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?

I have a civil service pension but I actually sort of agree with your sentiment (though I think your argument doesn’t quite work in terms of subsequent parliaments). It astounds me every time I do my pension forecast.

With the way wage inflation is going I really don’t know how sustainable it is. I was a grade 6 by 30, this was a grade that traditionally years ago took decades to get to, but due to the need to pay people more but being strangled by all the usual issues around pay, they’ve essentially had to decrease the seniority of grades slowly meaning we have more senior grades proportionally than we used to (may not be universal, but is very prevalent in my corner of the public service). So if I don’t move on, I potentially have decades of building my pension at a high salary, my pension will likely be worth millions especially if I continue to progress as I expect to (if it stays the same, not expecting it to) the same for pretty much everyone in my team who are similarly young and senior.

I wish we had more flexibility to pay specialists and professionals more in the civil service, I personally would be willing to take a lesser pension package for something more competitive today.

That's subtly different from what I'm saying.

In my suggestion, from tomorrow, no-one gets a DB pension. All contributions go into individual DC pots.

In theory, this should cost the exact same amount as what the government is paying today, if they're funding them properly. As you say, it's just a different way of organising pensions.

However, if a future government, or more precisely if future taxpayers, decided that they didn't want to spend £55bn on pensions anymore, currently they don't have options. The people who've retired on DB pensions can't realistically have them taken away.

Let's say there's a war or something in 50y time and suddenly every penny is needed. The government of the day can't decide, okay let's fire some of the teachers, we need everyone to go and either be in the army or be a nurse (or whatever).

But they can't, because they're still stuck paying for teachers who retired 20 years ago. They're paying the deferred compensation owed by a long-gone government with different priorities.

My pension is the compensation for rubbish pay, workplace bullying & very often awful conditions. The pay was so bad we had to have a pay increase when the National Minimum Wage came in. Workplace bullying was rife especially amongst managers who go away with it. Of all the 3 offices I worked in we had windows that couldn't be opened because they were in danger of falling out, non existent heating, asbestos, fleas, mice, dangerous wiring. My pension was non contributory but non gets increased at the same rate as state benefits.

LGPS is the exception. The others are funded on a pay as you go system where current contributions pay for current retirees.

No I’m suggesting that your plan to remove these pensions would end in disaster. It’s an easy to say policy but the reality is totally impractical and suggests it’s not been thought through.

I would start by removing the triple lock though.

yes, imagine triple lock will also go.

Precisely! Thank you for the great example.

triple lock will definitely go but not for current pensioners

Public Sector Pensions are not final salary anymore they are much nearer to other businesses. Exceptions are obviously the higher ranked Civil Service the Members of Parliament and the Prime Minister all of which are far to highly paid and have far too high a pension in the first place. I think PMs should only get a pension if they hold on for the whole five years of the party term. Even then it shouldn't be thousands more than their annual salary or even as much as their annual salary. If ordinary every day pensioners are not allowed even minimum wage to retire on then they should not get so much more. Everyone should be the same. They can use their own personal wealth to live on.

It’s an example of what would happen if your suggestion was followed. It’s a great argument for leaving things as they are.

People wouldn’t do many of these jobs, or rather staff churn would be worse. My dc is on the military, the pension after 25 years is a factor in keeping trained personnel in the armed forces, most especially the technical trades including her would earn double in the private sector but we as a country need them,

Would you have accepted getting no pension but having a higher salary in that year, which allowed you to save your own money privately?

I worked for 30+ years full time. My DB pension is nowhere near half my final salary pay!

I guess this is fair; deferred compensation is a common retention tool in the private sector too although not necessarily in the form of pensions.

It seems to me that this could be done more similarly to the private sector in a way that doesn't make the huge long-term commitments that pensions do. For example the way tech companies use RSU vesting, or simply giving a payout bonus at various long service points but not making 50y commitments.

Band 2, one of the largest groups in the NHS, is £12.92 per hour. Minimum wage in the UK is £12.71.

I’m a Police Officer so paying into a DB pension. In 2015 they changed the pension so it isn’t as good as it used to be but of course still better than a private sector pension.
We do pay quite a big contribution, it’s almost 14%

Trust me the pension and job security is the only perks of the job we have. We get spat on, called the most horrendous names, assaulted I could go on.

Change the pension to a DC one and retention and recruitment would fall off a cliff I fear hardly anyone would want to do the job.
I joined in late my late 30s so I do have experience of the private sector too

Imagine being like the US where they just shutdown the government if they can't agree a budget.

@yetnothernameI’m not sure how that disproves what I said?

Well if it’s the pension that you begrudge everyone feel free to work for the NHS or local authority . Loads of jobs not well paid often but ‘gold plated pension’
Workers contribute to the pension and certainly an ever increasing amount of nhs staff are being hit by annual allowance bills due to their pension contributions/ growth . These bills can easily be £20000 plus .
Furthermore PS pensions have been reformed and are certainly by no means as attractive as they once were .

Misinformation. Why don’t you read up on the schemes properly.

You can’t have it all ways, it’s hardly the fault of public sector workers that private sector pensions are so poor, public sector doesn’t generally have as good a salary for similar level of responsibility/knowledge/skills jobs and as people always state, if the public sector is so good, people are perfectly welcome to take a job in it

Most European countries and maybe others worldwide have generous pensions for public sector workers. Is UK any different, or is it just a basket case as a result of bad political management, the legacy of the financial crash, and Brexit?

Civil Service numbers can be tweaked a bit with voluntary severance, early retirement without actuarial reduction and so on. However, to mess with the public sector is asking for trouble, so any issue concerning that sector is handled with kid gloves. They do a great job for all of us.

I worked in the Local Government Pension Scheme nearly 40 years ago. At that time the fund was so awash with cash that the councils/public bodies in the area I looked after had paused making the employer’s contributions!

Your idea is to save money. That IFG report shows it clearly won’t save money, and it’s practically cost neutral (interesting!). So a pointless exercise that would cost a huge amount in terms of staff churn.

Anyone know why TPS, civil service and NHS pensions aren’t invested like LGPS ones are?

As an aside, I’m in a private DB scheme - invested well and currently healthy financially. So it is possible.

I moved from the private sector in the CS and I could potentially buy into this. It would be interesting to see what the uplift in my base salary would be to compensate, and then run some maths to see how that would compare to say, if there are no changes.