Crunch time for council workers’ golden pensions

carolt

You are a Very Peculiar person.

I do so hope you get over your obsession with me, DD.

It's boring everyone else.



So - what do you think about the future for public sector pensions, then? A much more interesting subject....and one I happened to believe was the subject of the thread.....

vivatifosi

carolt wrote: »

So - what do you think about the future for public sector pensions, then? A much more interesting subject....and one I happened to believe was the subject of the thread.....

Morning carol,

I haven't posted on this thread yet so thought I'd try and help get it back on topic. I'm a trustee of a smallish final salary pension scheme in the private sector.

Virtually all final salary pension schemes are underfunded at the moment. Invevitably they tend to dip in valuation in a recessionary cycle and when share prices are depressed, however their values will increase. I seem to remember someone (Gen?) posted that the funding deficits for the local government pension scheme were relatively low prior to entering the downswing, and we have to bear that in mind. The same poster said that there was next to no provision for the central government scheme, so this is a different matter.

The current government introduced protection for private sector final salary schemes that underwrites a level of protection for those in private sector schemes, this is paid for by a levy on schemes and is ramped up if a scheme is underfunded. Therefore it would be discriminatory, in my mind, if we upped the rights of those in private sector schemes while not affording the same level of protection to those in public sector pensions that may be subject to tinkering in the future.

The final point I wanted to make is that a lot of government workers are not in the pension schemes. I tried and failed to find figures for central and local government as a whole, but did find figures for one district council. In that council 30% of workers were not members of the pension scheme. Those people are disproportionately those that cannot afford to join - whether because their jobs are low paid to start with or because they work part time and therefore their overall earnings are small when the salary is pro-rated. Being a low-paid worker sucks, whatever sector people are in and pensions are seen as discretionary spend. The result is that we have to pay for them anyway, as they receive means-tested top-ups.

Not enough people are in pensions anyway. Change future benefits to money purchase by all means, but it’s fundamentally unfair to propose changes to already accrued benefits (unless reduced in line with the private sector scheme). It will send a message to people that saving into a pension is too risky, with the upshot that the government ends up paying more for pensioners (ex-public and private sector) who don’t bother to save for their future.

carolt

Brilliant post, vivatifosi.

Said far better than I could by one with highly relevant knowledge of the sector.

I shall bow out now - feel you've said everything I could wish to (except far better).

Old_Slaphead

vivatifosi,

A few stats & observations to supplement your posting.....

Ref paragraph 2 – My LGPS, at the last valuation (March 2007) was underfunded by around 17% ie. £480m on around £2.9billion liabilities. Since then, assets have fallen by a further £500m although this figure may have reduced by the very recent stockmarket ‘bounce’. Current underfunding is likely to be around 30%, this at a time of increased pensioner longevity and staffing levels. I believe that this is the lowest funding level that the scheme has had.

Whilst I realise that my LGPA may/may not be representitive of the sector as a whole – given that the stockmarket is lower than it was 12 years ago and much of LGPA assets are in equities – the underfunding looks a pretty serious issue to me. To get the funding back on track over the medium will require HUGE additional contributions from the local/national taxpayer which will ultimately necessitate "difficult choices" on levels of service.

The current government doesn't want to acknowledge these issues. Presumably all this will become apparent after the next valuation review in 2010.....just after the next election (quelle surprise !!)


Re paragraph 3 – not sure what you mean here - perhaps you could explain. Is anyone suggesting increasing rights for those in private schemes? I thought that the PPF was funded by the private schemes themselves & not the taxpayer. Public schemes are fully underwritten by taxpayer.


Re paragraph 4 – I understand that the uptake on public sector pensions is over 90%. Less than 16% of private sector have FS provision and that figure is decreasing rapidly as virtually no schemes are available to new starters. There is no evidence (despite what some may say) that there are proportionately more lower pai in the public sector. ONS stats seems to support the opposing viewpoint that the public sector in general does rather well.


Seems to me over the last 12 years that private schemes have been given a very raw deal whereas public schemes have been pretty much untouched - would you agree ?

Personally, I’ve no axe to grind with low paid workers getting decent pension provision although that right should be extended to both public & private. I do think however for those on medium or high salaries it should be compulsory to accept responsibility for their own long term provision.

It’s all about choice really – people should be paid the ‘going rate’ for their job – appropriation of their net wages should be a matter of personal choice – spend now or save a bit for your dotage.

There is a pension apartheid now where old people & the low paid are expected to contribute to the lavish pensions of the well off. I don't think that's fair. Continuance of the generous public sector pension scheme is only storing up problems for future generations and this issue should be addressed now.

carolt

Old_Slaphead wrote: »

Seems to me over the last 12 years that private schemes have been given a very raw deal whereas public schemes have been pretty much untouched - would you agree ?

