What is the justification for police and civil servants getting final salary pensions?

[ladykale]

Does anyone know?

Who is funding these generous pensions if they haven't put enough in all their life / value of investments isn't equal to the value of their pension??

I’m in favour of public sector pensions generally, but the ones which don’t have a pot of assets are essentially tax payer funded. Where do you think “the pension company” is getting money from?

What a goady OP.

I joined HMRC from the private sector 22 years ago. The job was sold to me as lower wages but deferred pay in the form of a good pension. BTW the average CS pension is actually quite low.

I am a tax inspector and have brought in millions in extra tax through my work, as have my colleagues, so I think we have ‘earned’ our pensions.

The costs are met by a combination of contributions by employees and contributions from the employer, which obviously comes from taxation. Public sector pensions are a mix of funded schemes (usually local government) where money is put away at the time and then paid out when people draw their pensions and unfunded schemes where a portion of the employees salary is held back as a contribution and then the pension is paid later out of general taxation.

The fundamental issue is that the cost of defined benefit pensions increased dramatically because of low interest rates and increasing life expectancy, generally to the point where the cost to the employer was greater than the value placed on it by the employee (partly as people are terrible at estimating their own life expectancy). In the private sector over time people preferred the jobs with a higher salary and the less valuable defined contribution pension so final salary pensions disappeared.

Public sector workforces tend to be more unionised and the unions generally appreciate the value of the pensions more so push to retain some defined benefit provision (albeit much less valuable than the old final salary days). A big issue is that moving to a cheaper defined contribution scheme would actually be very costly to taxpayers in the short term for the unfunded schemes (NHS, teachers, civil service, police, firefighters) as we would go through a period of having to pay twice, paying out the pensions to retired people in these schemes and paying again to contribute into a DC scheme for current employees. So we continue on with an expensive pension that the people who have it probably don’t value as much as they should and the people who don’t have it feeling jealous (but not enough to actually go and work in the public sector with all that entails!)

“In the private sector over time people preferred the jobs with a higher salary and the less valuable defined contribution pension so final salary pensions disappeared.”

From living it, it was always the employers that preferred defined contribution pensions, not the employees. Tons of employees tried to protest the changes as the companies one by one got rid of their defined benefit pensions.

but it’s hardly comparable to a bog standard company pension is it!

I’m public sector so get the defined benefit pension and whilst I don’t think it’s a handout that isn’t deserved, I’m pretty grateful for it!

Also worth noting that police pay 11% of their salary into their pensions, in order to get a career average.

It is better than a "bog standard" pension by today's standards. It is not, as your original comment suggested, anywhere near as good as a final salary pension (which used to be standard across all sectors).

Yes I do appreciate that but given the move happened over years and on the assumption that most people can move jobs, if employees had valued defined benefit pensions as much as they cost employers then they could have paid lower wages to compensate for the higher pension costs. The reality is though that most people value £1 in salary more than they value £1 in their pension scheme (actually they often value £1 in salary far more than they value £1.25 in their pension scheme!).

The underlying issue is that defined benefit pensions paid into a funded scheme (as per private sector) is very expensive. I personally think this is detrimental at a societal level as pensions are good and I generally believe defined benefit pension schemes are the best way to do that, but I can totally understand why it didn’t make sense for private sector employers to offer them any more.

OP, I think, as a pp has pointed out you misunderstand what a final salary pension is (although they are now mostly career average.
The NHS final salary scheme is calculated at 1/80th of your final salary x number of years contributions. So if you work for 40 years you would end up with a pension of around 1/2 of what your final salary was. This scheme closed some while ago and there are not many of us left in that scheme. So not really 'gold plated' and as pp have pointed out, in some way may make up for years of below inflation pay. My dh's private sector pension has done pretty well and he has a lot more flexibility to pay in more.

The fundamental issue is that the cost of defined benefit pensions increased dramatically because of low interest rates and increasing life expectancy, generally to the point where the cost to the employer was greater than the value placed on it by the employee (partly as people are terrible at estimating their own life expectancy).

This nails it. Low interest rates and high life expectancy made final salary pensions impossible to fund any more.

My DF's small family business used to offer a final salary pension but eventually they had to close it to new members. Even so, he has had to put 100Ks of his own money into it to keep it solvent enough to meet the final salary obligation to the handful of members still in it.

