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    • Mpb
    • By Mpb 26th Nov 17, 3:16 PM
    • 6Posts
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    Mpb
    CSP - no freedom at all
    • #1
    • 26th Nov 17, 3:16 PM
    CSP - no freedom at all 26th Nov 17 at 3:16 PM
    Newby here, Iíve been lurking and having a good read. Nice to ďmeetĒ folks.
    Iíve been working hard to start my own business but having to jump through myriad bureaucratic hoops and also contend with ďits not what you know...Ē.. Anyway, Iíve been looking into rationalising my pension arrangements and with 25 yrs of CSP contributions I wanted to move them to another product. However pension freedom doesnít apply to former civil service as we canít move anything from the CSP Ponzi scheme. Iím infuriated that I can do nothing at all. I have no control right now and have to wait til Iím 55 to possibly have a chance to make any changes... As a rational adult Iím incensed st the patronising ďnanny knows bestĒ attitude. Itís my pension, I should be able to make decisions on what and how things are done with my money...
Page 3
    • JoeCrystal
    • By JoeCrystal 28th Nov 17, 11:34 AM
    • 1,302 Posts
    • 777 Thanks
    JoeCrystal
    Wasn't everybody who wasn't close (10 years?) to retirement transferred onto the new scheme (Alpha) with a pension age tracking SPA
    Originally posted by Andy L
    In that case, I must got my math wrong since I didn't realise there was newer CPS scheme. Still very good pension scheme though.
    • DairyQueen
    • By DairyQueen 28th Nov 17, 12:44 PM
    • 99 Posts
    • 132 Thanks
    DairyQueen
    At the risk of sounding a bit argumentative...
    Originally posted by hyubh
    No risk at all. Discussion is good

    the principle isn't really any different to private sector DB. What keeps members of (say) Sainsbury's final salary scheme secure in retirement isn't really the investment fund notionally behind the scheme, but Sainsbury's itself remaining a big profitable supermarket, and therefore still around to plug funding gaps when needed. Same goes for the civil service and other unfunded public sector schemes: what keeps their members secure in their retirement is the fact the British state will be around to find the money necessary to keep the pension promises made.
    Originally posted by hyubh
    The principle is very different. Investment returns impact the ability of a company pension fund to meet its liabilities. These are the returns on a ring-fenced fund entirely separate from the company's operating assets. Actuarial assumptions regarding a fund's future liabilities and returns have always changed over time, and two of the biggest changes in recent decades relate to the average time of payout (longevity applies) and the reduced returns on bonds (a primary investment instrument for pension funds).

    These are two of the biggest contributors to pension funding gaps. The cost of providing inflation-linked pensions has been foreseen as unsustainable by the private sector since the 1990s. It is the cause of the massively reduced company retirement benefits offered to private sector employees since then.

    The need to plug such gaps is a liability on the company and affects company profitability, investment and stability. The rules governing company pension funds are such that a company must fill any gaps regardless of the impact on the business. The private sector solution to such unpredictable and massively increasing liability has been to reduce such benefits and/or withdraw them completely. Some companies failed to take such action and we have seen the result. Such cases draw much media attention but they remain the exception. Only then is the taxpayer asked to step-in.

    Public sector pensions are equally unsustainable IMO. The ability to pay them relies on the economic health of UK plc and its taxpayers. There is no pot of ring-fenced assets and no investment returns. Like the SP they are a liability on current/future taxpayers. The irony is that, unlike the SP, many of those carrying the burden will not receive any future benefit, and they no longer receive higher salaries to compensate for that lack.

    Government actuaries have foreseen the iceberg looming and the result has been, for example, an increased SP age, plus tweaks to public sector schemes. However, the principle problem - the huge cost of meeting the liabilities of DB schemes within an ageing population - has not been addressed in public sector schemes. How much extra tax do you think young, private sector workers will be willing to pay for the privilege of funding public sector pensions that are way beyond what they will enjoy themselves? How much extra council tax, for example, will be required to fund up to 40 years of retirement for police and firefighters? Who provides the funds for 'funded' public schemes?

