[Closed] Public Sector and their pensions

The contributions don't pay for all the accruing benefits, the government make a theoretical contribution, it is all theoretical because there is no fund, they like many employers want to reduce this contribution in the future. It is no more complicated than that.

Zedsdead - Member
Average public sector pensions are around £4000 pa
Is this correct?

It is (reportedly*) the average pension paid by the public sector. However it is NOT the average pension paid by the public sector to a full time employee with 40 years of service.

So many people work for the public sector part time; not unexpectedly their pensions reflect this. Many people work for the public sector for only a small number of years; naturally they get lower pensions.

Currently depending on exactly which bit of the public sector you are in if you work for 40 years you might expect something like 1/2 - 2/3rds of your final salary (usually the highest of the last 3 years) as pension, for the rest of your life - plus a lump sum. So a minimum wage cleaner working 40 hours a week (£12.6k) who has been working all their adult life will retire on considerably more than the reported figure (£6300 p.a.) whilst an experienced band 6 nurse (£34k salary so outside London) retiring at 65 could have earned a pension of > £20k pa, plus a tax free lump sum**.

Don't forget public sector workers also qualify for normal state pension benefits. Oh - and the public sector pensions are index linked wheras private sector ones often are not.

* as TJ reports its not even true for most sections of the public sector.

** NHS pensions have undergone various reforms - and so this assumes they are on the "latest" version...

this is just simply wrong. You cannot have it both ways.

Maybe I am, but then so would every pension fund manager in the world, so I think that it unlikely. If you want to get a basic understanding of pensions you could read FRS 17 which deals with how company's account for their liabilities or some of the Institute of Actuaries material.

No mefty - you have a basic lack of understanding of how the NHS pension works.

This years contributions fund this years benefits. You claimed this

You have to look at the accruing liability and match the contributions to the liability, people contributing today are contributing to their future pensions not someone's existing pension.

So to summarise your statement as I understand it, TJ, it's affordable now but may or may not be in the future, depending on whether the parameters change? Doesn't that put the current contributors at risk of not getting what they were told they would get?

Your other point being that if the current surplus was invested (rather than spent by the government), then that could cover the potential shortfall.

Right?

I have, I used to have a certain amount of support for the public workers, that was until they all became selfish whingebags who want the whole world to feel sorry for them,

Politics of envy.

I used to wonder if I'd done the right thing going for lower wages, no company car, no gym membership, no perks, no work funded [s]holidays[/s] conferences, accounting for every last minute of my work time (I certainly wouldn't dream of the taxpayer paying for me to post on STW during work time: I am on a day off today 'cos I did nights all weekend). But I used to remind myself that the retirement age, pension, yearly 'cost of living' small percentage pay rise every April, and relative job security was worth it in the long run, and that the extra few hundred quid a year in union membership would also help keep this up.

Don Simon, I am sorry you had such a shite time with your last employer but you could have considered making the short term sacrifice in terms of salary, benefits and working conditions for a long term security of a pension and an employer who gives you a pay rise when they said they would and pays a bit less but pays you on time.

and then go on strike the very moment anyone looks at them in the wrong way.

The strike last November was the first time the NHS have been out on strike since lord knows when. Easily 25 years (someone mentioned it in the last argu-thread about pensions iirc). If it makes you feel better, I happened to be on a rostered day off that day and still went out on the demo and rally.

Pretty much clubber - apart from the NHS scheme has been changed already to reflect people living longer and tomake it sustainable and if the surplus had been invested it would mean huge surpluses for ever. the NHS pension fund would be the biggest in the world

the NHS pension fund would be the biggest in the world

I hear that in the voice of Brian Blessed 🙂

You say it's been changed to be sustainable, but surely that's only based on assumptions on how much is going to be paid in each year since there's no effective fund pot, just money in and out each year.

No TJ you are showing a basic lack of understanding of how accountable pensions work in the real world.

I'd agree that public sector pensions are being messed around with on a whim by the politicians under the current arrangements and it's not clear (to me) whether there is any basis for what they are doing.

If it was up to me all benefits accrued under the current arrangements would be ring fenced and would continue to be paid by the tax payer. I would however shut the existing schemes to new employees at the very least and preferably all employees (as has happened in the private sector) and start the new scheme on a sustainable funded basis separate from political interference. It should also take a lot of the arguments away, the employee and the employer put money into the fund, it's invested, the employee gets and annuity based on the pot at the end of service.