Yes it happened over years but you do understand you cannot take a defined benefit pension with you when you move jobs? So employees could not simply change jobs to keep it. All the people I worked with and know from my industry that had defined benefit pensions, we all fought to keep them. No one valued a higher salary more! The change was done to workers by employers, it wasn’t something we wanted, asked for or accepted without a fight.

Some have stringent conditions attached. Xh was with the environnement agency, equivalent to local govt. If hé does anything, even retired, to adversely affect their reputation he could lose his pension.

As a final salary scheme it was only équivalent to companies like Levers, Unilever, Ford, Cadbury etc.

The reason they've disappeared is twofold. One reason is that the triannual actuarial valuation was changed under eu law, making it more stringent and requiring much more financial input from employers.

The other is Gordon Brown, who raided all the private sector, and other schemes, when chancellor reducing their incomes by 25% at a stroke. He did this by removing the right to reclaim the ACT deducted by companies when paying dividends, from the insurance companies managing pensions funds.

ACT is advance corporation tax, so he stopped the pension funds grossing up their dividend income.

Why? Cos he's a wanker Imo. Not to mention fiscal drag, prudence, flogging off the gold reserves and all the other 'shite' he did.

As others have pointed out, it's typically career average not final salary these days. But either way, civil servants are paid abysmally compared to much of the private sector, they deserve a better pension.

I think the poster knew exactly what was meant by the OP using outdated terms to describe the defined benefit pensions and whilst technically correct, a bit misleading.

I might be wrong but I imagine that the difference between career average and final salary (as was), might be felt more keenly the higher your salary? I’m a TA so earn a pittance.

But also has the benefit of allowing people to go part time towards the end of their career without being penalised? Perhaps I have just fallen for the hype but at the end of the day, it’s a much better pension than I could hope to get than if I worked in the private sector.

Yes I know how it works- I’m 25 years into a career as a pensions actuary. The issue is that most defined benefit schemes cost about 60% of an employees salary to fund these days. Nobody would have taken those kind of pay cuts. I have seen it play out when employers have offered employees the choice between moving to a defined contribution scheme and getting a pay rise or staying in the defined benefit scheme but increasing employee contributions so the two options are equivalent cost. Only a tiny, tiny number of employees opt to keep defined benefits. People understandably prefer salary today over pension for tomorrow.

I do understand that most employers didn’t offer a direct salary increase when defined benefit accrual stopped. I’m trying to show that on average people don’t place as high value on it as the underlying cost. I’m also not saying that some employers weren’t entirely cynical about it.

More like 16%

It's not final salary but it is excellent, even if it's not as good as it was, I'd happily reduce it for a more competitive salary now mind, I need the money now I have kids and a mortgage, not when I'm 68+ (the extent to which I'm projected to get currently at least) but the flexible working is very advantageous for family life so I suppose it balances out.

As to why? I don't really know anymore, but it's open to anyone, it's not an exclusive club.

Yes most employees cannot accept a 60% pay cut.

Rejection of a 60% pay cut to keep a defined pension benefit doesn’t add up to you saying this shift happened because employees preferred £1 in salary to £1.25 in pension savings.

That isn’t even preferring salary today over pension tomorrow. That is how the fuck do I pay my rent/mortgage and feed my children on 40% of my usual pay?
Its not a choice.

They did until the pension schemes were changed, mine was & none contributory as well, it partly made up for the poor wages as I had to take a pay cut from my previous manual job.

It's part of our overall salary package. If I wasn't getting a decent pension I couldn't justify staying in the public sector when I could earn at least double (and possibly many multiples ) in the private sector. I am very good at what I do, and I like that I am giving back. But there would be a tipping point where i would move to the private sector and it would be loss of the decent pension

Don't begrudge us our pensions, it's hard enough for me to recruit decent people as it is when salaries are so low.

Anyone can apply for a job working for the public sector if they wish

It was in their terms and conditions. (They also contributed greatly to hem). This isn't a race to the bottom. Everyone should get final salary pensions

Why is there multiple threads about this?

You might need some professional help, you're clearly struggling heavily with your policeman cousin getting his well deserved and earned pension. Jealousy is not an attractive trait

This!

This must be today's right-wing shit stirring topic, it is like a memo goes out.

@ladykale They get decent (not final salary) pensions because they have not yet had them taken away by race-to-the-bottom types like you.