Personally, I’ve no axe to grind with low paid workers getting decent pension provision although that right should be extended to both public & private. I do think however for those on medium or high salaries it should be compulsory to accept responsibility for their own long term provision.

It’s all about choice really – people should be paid the ‘going rate’ for their job – appropriation of their net wages should be a matter of personal choice – spend now or save a bit for your dotage.

There is a pension apartheid now where old people & the low paid are expected to contribute to the lavish pensions of the well off. I don't think that's fair. Continuance of the generous public sector pension scheme is only storing up problems for future generations and this issue should be addressed now.

I know I said I'd let vivatifosi lead on this, and I'm sure she'll come up with a far better answer to mine, but just wanted to reply to a couple of points raised here.

I think you raised some good questions in your first part, OS, but couldn't agree with the 2nd part - public sector schemes have been increasingly closed to new entrants or the terms changed to make them much less favourable, eg higher contributions, higher retirement age, etc. Changes vary from 1 part of the public sector to another, but it is certainly less generous overall than it was.

I'm not really clear why you have an intrinsic objection to people factoring a pension into their overall salary package, in much the same way as they might factor in a season ticket loan, company car, or any other financial package. It's just salary by another name. People who choose to take jobs with lower headline salaries, but other benefits attached, then they are making provision for their old age, in exactly the same way as someone else who chooses to take a job with higher take-home pay, and save for their pension provision themselves. I think the public/private debate is a bit of a red herring here - I think what you're really objecting to is people in the public sector receiving overall packages (including pensions) that you think are too high. That's a different issue, and some might agree with you there, others might not.

Re "There is a pension apartheid now where old people & the low paid are expected to contribute to the lavish pensions of the well off" - I don't really get your point, as the low paid exist in both the public and private sectors. So again the public sector pensions thing is just a red herring here. Although I couldn't agree more that there needs to be greater incentives for the low paid to get and get to keep money they've saved for a pension; when in reality, it's pointless, as they'll just lose it all in means-tested top-ups.

vivatifosi

Hi Old Slaphead,

In answer to your questions I do think money purchase is the way forward for all schemes. My initial post was substantially longer and said as much, but I edited to make my main point which was that it is unfair to tinker with anyone's accrued benefits. It is not uncommon for schemes I know of (which I appreciate is not the whole picture) in the private sector to have increased their employer contributions from 4-5% to three times that. Clearly a doubling or trebling of contributions is not sustainable, either in the public or private sector.

However some posters on here have suggested that people shouldn't be entitled to benefits that they have already accrued and it was this point that I was seeking to address. To put my rather lengthy post above into a nutshell it is this, money purchase is the future, final salary is the past, people should be entitled to what they've already accrued and if their benefits do need to be cut (because in effect there is no other way of paying for them) then this should be done in line with the restrictions put upon the Defined Benefit schemes of private firms rather than taking accrued benefits away (my point in para 3), I wasn't suggesting this was being enhanced, rather that it is a relatively recent development. It is tinkering with accrued benefits that would cause the distrust of pensions that I'm concerned about, the fact that public schemes may need to shift to money purchase is just a fact of life that will need to play out as the looming deficit comes into view.

I have no idea what the take up is of public sector schemes other than the one item that I found and quoted or whether this is representative as a whole, my point is that it is the poorest paid who are least likely to contribute anyway, we're going to have to pay for them anyway. However I am very worried about the fact that there is no provision made for central government pensions (as alluded to in the post I refer to above).

Incidentally I totally agree that private sector pensions have got the raw end of the deal and I for one will never forgive Brown for tinkering with taxation as that was one of the key contributors to the beginning of the end for DB schemes in the private sector.

Hope that clears things up. I don't actually think our views are poles apart on this one.

ETA: personally I wouldn't necessarily advocate closing schemes to existing members unless it was uneconomic to keep them open (which it sounds like it may be the case with central government), though may make scheme less favourable, however I would bring in MP schemes for new joiners.

Old_Slaphead

vivatifosi,

You last posting clarifies a number of issues for me - I now agree with much, maybe even all of what you say.

FWIW (and I may not be at one with others on this) I don't think that any changes should be made to accrued pension benefits - only to those going forward.


carolt,

My suggestion on being paid the 'going rate' as salary rather than a pay & perks package was in the interests of transparency. I don't have an intrinsic objection - it's just that job and pay comparisons are difficult enough without the problem of deciding what the real worth of the 'add ons' are. It was just a top-of-my-head idea that I thought may have merit.....a bit like some Chartered Accountants have a menu of perks which can be traded against the basic salary. Once everyone knows their true salary - then they can buy in the other benefits, as required, for an agreed price.

carolt

Yes, that makes sense.

Excellent idea.

Old_Slaphead

carolt wrote: »

Yes, that makes sense.

Excellent idea.

Praise - from someone who's never heard of Quorn - whatever next ?

ps - do you know where the East Midlands is

carolt

Is it East of the Midlands?