At the moment the public sector wants it's cake and eat it. They don't want to increase contributions and they want decent guaranteed pensions. The main loser in that scenario is the tax payer who gets to foot the bill if it all goes pear shaped.

The current unfunded schemes aren't sustainable without continued underwriting from the government. If the government was happy to underwrite all pensions on the same basis I'd go for that (i.e. the usual comment about bringing private sector pensions up to the same standard as the public sector rather than the other way around).

Politics of envy.

No I am not, there is no magic about the NHS scheme, the principle underlying it is the same as every scheme in the world, you make contributions today for an income in the future known as a pension - these are called pension contributions - the clue is in the name - not that you are paying contributions for some pensioners benefits today in the hope that there will be someone around to pay yours. Every contribution give rise to a future liability, actuarially the quantum of this liability is greater than the contribution, hence the concept of the government also contributing. Rather than investing the money in a separate fund, the government chooses to use the money and thus reduces its need to borrow. Governments like this because the pension liabilities are off balance sheet whereas the reduction in debt is on balance sheet so their numbers are flattered.

If you want to invest in something where your contributions pay someone else an income, I believe there are a couple of chaps called Madoff and Stanford who used to offer such a product, so they might be able to help.

Mefty - sorry - you simply are wrong - I suggest you read up on how the NHS scheme works. revenue funding IIRC

TJ - You are a financial ignoramus, I know how it works my wife is a member of it, I also have the benefit of having advised trustees of pension funds, I don't need to rely on propaganda from either side to evaluate these issues.

If you had the ability to understand what I wrote you would understand that nothing in it contradicts the fact the present income may meet present outgoing, that is completely different from the actuarial liability.

Have to admit, TJ, mefty's take on future liability seems in line with the point I raised as I read it...

Mefty - try listening.

in the NHS this years benefits are paid by this years contributions. there is no investment fund.

it is nothing like any private sector pension scheme.

Seriously - go and read up on it.

This is indesputable fact.

clubber - thats because mefty simply does not understand the difference between the NHS pension scheme and more normal ones.

So there is a potential future liability (for the government I guess) since the people currently in the scheme rely on future contributors to pay their pensions, which only works if the assumptions made (eg there are enough of them for example) are correct or within tolerance?

Yes - basically - remembering that the scheme has been radially altered to reduce this potential deficit hugely and also to put it in context teh money the government has taken out in surpluses would easily cover this liability

Its also a tiny amount of subsidy compared to the tax relief on real fat cats pensions

Ah, that's a different point, TJ, don't try to obfuscate...

DS, right back atcha 😉

I have, I used to have a certain amount of support for the public workers, that was until they all became selfish whingebags who want the whole world to feel sorry for them

Selfish wingebags, I mean... There is another timewarp dailymailist thread about scousers on the dole somewhere on the internet that badly needs your input.

Precisely, clubber, but the fundamental of all pension valuation is that you do not take into account future contributions because they are not a given. Companies have separate funds because it is felt rightly that the employee's pensions should not be at risk if the company goes bust in the future. Unfortunately it does not always work in practice. In the case of a government, as they have the ability to print money, this risk does not exist so there is no need for a fund. That said, some countries or states have public sector pension funds, Calpers in California and ABP in the Netherlands for instance, and these are both huge investors.

You've completely lost me jw. 😕

don simon - Member

You've completely lost me jw.

I mean I can't believe such a well-considered poster like your good self would have been altogether serious with the bit I quoted up there either.

I have, I used to have a certain amount of support for the public workers, that was until they all became selfish whingebags who want the whole world to feel sorry for them, and then go on strike the very moment anyone looks at them in the wrong way.

In case you forgot where it was you seemed to go all 'daily wail'.

In case you forgot where it was you seemed to go all 'daily wail'.

I don't think you are a whinger DS, but that bit was pretty OTT.

I state a fact and I'm a whinger

You stated opinions like most people on here have, not facts. Even the numerical 'facts' linked to on here by both the lefties and righties are massively up for debate: the teachers' [i]opinion[/i] is that their is a sustainable pension and your [i]opinion[/i] is that it isn't and they are disregarding the economic needs of those around them.