    The fact Mpb is unable to transfer out as he/she chooses is not simply because the CSPS is a public sector one - after all, so-called 'non-Club' transfer outs were allowed until relatively recently. Rather, it stems simply from a contingent policy decision to avoid the cash flow issues from a mad rush to transfer out following 'freedom and choice'. Perhaps it didn't need to be taken - there's been no cashflow crises amongst funded public sector schemes over the past couple of years.
    Originally posted by hyubh
    Considering most company DB scheme have long since bit the dust because of their enormous cost, why are funded public schemes not heading the same way? Are we simply diverting more-and-more taxpayer money into avoiding public sector pension 'cash flow crises'? The restriction on transfers-out may have avoided a current cash-flow issue but it won't be too many decades before a cash flow issue is created by public sector pensions in payment.

    This isn't true. What saw private sector DB closing was better accounting, combined with a natural maturing of the schemes, both of which put the true costs to the fore.
    Originally posted by hyubh
    Exactly so. The TRUE cost of DB schemes was revealed as unsustainable. What saw private sector DB pension schemes closing was a reality check on their lack of affordability. As you say the TRUE cost of DB schemes is huge. Companies could not sustain that cost and stay in business, and IMO neither can UK Plc.

    I don't undervalue our public sector I just think it's high time for a wake-up call on public sector pensions. The current situation is unfair and unsustainable. The burden is falling more-and-more on our income-generating sectors - companies and workers. DB pensions are history: the private sector has accepted it, so must the public sector. It's either that or start a programme of (one-way) Swiss trips for those reaching their 80th birthday!

    That we can agree on
    Originally posted by hyubh
    I'm glad we can agree on something
    • MPD
    • By MPD 28th Nov 17, 6:34 PM
    • 196 Posts
    • 240 Thanks
    MPD
    Can UK PLC afford to shift the public sector to DC pensions? Assuming an employer contribution rate of just 12% (partnership is 8-14.75% with an additional matched 3%) that is an immediate increase of over 10% in the public sector pay bill.

    It may not be sustainable in your opinion but point me to a politician that is promising to increase the public sector pay bill so much at a stroke.
    After years of disappointment with get-rich-quick schemes, I know I'm gonna get rich with this scheme...and quick! - Homer Simpson
    • Silvertabby
    • By Silvertabby 28th Nov 17, 6:58 PM
    • 1,912 Posts
    • 2,403 Thanks
    Silvertabby
    Can UK PLC afford to shift the public sector to DC pensions? Assuming an employer contribution rate of just 12% (partnership is 8-14.75% with an additional matched 3%) that is an immediate increase of over 10% in the public sector pay bill.

    It may not be sustainable in your opinion but point me to a politician that is promising to increase the public sector pay bill so much at a stroke. Posted by MPD
    Huh? The average public sector employer contribution is currently something like 18%.
    Last edited by Silvertabby; 28-11-2017 at 7:06 PM.
    • MPD
    • By MPD 28th Nov 17, 7:13 PM
    • 196 Posts
    • 240 Thanks
    MPD
    Huh? The average public sector employer contribution is currently something like 18%.
    Originally posted by Silvertabby
    The figures I posted are the age related contribution for the civil service DC pension. Then not knowing participation rates I used the modifier over to show a minimum increase of greater than 10% in the public sector pay bill.

    The important point being is there any appetite for an immediate large increase in the public sector pay bill?
    After years of disappointment with get-rich-quick schemes, I know I'm gonna get rich with this scheme...and quick! - Homer Simpson
    • DairyQueen
    • By DairyQueen 28th Nov 17, 7:15 PM
    • 99 Posts
    • 132 Thanks
    DairyQueen
    Can UK PLC afford to shift the public sector to DC pensions? Assuming an employer contribution rate of just 12% (partnership is 8-14.75% with an additional matched 3%) that is an immediate increase of over 10% in the public sector pay bill.

    It may not be sustainable in your opinion but point me to a politician that is promising to increase the public sector pay bill so much at a stroke.
    Originally posted by MPD
    Why such a high %? Is there some rule somewhere that predicates that public sector pensions should be funded at such a high employer rate? Plenty of private sector employees are currently receiving the minimum 1% employer's auto-enrolment contribution.

