Local government pensions and the Tories

DiggerUK

Clapton & Seagulls figures for our 21 year old are very similar. They show that about 50% of take home pay would be needed to provide a 50% final salary pension.

Unless an IFA can say these are fantasy, one way or another, how close are they to the truth.

One things for sure, nobody from the tories, or anybody else, has any proposals for pensions. Public or private.
And there's an election next year.

If we all want a solution, lets at least start from were we are at first. I don't think 50% of pay for a pension is a vote winner. Unless like Fred the Shred you were earning more than you could spend in the first place.

marklv

barny_100 wrote: »

In my book this would be a vote winner, a massive one for me personally actually. Unaffordable and unfunded pensions for public sector workers are a massive issue. In my opinion they have to be stopped ASAP, it's happened in the private sector and within T&C's should happen in the public sector.

As to what they will do? You'll have to ask George O!

Come to where I work and you would receive several hard punches in the face for what you've said. :mad:

It's a myth that public sector pensions are hugely costly because equivalent jobs in the private sector are much better paid in terms of basic salary. It all evens out. If you don't pay staff properly you get lots of useless idiots joining and constant industrial action. Is that what you want?

marklv

DiggerUK wrote: »

Clapton & Seagulls figures for our 21 year old are very similar. They show that about 50% of take home pay would be needed to provide a 50% final salary pension.

Unless an IFA can say these are fantasy, one way or another, how close are they to the truth.

One things for sure, nobody from the tories, or anybody else, has any proposals for pensions. Public or private.
And there's an election next year.

If we all want a solution, lets at least start from were we are at first. I don't think 50% of pay for a pension is a vote winner. Unless like Fred the Shred you were earning more than you could spend in the first place.

Nonsense. 50% of a 25 year old's example £20k a year salary is £10k a year. Multiply that by 40 years and you have £400k. An annuity at 65 would produce around 5% of the fund a year, so that makes £20k a year - 100% of the salary, even without taking into account any investment growth (except to match inflation)!!!

marklv

mikeb222 wrote: »

Well, after reading this thread I hold out no hope for mankind.

The private sector folk want ALL public sector pensions abolished!

What a state we are in when Police, nurses, Firemen etc, cant even rely upon the people of this once great nation to let them retire in dignity with 1/2 pay pension.
Because thats what it is. The pension will give them 1/2 of their current pay.
Is that fantastic, No, I don't think so.
Why shouldn't someone get 1/2 their pay after spending 30/40 years working for the state.
They will still have bills to pay, in some cases, mortgages, cars to run, but now their on half pay.

Do you not see the alternative?
That would be for ALL public sector employees to go cap in hand to the government for payouts.
Surely we don't want that!


What I have read on here gives me no confidence at all.

I agree - as I also work in the public sector. However, I do believe that in the case of very well paid individuals such as directors, senior managers, doctors, lawyers, etc there should be a cap on how much pension they can receive. That would be the fairest way to cut pension costs in the public sector. The really important thing is to protect the modest pensions of those in lower paid occupations, who form the great majority of public sector workers.

marklv

CLAPTON wrote: »

As I've already said for an individaul considering a pension within the current rules etc then see an IFA but to talk about the affordability for EVERYONE to have a decent pension you need an economist.

Just to give a feel for the problem

suppose you earn £20,000 per annum
you want in real terms (todays valuations) a pension of 1/2 your salary
you're 20 today and will work until 60 (i.e work 40 years)
your live expectancy at sixty is about 28 years

so a trivial calculation (OK I know the shortcomings and will correct for those in a minute)


your retirement pension pot needs to be
1/2 of 20,000 x 28 (years ) = 280,000

so that means in simple terms you need to save (or your employer or the state (i.e. other tax payers)
280,000/40 = 7000 per year

now the question is ..out of a salary of £20,000 would a reasonable person be prepared to save 7,000? (ie. 35% of your salary every year) ... a great many would not

Now the lucky teacher that posted above pays in 6% (or so) with the tax payers putting in the rest..,. for the individual that's a great deal but for the whole country to afford that level of pension raises deep questions.

Now you can argue that of course I haven't taken any savings interest or investment income into account... and I haven't ... if you do the calculation assuming a 1% real growth then the amount you need to save drops to 5,500 or 20% of income.