Why did you end up teaching (that is what you do/did isn't it?) in the private sector then DS? I am wondering if you might be envious of the pension and job security you would have had in a different life working for a state school or CFE.

Back when I was a community nurse, I was once offered a tasty looking package in the private sector by an owner of a group of care homes who liked the cut of my jib, basically a few grand more than I was on for the NHS and a tasty company car on top of that. When you are a 28 year old father of 2, treated like dirt by middle managment, and paid waaaay (I think back then I would have been 8k) under the national average wage for a world of stress and genuine life-or-death responsibility, with a university education behind you and a professional registration to keep up, an offer like that is really tempting! I'm glad I played it safe and didn't though: the owner turned out to be a right wrong-un, screwed over a load of his emplyees on their pay and had several of his homes closed down including the large one that I would have managed. I chose to stay one the lower-risk lower-paid path and today I still have a job. (even if our newly-outsourced payroll department 'forgot' to pay me £500 of my wages the other day 👿 )

Why did you end up teaching (that is what you do/did isn't it?) in the private sector then DS? I am wondering if you might be envious of the pension and job security you would have had in a different life working for a state school or CFE.

[i]If it was up to me all benefits accrued under the current arrangements would be ring fenced and would continue to be paid by the tax payer. I would however shut the existing schemes to new employees at the very least and preferably all employees (as has happened in the private sector) and start the new scheme on a sustainable funded basis separate from political interference. It should also take a lot of the arguments away, the employee and the employer put money into the fund, it's invested, the employee gets and annuity based on the pot at the end of service.[/i]

Totally agree, but it must apply to all employees - not just new ones.

DS: Shame the lazy few made you generalise that they are all lazy and selfish in public service then.

I work with a couple of nurses a bit like your lazy civil servant acquaintance sounds, though without the 'falsifying reports and documents' bit (I would have delighted in reporting them for that, because like all career shirkers it is hard to pin anything on them) -basically crap but not quite crap anough to sack, which of course would be much easier in a world of self employment or fixed term contracts. Funnily enough, these two shirkmeisters are also two out of our team's three 'token Conservatives' 😆 . I am sure that is a total coincidence however, and not at all representative of [s]turkeys who vote for christmas[/s] health workers who vote conservative. I also do not consider them to be representative of the other 18 nurses and 14 health care assistants I work with though.

br, dunno about the other public sector pension schemes, but with regards to closing pensions to new starters, the new changes to NHS pensions for new starters would actually seem to be discouraging them from entering the scheme as for new staters it will not be competitive with private pension funds or indeed paying into some other investment which you cash in on your retirement.

DS: Shame the lazy few made you generalise that they are all lazy and selfish in public service then.

the new changes to NHS pensions for new starters would actually seem to be discouraging them from entering the scheme as for new staters it will not be competitive with private pension funds or indeed paying into some other investment which you cash in on your retirement.

this is the intent. No new entrants makes the schemes become unviable then the government can close them and transfer us all to private pensions to make profit for their fat cat friends.

Its not about the possible future cost of public pensions - its about making profits for private pension funds

Just for info, I am no Conservative.

Well that's no surprise - apparently hardly anyone is.

It's a constant mystery to me how they manged to get 10 million votes last election.

With 10% of the population being well off, it might not be that surprising.

I haven't done that, have I?

DS, my apologies for surmising 'lazy' from your posts, but:

they all became selfish whingebags who want the whole world to feel sorry for them, and then go on strike the very moment anyone looks at them in the wrong way.

...sounds like you said they are all indeed selfish and prone to strike too quickly.

Is 'your' lazy fat knacker a union rep? The rep in my team (not for my union) is not the hardest worker in our team but much nearer the top than the bottom. The unison and RCN reps I know personally are very dilligent workers: I knew them for their reputation as good nurses before I found out they were also staff side reps.

To add balance and insight into my understanding the thought processes of the righties on here, although my dad is a retired teacher and my mum a HCA, we are the financially poor bleeding heart pinko end of the family: most of my English relatives are public school/oxbridge uber middle class conservative-voting barristers, naval officers and bankers, (who can't understand why I am a nurse and don't have a proper job like a doctor or something.) More of a mix of social class/education/job/politix on my French side.

