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?

Do you think my message in this thread is that we should just cancel pensions and leave salaries exactly the same?

They were handsomely rewarded with a blank cheque for overtime.

What about the triple lock state pension? That also binds future governments

I think you need to look into it a bit further, the LGPS I’m in is doing so well in funding itself that it’s actually agreed to reduce the amount employers pay in this year.

A race to the bottom post! Our pensions are basically deferred pay. I could have earned a fortune with my PHYSICS degree but chose to spend since 1989 teaching the nation's children. I have airline and fighter pilots among my alumni, not to mention Rolls Royce Engineers working on nuclear submarines, aeronautical Engineers, IT leaders, radiographers, etc. You're welcome. How on Earth could you move the goalposts once someone has done each year's work? They can't retrospectively change the terms any more than I can retrospectively suck the knowledge out of my students' heads! We have a contract. Its in our Ts and Cs. Your choice was not to take this career path with its relatively low pay but secure pension. We all had the same range of paths to choose from within the appropriate level of academic ability. Your post is utter gibberish.

If you put your extra salary into a pension does it even out?

I don't think I've ever posted an AIBU that had people agree with me overall :)

I do think a lot of posters aren't comprehending my point though. I do appreciate the few posters who have made thoughtful and substantive disagreements and challenges, for example asking my opinion on long-term government debt, or pointing out the usefulness of deferred comp as a retention tool.

Very willing to have more of that. "Why do you hate our hardworking teachers and nurses" type responses are just arguing with a strawman though.

What about if the pension changes were made for any new joins, in exchange for a higher base salary? Would be interesting to see what those in their 20's for example would think.

If you don't know what the problem would be with that you shouldn't be allowed on the internet without a carer.

I think your post is very naughty, and not in the childish mischief vein. We have had periods when companies with long serving workforces ran decent pension schemes that paid out on schedule. We have also had some very high profile rogue schemes, like Maxwell, which were completely fraudulent and unfunded.

But for a lot of self-employed people, like DH and I, the answer was to create a small personal scheme (ours covers DH, DS and me). Ours has been operating since about 2003, it owns a single commercial shed, and our tenant only has to pay the rent to enjoy use of the property. We set the scheme up almost 20 years ago, and it has "washed its face" which means it has covered its costs and put a bit (not riches) into the pot.

I hear all the arguments about someone else paying the mortgage. And they did. But when a brand new tenant goes bankrupt on you, owing £30k for a years rent and has trashed your premises to boot, costing £30k to fix back to the state that you can re-let, and you've required legal advice at every stage, the pension fund has taken a hit of eight or nine years profit. I do not have pockets deep enough to deal with the advisers and their fees. So when the tenancy ends, however it happens, we will sell out and bank the profit., if there is any. And for all the admin, and all the effort, we shall be taxed at roughly 45%. Sorry if young businesses can't find premises to rent. It's the price of socialism.

Yup and my quite simple point is "I don't think the government should do deferred pay, they should pay it all in-year"

Overtime to increase their chances of death? At the normal overtime rate, I'll go for that, Not.

My Local Authority Pension Scheme is in profit - it's not costing you a single penny.

I paid 4% of my salary (iirc) from 1990, I believe the LA paid 7%.

That would be 4% of under £100 per week at the time.

I'd much rather have earned 7% more and saved it in an ISA.

Haven't you opened up a hornet's nest @OneAmberFinch there's some very defensive recipients of gold plated pensions.

Anyone contributing to a pension, DB, DC, Other, should get an extra paid days leave and a £25 gift voucher each year to spend on said day off for getting off their arses, working, paying taxes and paying into a pension to hopefully eat and heat in retirement.

I'll implement when I'm PM, my turn can't be far off.

This is exactly the point you aren’t understanding - most public sector pension schemes (exception being LGPS) aren’t funded. So the contributions of today’s workers are paying the pensions of current pensioners, much like the state pension where taxes/NI pay current pensioners.

If the government did move all public sector employees to DC schemes tomorrow then they would have to pay earmarked contributions for all current employees today, and also continue to pay the £55m odd someone quoted above for current pensioners in addition, rather than just the shortfall between current contributions and benefit outgo. Until all of the liability for currently accrued DB benefits is gone (you can’t change pension entitlements retrospectively) then the government would face a huge black hole to fill, in addition to paying DC contributions for current employees so it’s just unaffordable to change the system. I am a pensions actuary so fairly knowledgable on this!

You seem to overlook the fact that public sector employees pay a large contribution towards their pension and also receive a reduced state pension.

The government are changing things though, the government commercial service employs staff on wages/ pension/ leave equivalent to private sector. To put it into perspective, in civil service DH earns £70k, in GCS same grade he’d be on £108k, but minimal holiday, sick, pension 3%. The public sector DB schemes are no where near as good as they were, there is no tax free lump sum you can get a tax free lump sum by giving up pension, and they are linked to state pension age, so if that rises, the date you can access your pension rises. If you access it early, you
lose 5% a year. If DH state pension age rises to 70 (not beyond realms of possibility) he’d lose 50% retiring at 60, if it stays at 68 he’d lose 40%! He will still have made the exact same employee contribution, in nhs that’s 12.5%. The goal posts will probably change, but it’s very unfair to change them retrospectively. TBH there is so much more flexibility with a DC scheme, I’d much rather he had that.

This is exactly my proposal, that new contributions should be done on this basis.

My main concern is the long-term stability of government finances (specifically in the sense that they cannot easily be adjusted up and down as circumstances dictate - rather than commentary on the current numbers), but I think a lot of people would prefer the flexibility of having cash today.

State pension is defined benefit scheme . Is that also to be done away with under your brave new world where pension schemes should not commit future governments to paying them. And all be individual contributions based ? That would certainly put a cat amongst the pigeons.

I do think that all public sector workers should be contributing to DC pensions, and facing the same decisions and choices as the rest of us. My pension (DC) is all and only what DH and I have been able to pay in. It definitely ain't index linked but we have put every last penny into it. So to treat it less favourably and tax it harder just because it holds real money and savings is revenge on people who think ahead.

As a retired pensions consultant, I can recall the days when the Public Sector DB schemes were regarded as the benchmark by which all private schemes were measured.

YABU. It's not that Public Sector DB schemes should be made illegal, it's that PRIVATE sector schemes need to be brought back to what they were before that bastard Nigel Lawson ruined them

You can't know that until you retire, when your defined contribution pension will depend on what the markets are doing at the time.

That is one of the enormous benefits of a defined benefit pension, you know what you are going to get.

It would be an extraordinary defined contribution pension if it could buy the index linked benefits that defined benefits pensions pay for the same money.

You misunderstand me - I agree with you actually, I was addressing posters saying it's fine because it's funded.

The system of having current public sector workers pay for it is unsustainable in my opinion. I think it's even worse in some ways than needing continued population growth to fund the state pension - it seems like it requires more and more people on the public sector payroll...

As a pensions actuary, do you think it's possible to get to the vision I have? Do you think it would be desirable? What would it realistically take? Is there a way it could transition and what kind of timelines are we talking?

To be clear, my vision is that I want to get to a point (maybe in multiple decades) with no more DB pensions at all on the books, and only individual DC pensions for everyone. I know that's not the case today and I think it's a problem.

I thought it was Gordon Brown's rescinding the pension dividend tax credit that cratered the sector. His first significant budget statement IIRC. The worst Chancellor ever IMO.