Who is paying for your pension ?

Posted by: Don Atkinson on 02 February 2014

Who is paying for your pension ?

 

I ask this of anybody with a UK public servant pension, which includes Gov Officers, Local Authority Officers, NHS staff, Teachers, Policemen, Firemen, etc etc  It also includes quasi government organisations such as Network Rail, train drivers and other ex employees of British Rail, and similar “privatised” organisations where employees retained their pension rights under their Tuped transfers.

 

For those in the private sector where final salary pension schemes are largely a thing of the past, I would ask….

 

Who is living off your lost pension ?

Posted on: 04 February 2014 by Don Atkinson
Originally Posted by Pev:
Originally Posted by Don Atkinson:

  simply direct future pension contributions into "open market" anuity purchace schemes without any increase in the currently declared employer contribution percentage. 

 

I genuinely hope you all have better and more realistic proposals.

 

Hard to think of a worse idea than handing yet more of our money to the greedy incompetent commission hungry deceitful thieving vermin that infest the so called "financial services" industry! 

Ah Ha !! thanks Pev,

 

The first sensible and probably accurate response to the second question that I posed......"Who is living off your lost pension ?"

 

The other party to be benefitting from low private sector pensions IMHO is "the Client"

Posted on: 04 February 2014 by Don Atkinson
Originally Posted by Lionel:
 

 

 

Firstly, I don't accept your premise that there is some unfairness here.

Oh, but there is unfairness.

 

The tax-payer, who is funding your (and my) very attractive Public Sector pension is trapped and forced to pay ever-increasing amounts at the expense of better hospitals, schools, defence,  public infrastructure etc etc

 

The sooner a democratically elected government puts an end to this disgraceful situation, the better.

 

Meanwhile, enjoy !

Posted on: 04 February 2014 by Don Atkinson
Originally Posted by Lionel:
 

 

 

 

That is not caused by Public Sector pensions and cannot, and should not, be solved by some spurious race to the bottom.

 


I didn't propose a race to the bottom, I proposed "....looking at ways to improve all pensions, Public and Private, on an equitable basis" and invited "...better and more realistic proposals"

Posted on: 04 February 2014 by fatcat
Originally Posted by Don Atkinson:

 

The tax-payer, who is funding your (and my) very attractive Public Sector pension is trapped and forced to pay ever-increasing amounts at the expense of better hospitals, schools,

 

 

 

 

But the people working in the hospitals and schools are the people receiving the public sector pensions.

 

A positive outcome from time spent in hospitals or schools is more to do with the quality of staff than quality of building.

 

Pensions are what they are. GET OVER IT.

Posted on: 04 February 2014 by Don Atkinson
Originally Posted by fatcat:
Originally Posted by Don Atkinson:

 

The tax-payer, who is funding your (and my) very attractive Public Sector pension is trapped and forced to pay ever-increasing amounts at the expense of better hospitals, schools,

 

 

 

 

But the people working in the hospitals and schools are the people receiving the public sector pensions. and.....

 

A positive outcome from time spent in hospitals or schools is more to do with the quality of staff than quality of building. agreed, more or less, and....?

 

Pensions are what they are. true, but things can be changed for the better, rather than continuing with the existing imbalance. GET OVER IT ???

 

Posted on: 04 February 2014 by Bruce Woodhouse

Forgive me but I'm confused, perhaps because i really don't understand pensions. What exactly is being said here Don? Please simplify.

 

Are you saying that public sector pensions are too generous and that is wrong? If so please show me how they are too high and how to fix it.

 

Are you linking that with the change on pension provision in the private sector? if so please explain the link.

 

I repeat that the NHS pension scheme makes a profit for UK PLC, irrespective of what level of pension you may feel it's employees deserve.

 

Bruce

Posted on: 04 February 2014 by Lionel
Originally Posted by Don Atkinson:
Originally Posted by Lionel:
 

 

 

Firstly, I don't accept your premise that there is some unfairness here.

Oh, but there is unfairness.

 

The tax-payer, who is funding your (and my) very attractive Public Sector pension is trapped and forced to pay ever-increasing amounts at the expense of better hospitals, schools, defence,  public infrastructure etc etc

 

The sooner a democratically elected government puts an end to this disgraceful situation, the better.

 

Meanwhile, enjoy !

Unfairness is what individuals think it is.

 

I see no reason to change the pension arrangements for one sector simply because another sector has shafted its members - that is the problem/disgrace that needs sorting.