And I used to TEFL a little bit a couple of years before I found the health service. Great fun, my classes seemed to be like Borat every day, but I hope the pay has improved since I did it!

Is 'your' lazy fat knacker a union rep?

I believe so and often uses union duties as an excuse to get out of doing work.

Shame 🙁

Two of my favourite 'if I ruled the health service' changes would be

1) That you get chosen at random from your work area or directorate (by your own union) to be a union rep: like jury service, but for a couple of years at a time, to make it more representative and rule out the shirkers and 'chip-on-shoulder-axe-grinders'.

2) Instead of pratting around with useless guff like the Knowledge and Skills Framework, the appraisal process had proper 'teeth' and that instead of the ludicrously long-winded long term sickness managment or 'performance managment' process (this is [b]not[/b] the same thing as in teaching by the way, in the NHS this means you are in trouble, as opposed to in teaching where it is just being well supervised in a more helpful way by your boss) you could make all employees start on fixed term contracts for a few years, which could be not renewed if you turn out to be workshy or just too rubbish, as well as much more assertively managed if you decide to become lazy and rubbish after
several years on the job.

DS, you're probably not as mad as you would be if you tried to start an EFL company over here. My dad got bored being retired and does a bit now for the local CFE, and from what he tells me, it seems as though for the private schools (of which there are very many in Plymouth), there is a huge deal more faff at the expense of teaching or turning a profit than there used to be when I did it. 😕

the new changes to NHS pensions for new starters would actually seem to be discouraging them from entering the scheme as for new staters it will not be competitive with private pension funds or indeed paying into some other investment which you cash in on your retirement.

If they are coming to that conclusion they are being badly advised, a career average final salary pension would cost an absolute fortune to recreate in the private sector, considerably more than the contributions.

Blimey mefty, you have the patience of a saint especially when being told categorically and repeatedly that you are wrong. 😉 And to think you are so completely and utterly wrong despite your wife being a member and your knowledge of how pensions work. How very strange!! 😉

Odd how most of the NHS has moved beyond these arguments because they/Hutton/BMA etc actually do understand the issues and how pensions work!! Indeed as has been alluded to earlier, the NHS has already implemented many of Hutton's recommendations. Again, how very strange!! 😉

So what's left - a slightly different argument and yet basically a simple one:

1. What should the pensionable age be?
2. Are final salary schemes affordable in the Long Run?
3. Should contributions be increased and if so using what measure?

Amazing how smokescreens on all sides obscure these three basic questions!!!

What about labourers, steel fixers, scaffolders, ground workers etc who do heavy work like that all day, in all weathers everyday? No doubt they get paid less than you do and have no pension.

What is happening to you is s**t especially when those at the top make sure they aren't effected but a lot of people are far worse off than you.

Really do they? Look just because it happens to other doesn't mean we should allow it. Like the factory workers and labourers of passed who fought for their rights we all benefitted from. Now it's our turn to fight.

Teamhurtmore - he simply is wrong tho

Basic lack of understanding. Its a common error but what I pay now in contributions pays the pensions of those drawing pensions now. My pension will be paid from the contributions of those paying in when I retire. Not as mefty said that my contributions now will pay my pension when I retire. My contributions have been used to pay pensions and as revenue by the governement

If the governments over the years had invested the money not spent it there would be a huge surplus - at the moment the surplus is almost two billion

This is the whole crux of the argument that the government is using to change then -= tht future revenue will not meet future liabilities

And or your information the NHS has not adopted any of the Hutton recommendations - the recent changes to the pensions were done before Hutton reported after years of negotiations.

Answer me this

If when the fund is in surplus as it is now - in that contributions are far greater than outgoings and the government has taken that surplus and used it as revenue - ie reduced taxes on the back of it why if there is a deficit in the future should the government / taxpayer not make up the shortfall?

They have happily taken the surpluses

My pension contributions have funded the tax relief on private pensions

If it was up to me all benefits accrued under the current arrangements would be ring fenced and would continue to be paid by the tax payer. I would however shut the existing schemes to new employees at the very least and preferably all employees (as has happened in the private sector) and start the new scheme on a sustainable funded basis separate from political interference. It should also take a lot of the arguments away, the employee and the employer put money into the fund, it's invested, the employee gets and annuity based on the pot at the end of service.