    Politicians tend to operate in timescales coincident with the next election. This is not exactly helpful to the medium/long-term economic health of our nation.

    As for the public sector pay bill: I would happily pay (via my taxes)( for increased pay/investment in the public sector in return for the revoking of the unsustainable and unfair pension benefits.
    • bigadaj
    • By bigadaj 28th Nov 17, 7:38 PM
    • 10,804 Posts
    • 7,098 Thanks
    bigadaj
    Can UK PLC afford to shift the public sector to DC pensions? Assuming an employer contribution rate of just 12% (partnership is 8-14.75% with an additional matched 3%) that is an immediate increase of over 10% in the public sector pay bill.

    It may not be sustainable in your opinion but point me to a politician that is promising to increase the public sector pay bill so much at a stroke.
    Originally posted by MPD
    I admire your optimism, even on the basis of slightly pessimistic figures.
    • Andy L
    • By Andy L 28th Nov 17, 8:08 PM
    • 8,562 Posts
    • 6,907 Thanks
    Andy L
    Can UK PLC afford to shift the public sector to DC pensions? Assuming an employer contribution rate of just 12% (partnership is 8-14.75% with an additional matched 3%) that is an immediate increase of over 10% in the public sector pay bill.

    It may not be sustainable in your opinion but point me to a politician that is promising to increase the public sector pay bill so much at a stroke.
    Originally posted by MPD
    The funded ones (like the LGPS) could move with no extra cost, probably even a saving. Its the unfunded ones that would have the extra cost in the short/medium as the current contributions would have to be invested rather than paying the pensions of the retired.
    • hugheskevi
    • By hugheskevi 28th Nov 17, 8:14 PM
    • 1,920 Posts
    • 2,327 Thanks
    hugheskevi
    Huh? The average public sector employer contribution is currently something like 18%.
    Which sector do you have in mind?

    The employer contribution to funding new pension accrual (ie not including notional past service deficits, which are created in no small part by the discount rate assumption and are not a cost of new pension accrual) are:

    NHS:11.9%
    Teachers: 10.8%
    Civil Service: 17.2%

    Source: Valuation Reports as at 31 March 2012.
    • Silvertabby
    • By Silvertabby 28th Nov 17, 9:10 PM
    • 1,912 Posts
    • 2,403 Thanks
    Silvertabby
    “ Huh? The average public sector employer contribution is currently something like 18%.
    Which sector do you have in mind?

    The employer contribution to funding new pension accrual (ie not including notional past service deficits, which are created in no small part by the discount rate assumption and are not a cost of new pension accrual) are:

    NHS:11.9%
    Teachers: 10.8%
    Civil Service: 17.2%

    Source: Valuation Reports as at 31 March 2012.

    Posted by hugheskevi
    LGPS: 16% to 24% (varies from employer to employer)

    Armed Forces: I'm keeping quiet on that one - I wouldn't be able to stand the whinging!
    Last edited by Silvertabby; 28-11-2017 at 9:24 PM.
    • hugheskevi
    • By hugheskevi 28th Nov 17, 10:21 PM
    • 1,920 Posts
    • 2,327 Thanks
    hugheskevi
    This is why I am always amused by the valuation of public service pension schemes.

    I think the post 2015 Civil Service scheme is close to being strictly better for members than the post-2015 LGPS scheme, ie, better accrual rate for lower member contributions and the same scheme structure (assuming no value is placed on the scheme being funded and different form of governance, eg, a belief it makes the scheme more secure than an unfunded scheme). Aside from minor differences in ancillary benefits, you would think the Civil Service employer contribution rate would be higher than LGPS. But they are valued on a different basis, so that isn't the case.

    Take into consideration notional past service deficits included in the rates, the significant difference in value to different individuals in the scheme (largely dependent on age and expected length of service), and then keep changing the discount rate (by which I mean the SCAPE discount rate, rather than rates linked to financials which should change) and determining the 'correct' employer contribution is nigh on impossible

    The set of Partnership contribution rates are probably about as close as you are going to get, but even those have caps and collars in them which mean the quoted rates are only approximations. And even those assume that SCAPE is the correct discount rate to use. If instead a corporate bond accounting basis is used the Civil Service employer contribution rate increases to 28.4% and the NHS to 24.8% (Source: Resource Accounts). Choosing a full buy-out discount rate (similar to an annuity-type comparison) would produce eye-watering amounts (especially for armed forces).