 

As for tax, well I pay tax and object to some of what is spent on - so what?

Posted on: 04 February 2014 by Don Atkinson
Originally Posted by Lionel:

 

I see no reason to change the pension arrangements ie I'm all right Jack for one sector simply because another sector has shafted its members - that is the problem/disgrace that needs sorting. But no constructive ideas ??

 

As for tax, well I pay tax and object to some of what is spent on - so what? So no doubt you would like to do something about it ?

 

Posted on: 04 February 2014 by Marky Mark
Originally Posted by Don Atkinson:
Originally Posted by Lionel:

 

I see no reason to change the pension arrangements ie I'm all right Jack

Sums up the entire debate and most UK politics.

Posted on: 04 February 2014 by Bananahead
Originally Posted by Bruce Woodhouse:

 

I repeat that the NHS pension scheme makes a profit for UK PLC, irrespective of what level of pension you may feel it's employees deserve.

 

Bruce

Bit confused.

 

The NHS pension scheme returns money to UK PLC?

 

The NHS pension scheme is funded too well and therefore makes a profit?

 

Posted on: 04 February 2014 by Lionel
Originally Posted by Don Atkinson:
Originally Posted by Lionel:

 

I see no reason to change the pension arrangements for one sector simply because another sector has shafted its members - that is the problem/disgrace that needs sorting. But Don hasno constructive ideas.

 

 

 

Sorry, but I don't accept your basic premise so why waste my time on it?

Posted on: 04 February 2014 by Bruce Woodhouse
Originally Posted by Bananahead:
Originally Posted by Bruce Woodhouse:

 

I repeat that the NHS pension scheme makes a profit for UK PLC, irrespective of what level of pension you may feel it's employees deserve.

 

Bruce

Bit confused.

 

The NHS pension scheme returns money to UK PLC?

 

The NHS pension scheme is funded too well and therefore makes a profit?

 


Yes. Net contributions are greater than payments. It is a sustainable scheme.

 

I'm loathe to quote a single and rather biased source but I believe this is widely corroborated

 

http://money.uk.msn.com/news/m...m-nhs-pension-scheme

 

Bruce

Posted on: 04 February 2014 by Don Atkinson

Bruce,

 

Your last couple of posts are very interesting. Unfortunately, today is my day off and i've been out hiking much of the afternoon and am taking people out for dinner shortly, so don't have the time at present to explore your NHS scheme in more detail.

 

As per your earlier comment, I too don't understand the pension system(s) but the NHS scheme seems too good to be true, and usually when things seem too good to be true.................

 

It would seem that our National Debt and other financial problems could be solved at a stroke if every Public and Private pension scheme simply followed suit and pro-rata returned £1.6bn pa to the treasury.

 

As I say, intersesting. I'll chew it over, food for thought, and get back after dinner.

 

Cheers

 

Don

Posted on: 04 February 2014 by Tog
Originally Posted by Don Atkinson:

Who is paying for your pension ?

 

I ask this of anybody with a UK public servant pension, which includes Gov Officers, Local Authority Officers, NHS staff, Teachers, Policemen, Firemen, etc etc  It also includes quasi government organisations such as Network Rail, train drivers and other ex employees of British Rail, and similar “privatised” organisations where employees retained their pension rights under their Tuped transfers.

 

For those in the private sector where final salary pension schemes are largely a thing of the past, I would ask….

 

Who is living off your lost pension ?

I suppose this is the reason this part of the forum is referred to as "Padded Cell"

 

bonkers

 

Tog

 

Posted on: 04 February 2014 by Bananahead

I think that you will find that the NHS pension scheme has simply loaned the money to UK PLC and no doubt there is interest being charged.

 

 

It seems that I am now another year older so the company that I work for is now paying a nominal 36.5% of salary into my pension plan.

 

 

Anyone bought some solar panels?

 

http://www.telegraph.co.uk/fin...n-says-minister.html

Posted on: 04 February 2014 by Lionel
Originally Posted by Don Atkinson:
....

 

It would seem that our National Debt and other financial problems could be solved at a stroke if every Public and Private pension scheme simply followed suit and pro-rata returned £1.6bn pa to the treasury.

 

Don

A much more effective way would be to get tax evaders and tax avoiders to pay their proper tax liabilities - and if the current law is inadequate, change it. You could also re-nationalise the utility companies so that vast profits go to the public purse rather than rapacious corporations.