Current scheme (for most public sector staff): 1/80th of final salary for each year worked up to maximum of 40 years service.

Proposed scheme: 1/60th of average career earnings up to a maximum of 45 years service.

To my mind that will benefit the lower earners in the public sector rather than those on a 'career path'...

I used to wonder if I'd done the right thing going for lower wages, no company car, no gym membership, no perks, no work funded holidays conferences

mefty/THM, I am a member too. I am assuming you have read the leaflet that came with your wife's wageslip last week then?

THM, I'll try an answer your questions with what I think should happen.

1) Depends on your job. There is nothing intrinsically bad about recognising servicing the taxpayer or the vulnerable/old/inform via a stressful career and the effect it has on your life expectancy after you retire, and therefore making arrangements for an optional earlier retirement via earlier pension payouts. You aren't going to expect police officers to retire at 73 are you? Unfortunately the only way to effect this earlier retirment would seem to be by the idea that you will work in the same job or for the same employer for a significant duration of your career, like in the armed forces, police or education system. Just because the private sector can't agree between themselves to recognise this the way different LEA's, NHS trusts or local authorities can is not a reason for those organisations that can do it not to do it. It's not a race to the bottom.

2) If you consider them as funded by what you aren't paying your employees up front, yes they are affordable: You seem to forget that most public servants see the final salary pension and the theoretical state subsidy of this (as mentioned earlier, in the NHS there is no 'fund' as such, my pension contributions this month pay someone else's pension next month) as offsetting the lower monthly wage the public sector gets relative to qualifications, experience, stress and responsibility. The workforces concerned will not shrink to the extent that the current overpayment of pensions contributions relative to payouts will tip dangerously the other way round. Some folk will accept a job offer of a lower salary they are on because it comes with a company car or (abroad) health insurance. I would be quite happy to think about surrendering my cushty pension for a wage above the national average: I am at the top of band 5 as are the overwhelming majority of degree-qualified and experienced nurses in the NHS and still earn ever so slightly less than this.

3. Contributions are already being increased, savings and revenue increases can be made elsewhere besides the pensions of those that mostly don't vote conservative (in my team this would be about 93% of us fwiw). A career average pension gets cheaper and cheaper the longer you freeze an amployee's wages for, non? The government have already saved the equivalent of £3k or so just on me by freezing my still-below-national-average salary, and of course this brings down my projected career average and projected payout too. Plenty of far better savings to be made in public service: for example the amount of money spent on me for 'mandatory training' at the government's behest is incredible, for little or no benefit to my patients or the taxpayer. The way procurements and contracted building and manintenance work is arranged and paid for is also wasteful: a competitive salary for someone to work for a few years in each NHS trust to shop around more for goods and services would be fantastic value for money and of course encourage competition in those areas of the private sector who think they are on to a nice little earner at the taxpayer's expense. Medical agencies who supply locum doctors should be much more agressively 'shopped around' with: it is eyewatering to think that although the main expenditure in the NHS is in it's workforce, a small department can easily blow a fifth of its budget on a couple locums. Same goes for non medical 'consultants' in the business sense.

Besides salary cuts and pension reforms for people that will mostly never ever vote for them, this government doesn't seem to have the backbone to do anything that rocks the boat of those that voted for them, though I accept that this includes people who have already fallen on harder times with regards to their jobs.

At the very very least, the 'all in this together' cuts and reforms should include MP's own salaries, benefits and pensions too, if only to create the illusion that they really care. As mentioned earlier, compare projected savings via pensions contributions and retirment age to the tax breaks on 'fat cat' pensions.

TJ - but you do not play a fair game, although to be fair nor does your profession. The whole idea of a surplus is misleading at best. Far better described as a positive balance. But to extrapolate this in the way that you do whenever this issue comes up is erroneous (IMHO).

Cash surpluses are interesting but actually a red herring. They tell you nothing about the sustainability of the scheme (which even NHS and DoH documentation doubt). This is basic common sense and fact. All it does is indicate the current balance between the numbers of people paying in and the numbers paying out. You cannot use this as an argument against change nor as an argument for sustainability.

In fact, arguably you argument is self-defeating. Why? Well you often get a surplus when there is a growing workforce. But remember NHS professional who is currently paying in (more than is being take out) will in time need to be paid out. You and your colleagues are simply building up a future (unfunded) liability.

