and then some politician rewrites the rules... that is what irks me. Twenty five years retirement planning trashed.

But you're not talking about a pension fund in the true sense there - you're talking about having made a property investment in lieu of investing in a pension fund. That's a completely different, and much riskier, kettle of fish.

If you'd put the same amount as you spent on that industrial shed, spread over the years so you didn't exceed the maximum permissible for pension contributions, into a personal pension fund then allowing for the compounding effect over the years you may well have been as well of without the risk.

You talk about keeping "your people" paid - presumably they weren't employees as such as you'd have a legal obligation these days of having a company fund set up - which is another option you could have looked at for yourselves?

I really think you are over estimating how generous civil service pensions are.
My partner earned barely two tirds what he could in the private sector- 80% of civil servants are entitled to claim Universal Credit- that is basically all civil servants with children- that's how low the pay is. My partner worked for DWP for 33 years he retired aged 58 and even with the whole of his lumpsum ploughed and sond some additional contributions into the pension pot still barely gets £12,500 a year- not exactly princely. This is combined with the fact the NI contributions are lowered because the pay is so poor, so when he gets his OAP it will be less than two thirds the full amount. So should DB pensions be illegal because they are hugely generous- no because they aren't.

The average teacher pension is just under £10,000 a year, which reflects that it’s such a female dominated profession, and that so many female teachers go part time after having children.