Posted on: 04 February 2014 by hungryhalibut
Originally Posted by Don Atkinson:

There seems to be an awful lot of defensive and somewhat abusive argument comming from the Public Sector. Quite un-necessary.

 

As Bruce pointed out above, we all have a remuneration package, wages, pension arrangements, benefits, holidays etc. I'm well aware of the nature of these packages, both in the Public Sector and the Private Sector. As a guide, I have spent about 1/3 of my work life in the Public Sector and about 2/3 in the Private Sector. More than half my pension comes from the Public Sector and less than half from the Private Sector.

 

You all clearly acknowledge the generous pensions enjoyed in the Public Sector and a couple of you have asked what I would do to redress the imbalance. Well, much to HH's horror, (sorry HH) I would start by terminating final salary pension schemes for new entrants in the Public Sector. I would also freeze current Public Sector final salary schemes at 1/60th per year served based on annual related earnings (ie back-dated as if they were a CARE scheme), and simply direct future pension contributions into "open market" anuity purchace schemes without any increase in the currently declared employer contribution percentage.

 

Then I would start looking at ways of improving all pensions, Public and Private, on an equitable basis.

 

I genuinely hope you all have better and more realistic proposals.

 

 

Interestingly, the Local Government Pension Scheme, of which I am a member, ceases to be a final salary scheme on 31 March, for the very reason that it was becoming unaffordable to the Local Government Employers.

 

It remains, though, as a defined benefit scheme, and in my view that is what's really important. It will be based on career average, so each year's benefit is 'banked' and then inflated by the CPI. This gets over the potential issue of people getting large promotions just before retirement and uplifting the whole of their contribution history.

 

That has to be better than having to take your pension pot and invest it, which leaves you at the risk of  economic factors whereas a pot of say £100,000 will give very different returns if invested one year compared to the next. It's very hard to know how much to save if you have no idea what future investment rates will be.

 

If I was in charge, I'd make career average defined benefit schemes a legal requirement for all employers, which would level the playing field. I've no idea what contribution rates would be appropriate though, seeing as I'm not an actuary.

Posted on: 04 February 2014 by Don Atkinson

As an example, take my last job. Five years in the Public Sector. I use this as it effectively eliminates long-term investments, inflation and other distortions.

 

The scheme was a CARE scheme but because my salary was pretty static over that period the 1/60 pa pension was as near as damit a Final Salary scheme with me getting a 1/12 pension at the end.

 

My contribution was 7.2% and the Employer’s was 10.8% making 18% in all. At £100k pa (*) the combined input to the scheme was £90k and the pension £8333 pa index linked with 50% to a surviving spouse.

 

Over the same period I invested £225k in AVCs. On the open market, this would have secured a further pension of £8333pa with similar terms.

 

This leads me to presume that “somebody” has added  c.£135k to my CARE pension pot or “somebody else” is living a lavish lifestyle off the AVC market .

 

It is worth noting that for tax purposes, the £90k investment in the CARE Scheme was valued at c£225k for the purpose of totting up the tax-free pension pot to ensure it remained within the £1.8m tax-free limit. So I rather suspect that “someone” has effectively added £135k, even if no actual money was paid in. The net result is that the tax-payer is funding that portion of my pension portfolio.

 

I suspect that my other Public Sector pensions from my days in the Trucial States and Oman have likewise been “enhanced” by some mysterious “benefactor” to enable a 1/80  pa Final Salary pension to be enjoyed. Bear in mind that at that time 60s and 70s, the average life expectancy was c.70/72 so these final salary pensions appeared to be self-funding at that time

 

Add another 10 years to life-expectancy and I don’t think many of the current Public Sector schemes are self-funding. However, I am intrigued to learn more about the NHS scheme.

 

(*) the figures have been rounded and pro-ratered at £100k to make them more digestable

Posted on: 04 February 2014 by Don Atkinson
Originally Posted by Hungryhalibut:

 

If I was in charge, I'd make career average defined benefit schemes a legal requirement for all employers, which would level the playing field. I've no idea what contribution rates would be appropriate though, seeing as I'm not an actuary.

No problem with your first three paras HH, but we live in a global market and we can only influence the  level playing field in the UK. The UK is resource-poor so depends on adding high value to imported raw material before exporting high-quality, high value goods. The Private Sector hardly seems to be competitive even now, without the added burden of CARE or Final Salary Schemes. Indeed, trimming pension costs has been one way many UK industries have gone in order to remain competitive. 