So at the most basic level, what a surplus is telling us/you is that more members of the NHS pension scheme (another possible misnomer) are building up future pension "promises" than are currently receiving payments. In most other lines of finance, that is known as a Ponzi/pyramid scheme!!

And FWIW, the OBR forecast sharply declining surpluses and then a deficit within the next decade. Now a basic understanding of pensions and finance can only lead you to one conclusion - unless your name is Madoff or Stanford of course.

You are correct that "if the (sorry all) governments had invested this.." but that is history, not the future!

Answer me this

If when the fund is in surplus as it is now - in that contributions are far greater than outgoings and the government has taken that surplus and used it as revenue - ie reduced taxes on the back of it why if there is a deficit in the future should the government / taxpayer not make up the shortfall

Haven't the gov robbed everyone's pension in recent years public and private alike?
so the gov/taxpayer should make up everyone's shortfall

Richmars, what do you do and what are your length of time in the field you work in and academic/vocational qualifications?

I mentioned a blingy care home managment job I am glad I didn't take earlier in the thread, I could get all those extras including a big silver repmobile and a huge pay increase tomorrow by selling out and becoming a drug rep: I wouldn't even necessarily need my nursing qualifications or experience. My hca car-nut colleague could start selling cars at the local ford dealer with no formal qualifications and get £3k more (with only very modest sales, I have a mate who does waaaaaaay more than that) per year plus a company car and 'as long as you don't take the piss' fuel card. Neither of these jobs have the security our current jobs do, but the quality of life, stress and month-on-month financial benefits are clearly more than what we do for less in the way of qualifications, stress and experience. It might sound funny but in my world, not hitting my targets one month is not like losing a young patient in the 'occupational stress' stakes.

poly, the other possibly unintended benefit to the taxpayer/'recipient of services' with career average schemes is that old/tired workers feel able to step down from higher grade jobs where they often underperform and twiddle their thumbs waiting for retirment, so better value for money by younger more energetic people doing those jobs. One of my colleagues did just this recently and I am glad of it, he is now an OK band 3 healthcare assistant for £17k as opposed to a rubbish staff nurse for £26k. I think he is pretty glad of it too: his working life is much more enjoyable and hopefully he will fare better in the 'old geezer retires and has a heart attack three months later' stakes too. 😀

TJ - have you got any more information on this massive history of consistent surpluses?

Best information I've seen so far is this:

Which indicates a surplus in only the last few years, and also indicates that there is no extensive database of figures, since there was no legal need to keep them for longer than seven years, so it would be interesting to see some figures on the missing funds...

Julianwilson,
I have worked as an engineer in modern hi tech companies for about 30 years. I have had a number of fairly senior positions, not one had a company car, or gym membership. I've been to a few trade shows, but I don't think the NEC is much of a perk. This is not unusual in the private sector.
Do you really believe everyone has free cars? Obviously some jobs have cars and perks, but I'm sure the vast majority don't.
Edit: And I had a 25% pay cut last year, just to keep the company afloat.

If the public sector pension schemes really are fully-funded and not subsidised by private sector tax payers why not open them up to everyone? Then instead of deciding whether to take a pension out with 'Equitable Life' or 'Standard Life' or whoever you could decide to start contributing to a 'Police Pension' or a 'Civil Service Pension' or perhaps even an 'MP's Pension'. That last one seems like a pretty good deal actually. We need to put an end to the idea that a pension is a perk of the job and separate the job people do from the pension they get. Trying to reward people now by trying to guess what the financial situation will be like in 40 or 50 years just doesn't work.

Of course the magic NHS pension fund would have defied financial gravity and be in such a surplus that no one would ever have to pay anything ever again. It shows our superiority over the Dutch, see they aren't so wonderful TJ, because they do not get the opportunity to sup our potion so their public pension funds, which are funded, are in significant deficit - [url= http://www.eurofound.europa.eu/eiro/2009/05/articles/nl0905019i.htm ]see here[/url] - some of the solutions may be familiar. Neither does our magic seem to apply to the [url= http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/04/06/EDOA1CQGL5.DTL ]Californians[/url] -we are clearly the financial master race. And you have all being slagging our bankers, shame on you, they are clearly superior.