Then you need to take into consideration that many people won't start investing at 20, people have career breaks etc. many people will increase their salary over time and want 1/2 of their higher (maybe final) salary etc.

What I'm trying to do here is NOT give investment advice but simply to give a simple feel for the scope of the problem if every one is to get a 'decent' pension

But the problem is a private sector one, not a public sector one! The reason why most private sector final salary schemes closed is because they (stupidly) invested pension funds in very risky stockmarket funds instead of safer bonds and gilts, and also because many companies incredibly took 'pension holidays', paying nothing into staff pension funds, when things were going well. Hardly surprising that it all went belly up! The government should have made this illegal but they wouldn't for fear of upsetting their paymasters in the business world.

EdInvestor

marklv wrote: »

Nonsense. 50% of a 25 year old's example £20k a year salary is £10k a year. Multiply that by 40 years and you have £400k. An annuity at 65 would produce around 5% of the fund a year, so that makes £20k a year - 100% of the salary, even without taking into account any investment growth (except to match inflation)!!!

Err, no.A fund of 400k (without any cash lump sum) would provide an annual income of only £15,024,index linked to RPI with a 50% spouse pension (ie on the same basis as the typical public sector pension).

This is the problem, no risk pensions are much more expensive than they used to be.

https://www.fsa.gov.uk/tables

Go to the pension annuities section.

marklv

EdInvestor wrote: »

The reason why the public sector pensions have huge liabilities is not because the pensions payable are themselves all that high for most people, but because of the recent huge rise in the cost of funding pensions, due mainly to increased longevity and the cost of bells and whistles such as index linking and spouse pensions, but also due to lower returns in a low inflation/low interest rate environment..

For instance the cost to buy the basic state pension of £95 a week on the open market is now about £150,000.:eek: Pensions are very expensive these days.

One way of making them more cost effective would IMHO be to make the spouse pension optional. Married people are now the minority, so in the majority of cases, pension members and schemes are funding for benefits that will never be received.In addition, most people work, so have their own individual pensions, and the state pension has now been reformed so that women are not disadvantaged.

It's not hard to argue that spouse pensions have in many cases become outmoded, an unnecessary extra cost.

The best thing - in my opinion - is for the government to have ALL public sector workers not retiring before 65 (unless for ill health etc) and limiting the index linking to no more than 5% a year. This should make the system work better.

Also, the state pension should be DOUBLED to ensure that people without a generous employer pension are properly rewarded.

marklv

EdInvestor wrote: »

Err, no.A fund of 400k (without any cash lump sum) would provide an annual income of only £15,024,index linked to RPI with a 50% spouse pension (ie on the same basis as the typical public sector pension).

This is the problem, no risk pensions are much more expensive than they used to be.

www.fsa.gov.uk/tables

Go to the pension annuities section.

Thank you for enlightening me. What the tables do not show is limited indexation, say up to 5% a year maximum. Anyway, even £15k is 75% of the example person's salary, is it not?

In any case this is a serious national problem, and hitting the public sector isn't going to solve anything. Unless the government increases the state pension drastically, most people will have no more than £150 a week to live in old age, which is below the poverty line. My assumption is that the solution most liked by the Tories would be to force people to work until 70, but I can't see that as being acceptable to most people. I'm afraid taxes and NI need to go up, and there is no alternative.

Old_Slaphead

marklv wrote: »

The government should have made this illegal but they wouldn't for fear of upsetting their paymasters in the business world.

I think you'll find that the government's policy to tax pension funds that were overfunded by more than 5% was the reason why many companies were obliged to take pension holidays - so this, together with Brown's tax raid on private pensions has been the main cause for their demise.

DiggerUK

marklv wrote: »

Nonsense. 50% of a 25 year old's example £20k a year salary is £10k a year. Multiply that by 40 years and you have £400k. An annuity at 65 would produce around 5% of the fund a year, so that makes £20k a year - 100% of the salary, even without taking into account any investment growth (except to match inflation)!!!

Then the figures can be improved on.
As it means they only need to put away 5K a year to get a 50% final salary pension, it comes down to 420 per month. About a third of take home pay. Better than astronomical, but still eye watering.

Can an IFA give a better alternative, or comment on marklv's figures.