Posted on: 04 February 2014 by hungryhalibut

Don, returning to your example, I think it highlights nicely the downsides of having to buy annuities, which is what the AVCs will be doing. The LGPS, which is a funded scheme, takes a 30 year view of returns and prices accordingly. Annuities, on the other hand, will vary dramatically based on anticipated returns at the point of investment, which is why rates are currently so low. Charges will also be a lot higher. So nobody is mysteriously adding the £135k, it's simply a result of different assumptions and charges.

 

I do understand your point about the global market, I was just saying what I'd do in a Panglossian Paradise. It's nice to dream sometimes. 

Posted on: 04 February 2014 by Lionel
Originally Posted by Don Atkinson:

As an example, take my last job. Five years in the Public Sector. I use this as it effectively eliminates long-term investments, inflation and other distortions.

 

The scheme was a CARE scheme but because my salary was pretty static over that period the 1/60 pa pension was as near as damit a Final Salary scheme with me getting a 1/12 pension at the end.

 

My contribution was 7.2% and the Employer’s was 10.8% making 18% in all. At £100k pa (*) the combined input to the scheme was £90k and the pension £8333 pa index linked with 50% to a surviving spouse.

 

Over the same period I invested £225k in AVCs. On the open market, this would have secured a further pension of £8333pa with similar terms.

 

This leads me to presume that “somebody” has added  c.£135k to my CARE pension pot or “somebody else” is living a lavish lifestyle off the AVC market .

 

It is worth noting that for tax purposes, the £90k investment in the CARE Scheme was valued at c£225k for the purpose of totting up the tax-free pension pot to ensure it remained within the £1.8m tax-free limit. So I rather suspect that “someone” has effectively added £135k, even if no actual money was paid in. The net result is that the tax-payer is funding that portion of my pension portfolio.

 

I suspect that my other Public Sector pensions from my days in the Trucial States and Oman have likewise been “enhanced” by some mysterious “benefactor” to enable a 1/80  pa Final Salary pension to be enjoyed. Bear in mind that at that time 60s and 70s, the average life expectancy was c.70/72 so these final salary pensions appeared to be self-funding at that time

 

Add another 10 years to life-expectancy and I don’t think many of the current Public Sector schemes are self-funding. However, I am intrigued to learn more about the NHS scheme.

 

(*) the figures have been rounded and pro-ratered at £100k to make them more digestable

No Civil Service Pensions were ever "self-funding" and are not now.

 

So what?

 

Posted on: 05 February 2014 by Don Atkinson
Originally Posted by Lionel:

No Civil Service Pensions were ever "self-funding" and are not now.

 

So what?

 

Bruce seems to think otherwise, at least so far as the NHS is concerned.

 

I'd like to get to the bottom of how Public Sector pensions are really funded and why Private Sector pensions that rely heavily on annuities, appear to be so expensive.

Posted on: 05 February 2014 by Pev
Originally Posted by Don Atkinson:

 

This leads me to presume that “somebody” has added  c.£135k to my CARE pension pot or “somebody else” is living a lavish lifestyle off the AVC market .

 

It's the latter 

 

Posted on: 05 February 2014 by Don Atkinson
Originally Posted by Pev:
Originally Posted by Don Atkinson:

 

This leads me to presume that “somebody” has added  c.£135k to my CARE pension pot or “somebody else” is living a lavish lifestyle off the AVC market .

 

It's the latter 

 

I think its a bit of both.

Posted on: 05 February 2014 by Don Atkinson
Originally Posted by Hungryhalibut:

Don, returning to your example, I think it highlights nicely the downsides of having to buy annuities, which is what the AVCs will be doing. The LGPS, which is a funded scheme, takes a 30 year view of returns and prices accordingly. Annuities, on the other hand, will vary dramatically based on anticipated returns at the point of investment, which is why rates are currently so low. Charges will also be a lot higher. So nobody is mysteriously adding the £135k, it's simply a result of different assumptions and charges.

 

I do understand your point about the global market, I was just saying what I'd do in a Panglossian Paradise. It's nice to dream sometimes. 

HH’s comments about Annuities is very relevant. They are not a good buy at the moment, but they are the only viable option for most people in the Private Sector. I wonder why the Government doesn’t open  its doors to enable Private Sector pensioners to access the same system to which Public Sector pensions have access ? Indeed, why not make this compulsory ?