Back in the real world, I do find the objection to career average odd as it will benefit the poorest, that is the IFS's analysis, it is the high flyer's who miss out. Let's look at an example, when Jock Stirrup was appointed to be Chief of the Defence Staff, his pay rose from £200,000 to £300,000 approximately. As he does the job for three years that costs the taxpayer an additional £300,000 - bargain. Wait a minute, what about pension, his final salary has gone up so his pension goes by 2/3 of that so that is £66,000, cost to the taxpayer, £1,500,000 so his final salary scheme increases the cost of that salary increase by six times. Is that right, should ordinary soldiers being paying that? I think that career average is much fairer for the low echelons of public servants.

The fundamental problem with pensions is no one understands how very expensive they are until too late. Private Sector employees underprovide and public sector don't realise they actually get a good deal because they don't have cash today. That ain't going to change in a hurry and you can expect more rubbish to be written on the subject for a very long time yet because all of the developed world have pension liabilities they can't afford and the money needs to be found somehow or social contracts will be broken - more likely to be the latter.

Mefty - I think your last paragraph sums things up quite succinctly.

Saving for a pension is boring and pension products are governed by a myriad of rules and regulations.

They really aren't well understood financial products at all. People will talk about their car or home insurance renewal but not about how their new pension fund has reduced its annual management charge by 5 basis points on a Friday night down the pub.

Have to say, having read up a good amount on this last night, including TJ's and others' links, that I'm currently siding towards the idea that the pensions do need reform of some sort (even if just to ringfence any surplus and invest it) as I haven't yet been convinced that the future liability has been properly covered even if there is a surplus at present. Feel free to show me the errors of my ways though 🙂

(I should maybe also state that Mrs Clubber is on the NHS pension so it's not in my interest to reduce the benefits it provides).

Clubber - do remember that the NHS has been reformed already and so has the teachers. Teachers has a legal cap on employer contributions meaning any future shortfalls will mean either reduced benefits or increased contributions.

Local government is fully funded.

do remember that the NHS has been reformed already and so has the teachers.

I'm not really sure that the fact it's already been reformed is relevant
If you reform anything and then want to revisit it, I don't see the issue

Being reformed means nothing in itself though, does it?

Interesting about the cap on teachers' pensions - that's the sort of thing I meant really. But not on the NHS one?

And what does 'fully funded' mean? Same as a private pension?

Teh NHS is capped but IIRC its not as solid as the teachers one

Fully funded - there is a large pot of money invested to cover liabilities same as a private fund

Jota - many years negotiations to refoirm the NHS pension scheme to take account of the increased lifespan that makes it sustainable. this increased payements for reduced benefit.

Now the governement wants us to pay even more for much less - but the extra money will not go to pensions but instead to paying off the deficit.

Seems fair? Hardly

So further NHS pension reform seems reasonable to me, just it should include a method to ensure that any surplus actually goes to putting the pension on a solid footing for the future.

Mind, TJ - link to details on any surplus being used to pay off the deficit?

clubber - I already linked showing the surplus in the NHS pensions - so if contributions rise then a greater surplus will be generated as there is not going to be a fund created.

Why is further reform reasoanble? there is no need for it at all - it has already been reformed to make it affordable and sustainable.

teamhurtmore - Member
And FWIW, the OBR forecast sharply declining surpluses and then a deficit within the next decade. Now a basic understanding of pensions and finance can only lead you to one conclusion - unless your name is Madoff or Stanford of course.

So what to this? is that correct?

So the surpluses made can go to government coffers and be used as income and this is OK but any deficit has to be made up by the members?

Seems fair? 🙄 Heads I win, tails you lose?

in the NHS this years benefits are paid by this years contributions. there is no investment fund.

there is a large pot of money invested to cover liabilities same as a private fund

Which one is it going to be tomorrow?

Absolutely, hence the comments I made about investing surplus but since the surplus figures only go back a few years apparently (according to Z11's post above), is surplus the norm or a short term situation? If the latter and the forecast is for a consistent deficit, isn't it reasonable to look at it again to make it sustainable in a deficit position?

Mefty -NHS is revenue funded hence "in the NHS this years benefits are paid by this years contributions. there is no investment fund."