    Still, however one thinks they should be valued (11.9%, 24.8% or something more, in the case of the NHS), they rank as somewhere between very good and exceptional
    Last edited by hugheskevi; 28-11-2017 at 10:26 PM.
    • BobQ
    • By BobQ 28th Nov 17, 11:46 PM
    • 9,823 Posts
    • 12,757 Thanks
    BobQ
    It's actually 25/80ths pension, plus lump sum 3x pension....

    but your principle is ok
    Originally posted by GunJack
    Thanks for correcting my mistake. If the OP still has a CS pension they will probably be in Alpha which is not a final salary scheme.

    Wasn't everybody who wasn't close (10 years?) to retirement transferred onto the new scheme (Alpha) with a pension age tracking SPA
    Originally posted by Andy L
    In the CS it was those within 10 years of their schemes's retirement age in Apr 2012.

    The figures I posted are the age related contribution for the civil service DC pension. Then not knowing participation rates I used the modifier over to show a minimum increase of greater than 10% in the public sector pay bill.

    The important point being is there any appetite for an immediate large increase in the public sector pay bill?
    Originally posted by MPD
    There are very few people in the CS on a DC scheme and FS schemes are being phased out

    The issues people often miss are that:
    (1) the CS pension scheme is not unfunded to create some sort of perk. Successive Governments have chosen to retain an unfunded pension scheme to save on administration costs related to a large fund. The decision may have been unwise but it was the Government's decision.

    (2) The cost of the CS pension is factored into the total reward package given to a CS. So the employer's promise of a pension is essentially part of a CS's pay. You can argue the calculation made was inaccurate but the contribution calculated was deferred pay to cover cost of paying the pension Equally you can argue that the calculation was a risk the employer chose to accept in order to pay their staff less. I really doubt they never realised the true cost.

    (3) A private company who previously had a DB pension fund maintained it at a legal minimum to meet its obligations to pay. They could have chosen to have a larger fund to ensure there was enough but did not (in fact they took contribution holidays in the past). They also accepted that there was a risk they would have to make it up, but some of course regarded the risk as they would any liquidation process.

    (4) The Government has an obligation to pay its pensions and in the past chose to make up the difference between what it cost and current contributions. Its choice.

    (5) The recent increases in contributions was a change of policy about how much CS pay and how much the Government pays. It was more about raising revenue at a time of austerity than calculating what was a fair balance bewteeen employer and employee.

    (6) None of the above means that the CS Pension is not great benefit for the employee. It clearly is. But most civil servants will now retire at their state retirement age in the future.
    Last edited by BobQ; 28-11-2017 at 11:54 PM.
    Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are incapable of forming such opinions.
    • BobQ
    • By BobQ 30th Nov 17, 11:33 PM
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    BobQ
    It would be worth finding out a few more facts before having a rant - if you've had 25 years service in the CS you'll be able to take a reduced pension at the age of 50 rather than 55.
    Originally posted by jamesperrett
    Strictly true for people who joined the CS before 2006, but taking a CS pension at 50 would be reduced by 45-50% apart from a small number of job types.
    Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are incapable of forming such opinions.
    • BobQ
    • By BobQ 1st Dec 17, 12:02 AM
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    BobQ
    Then I am really glad that you don't have a choice. Just stick with it and be happy that you got a brilliant scheme that cost you a pittance. It doesn't stop you from making other pension provisions on top. Let use the current one to show off how good it is.

    A 21 years old civil servant earns £24,000 salary and can retire at Nuvos Pension Age of 65
    Contribution Rate for that salary is 5.45%
    So contribute £109 per month.

    Working until 65, the civil servant accrued 44 years of built up pension
    Originally posted by JoeCrystal
    I agree its a good deal. The latest scheme has created this situation.