Local authority are fully funded hence "there is a large pot of money invested to cover liabilities same as a private fund"

I was answering clubbers point. I told him (as is correct) the local authorities pension is fully funded and he asked me to explain the term

Must read properly, Mefty 🙂

so

clubber - Member
Absolutely, hence the comments I made about investing surplus but since the surplus figures only go back a few years apparently (according to Z11's post above), is surplus the norm or a short term situation? If the latter and the forecast is for a consistent deficit, isn't it reasonable to look at it again to make it sustainable in a deficit position?

❓

Thats why contributions are increased and benefits reduced already.

The deficit will fall again in the future

Ta, link?

Its in Hutton and the links I gave before.

Note the OBR forecast is using worst case scenario assumptions and is highly questionable.

since the surplus figures only go back a few years apparently (according to Z11's post above), is surplus the norm or a short term situation? If the latter and the forecast is for a consistent deficit, isn't it reasonable to look at it again to make it sustainable in a deficit position?

Clubber - its interesting actually, when you look at those figures, the only reason that the fund appears to be in surplus at the moment is a huge, and I mean huge, massive increase in the employers (taxpayers) contributions over and above anything in previous years - I mean from one billion at the millenium, to over five billion of taxpayers money paid in last year - twice what the employee's put in to the pot.

Lets get this straight - last year, for every pound put into the NHS scheme by members, we, the taxpayer, put in two pounds.

Last year employee contributions - money paid IN by members totalled a little over two and a half billon, and outgoings were over six billion - so, TJ's "surplus" is actually a three billion deficit

Fair enough.

The overiding point remains that the [u]fundamental[/u]starting point of pension liability management is that you evaluate your long term liabilities (ignoring new joiners) that you have incurred, incomings and outgoings in any one year are only inputs into this process. You can see how the approach TJ suggests is ridiculous by looking at one of my former employers. We were relatively a young operation so despite having 750 contributors, we only had one pensioner. If we had followed the TJ approach everyone's contributions could have been reduced to £40, that is very good value for a future income in the thousands!

TJ will bleat that the NHS is different, but how? In what way is the contract between employee and employer different to that of a private sector employee with a final salary scheme. It isn't. How the liability incurred is managed may be different, but the nature of the liability that you are incurring - to pay something in the future for contributions today is not. Therefore there is no reason to ignore the fundamentals of pension liability management.

Mefty - I know its pointless explaining this to you 'cos you don't want to see it

It is fundamentally different as its a revenue funded scheme backed by the government

So no parallels with your company and ignoring new joiners is ridiculous.

If the NHS had been run as a normal pension scheme it would have a huge fund easily able to cover its liabilities but successive governments have used this money as revenue instead. this is why its different.

But surely the (simple?) reason that the NHS scheme has been in surplus, at least recently, is the vast increase in members paying in.

In 1996 its was 1,057000, and by 2010 1,431,000

http://www.bbc.co.uk/news/health-12819538

And is this creating a 'bubble' of liability, or what!

In what way is the contract between employee and employer different to that of a private sector employee with a final salary scheme?

And how would your hypothetical fund have succeeded in generating a surplus when equivalents in the US and the Netherlands didn't?

Because in a private scheme the money has to be ringfenced and invested

And is this creating a 'bubble' of liability, or what!

They should adopt a ponzi scheme approach, just keep employing more new employees, problem solved! 😉

If the NHS had been run as a normal pension scheme it would have a huge fund easily able to cover its liabilities

TJ - you keep claiming this, and I've already given you figures that show, with absolute proof, that in previous years there was [b]not[/b] always a surplus, can you please point me to figures that support your claim.

In what way is the contract between employee and employer different to that of a private sector employee with a final salary scheme?

I am not interested in how the liability is managed, try again.

I havent read this above as its too much I just want to say this:

My small business has lost 70% of its gross income since 2008 - not grown, or lack of growth, actually shrunk.

Now the worst I can see that has happened to public sector workers is that they are not getting any pay rises.

There is a big difference here and I think we need to share the pain a bit. People in the private sector, employees and owners alike are suffering severely, and the public sector are moaning about a few percent. Its selfish greed and it boils my piss.

Hello mefty - can you read?

TandemJeremy - Member

Because in a private scheme the money has to be ringfenced and invested

this is the fundamental difference that means your comparisons are not comparable

Do you want me to rephrase so you understand the question? And are you going to have a go answering the one about your daedalic pension fund.