    Each year give the civil servant 2.3% of the pay each year.
    Assuming the cost of living increase is 2% and the payrise is 2%.
    Most civil servants have not had more than 1% in the past 8 years. The distinction between cost of living and pay rise is (I assume) reference to increments? If so for most increments have been phased out. If you mean promotions then that is a symptom of the accrual rate.


    Then in theory, one could get an annual pension of £18,000 in today's term (limited by 75% of the highest earning in one year)

    To get something like that with a DC pension and opting for an annuity, that 21 years old would need to put aside 63% of the salary (or £1,260 per month) for forty four years to reach £18,000 a year income with index-linked increase of 3% and 5% annual growth on the calculator. And that is without any ill health retirement, death in service benefit and so on
    .

    Is the Government forecasting a sustained period of inflation over 2%?

    I agree the benefits are good and are the sort you would expect from an employer making 19% contributions. But the Government has chosen this level of pension and benefit. Why? They have had a good opportunity to offer a lower quality pension at a time they when they are wanting to reduce the number of staff. Yet they decide not to do so. Why?

    The answer is that they would have to pay a lot more salary to recruit the quality of staff they need. Some jobs can allow a high level of turnover but they want continuity in many of the skilled staff they employ and know they cannot compete in the market. The fallacy is that the civil service is overpaid. It may be the case for some administrative jobs but not for senior grades and specialists.
    Last edited by BobQ; 01-12-2017 at 12:04 AM.
    Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are incapable of forming such opinions.
    • jamesperrett
    • By jamesperrett 1st Dec 17, 12:31 AM
    • 697 Posts
    • 352 Thanks
    jamesperrett
    Strictly true for people who joined the CS before 2006, but taking a CS pension at 50 would be reduced by 45-50% apart from a small number of job types.
    Originally posted by BobQ
    In practice the figure for actuarial reduction at age 50 comes out at about 37% for a Classic pension - a much lower reduction than most people seem to expect.
    • bigadaj
    • By bigadaj 2nd Dec 17, 7:29 AM
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    • 7,098 Thanks
    bigadaj
    I agree the benefits are good and are the sort you would expect from an employer making 19% contributions. But the Government has chosen this level of pension and benefit. Why? They have had a good opportunity to offer a lower quality pension at a time they when they are wanting to reduce the number of staff. Yet they decide not to do so. Why?

    The answer is that they would have to pay a lot more salary to recruit the quality of staff they need. Some jobs can allow a high level of turnover but they want continuity in many of the skilled staff they employ and know they cannot compete in the market. The fallacy is that the civil service is overpaid. It may be the case for some administrative jobs but not for senior grades and specialists.
    Originally posted by BobQ
    I'd disagree with this point at least.

    I'd like to see some specific examples but there is, in most areas, little difference between the oublic and private sector in many areas,w tie the exception that the pension is far better in the oublic sector and some other benefits and terms of employment are more favourable due to historic legacy and union pressure.

    Within the civil service and politicians the main criteria is not to rock the boat, they are seem to be tough by limiting pay rises in many areas when the reality is that those pay rises aren't relative constraint because most people in the private sector have had little or no pay rises over the last decade or more.

    People have historically under valued the public sector benefits, specifically pension, for decades, and for many people they don't realise the real cost or benefit, certainly not when they are younger.

    So why don't they remove these benefits, or rather dilute then at a faster rate that they are currently doing?

    Becaus firstly it's not the private sector, so there is no specific benefit in doing so personally, only grief and personal attacks, if you're getting a million or two extra bonus in a large listed company then this is worth it, otherwise not. Secondly any changes, despite being necessary, are taking years or more probably decades to work their way through, by which time those people won't be in their jobs of management or control, any appreciation in decades to come that this was a sensible choice will be tiny compared to the howls of derision now.

    Unless we're looking at specific jobs and areas then it's difficult to demsonstrate anything, but in most areas of the oublic and private sector a lot of the jobs are managerial and staff quality isn't great; paying less would make little difference.

    A specific example is the NHS, paying a lot for doctors, or more for nurses makes sense, but paying a middle manager nearly six figures based primarily on longevity of service is crazy, doesn't stop it happening though.
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