Public sector pensions nearly over?

marklv

Bendix, what you say may well be true, but China's population is 1.3 billion. What do you expect? Instant wealth? It will take many decades for the standard of living to rise, but rise it will. And 20 million richer people is still a lot by Western standards.

If China was that ultra-free-market paradise you so desire, poverty would be a lot worse than it is now. Russia tried that approach in the Yeltsin years and it didn't work - a bunch of !!!!! types (oligarchs) took control of all the privatised industry and made themselves billionaires at the expense of the state and the people. Putin saw through all this malarkey and put a stop to it.

bigheadxx

marklv wrote: »

Funnily enough, I'm not bothered by this. Even Osborne and Cameron are aware that sticks need to be accompanied by carrots; if there is a freeze in 2011, pay rises will need to be substantially above inflation in future years, to catch up. It's the only way the unions will accept this.

I am voting this the most naive post ever!!!!!!:rotfl:

bumpoowee

bigheadxx wrote: »

I am voting this the most naive post ever!!!!!!:rotfl:

I do find it strange that anybody thinks they have the right to dictate to their employer what pay rise they will be getting at any given time.

daveyjp

Whilever there are the public to service a public service will be required.

We can pay for public sector employed staff to get pensions or we can pay private sector to pay bonuses, sponsor events, pay dividends to shareholders etc etc.

bumpoowee

daveyjp wrote: »

Whilever there are the public to service a public service will be required.

We can pay for public sector employed staff to get pensions or we can pay private sector to pay bonuses, sponsor events, pay dividends to shareholders etc etc.

Where did anyone say public sector should get no pensions?

I notice you are not big on performance related pay, interesting. Not big on shareholders eg. pension funds receiving a return on their investment either, also interesting.

marklv

bumpoowee wrote: »

I do find it strange that anybody thinks they have the right to dictate to their employer what pay rise they will be getting at any given time.

I find it strange that any employer can simply not give any pay rises to the employees (or some employees) without very good reason. In any case, the unions negotiate with the employers, they do not dictate.

marklv

bumpoowee wrote: »

Where did anyone say public sector should get no pensions?

I notice you are not big on performance related pay, interesting. Not big on shareholders eg. pension funds receiving a return on their investment either, also interesting.

Performance pay is a colossal con trick. The arselickers get the big rises, everyone else gets little or nothing. It's not a fair system of rewarding staff; too many favoured people get preferential treatment just because they are some manager's blue eyed boys (or girls). Pay rises should be equal for everyone, and high performers rewarded in extra bonuses if needs be. The other thing is that with assessing pay rises on performance alone, companies tend to have one common 'pay pot', which is deliberately not sufficient to award cost of living rises to all staff, so the ones who get the lowest marks in their appraisals get nothing, and the so-called 'high performers' get big rises. It's basically a way of telling a lot of staff to f**k off without actually having to go through the process of dismissing them. This whole scam should be made illegal.

markr007

Wow. Just read this thread from start to finish. An interesting debate and some good points. Some utter nonsense as well but there you go.

It certainly shouldn't be a case of leveling public sector pensions down to private sector rates. However, there needs to be some give from public sector workers - which evidence suggests there isn't!

All public sector schemes (most of which Teachers, NHS, Local Gov't, Civil Service used to be identical) have gone through a review and new schemes put forward.

One of the suggestions on many of the schemes was to put the retirement age up to 65 going forward. However, this was shot down by public sector staff and unions and so, although it has been implemented for some, in many cases was weakened to only apply for new joiners. Part of the problem here is education. When the retirement age rises it ONLY applies for future service. Past benefits can still be taken at 60. This is just one example of the many where there is no give at all from public sector employees. Everyone looks after themselves so it is understandable. I guess the problem really is that the public sector is highly unionised and will strike making it harder to get NEEDED changes through.

For info public sector pensions are paid for in 2 main ways: funded and unfunded.

Funded schemes such LGPS are ran almost identically to private sector schemes. Money from the employer and member is invested in one big pot that is designed to be enough to pay the benefits. This pot is measured against expected costs every few years and top-up contributions asked for from the employer for any underfunding. The hole in this scheme (that is actually a collection of lots of different schemes for each area) is therefore easily determined and regularly advertised in the context of council tax. For info if you add up all the pots from each area and treat it as one scheme then it is the largest or second largest scheme in the world depending on the exchange rate.

I did some work relatively recently on the LGPS and interestingly one of issues adding to deficits emerging was the number of enhanced redundancy pensions granted and ill-health retirements - most of these being from local authorities rather than other bodies e.g. colleges. This is usually very bad financial planning in the context of redundancy enhancements. In the context of incapacity pensions it is understandable where the "lazy public sector workers" phrase come from. Fundamentally though the big correlation is that of the higher the benefit the more people apply for it. Could say similar about sick leave and stress.

That said, my wife has worked in several (sometimes quasi) public sector companies and the stories I get back are incredible. Go for tea in the morning, lunch break, tea in the afternoon. Leave wher you can on the dot or make up for it with flexi time. Disinterest from bosses other than those wanting to move up the ladder themsleves who focus only on visible targets rather than the service to be provided etc. I am not saying all public sector workers are like this by any means, and there are certainly lazy provate sector workers. However, I would say there are more in the public sector and less pressure to perform or be laid off. This is more a case of how the public sector is run from the top down than workers being any different.

It also riles me when I hear of all the consultancies employed. These are often the ones that charge the most - incredible. Same with supplies or It for example, big approved companies used rather than smaller local ones that could offer a better cheaper service. I work for a consultancy and do work with the NHS at times. I once had a meeting with a colleague at Dept. of Health with 2 other external consultants (to project manage) and 2 DoH people to talk about something that they didn't even know would be a problem. We asked them if they'd picked up the phone to ask people if it was a problem - they hadn't. We suggested they do so but were asked instead to do a tour of the country visiting lots of places for 5-10 minutes at a time running up both fees and expenses - crazy! 1 hour on the phone would have done it! There was no problem.

Back to the point.

For the second approach of unfunded pensions that applies to e.g. the NHS the cost is determined using a rate of interest that relates not to any financial instrument but the usefulness of something. The same approach is used to decide whether e.g. building a bridge is worthwhile. It is a rate that is designed to spread costs between generations in an equitable manner.

There is lots of pressure to change this and move to a funded approach using gilt yields to value benefits. I fundamentally disagree with this but won't get into that.

One currently less publicised changes to NHS pensions is that members will pick up future cost rises that take the employer contribution above 14%. Interestingly I understand this will work like taxation for state benefits in that current members will pick up the tab for increased costs on previous members should e.g. life expectancy improve. This could get large and members may ultimately vote with their feet and close the scheme themselves!

To address this, a new deal for sharing costs and risks was reached with the NHS trade unions in which any increases in costs that result from increased employee benefits, such as higher pay progression or longevity improvements, will in future be met by the employee, while the government would continue to carry the financial risk, relating, for example, to higher inflation. This agreement resulted in an initial increase in member contributions of 0.5% on average with possible further rises when valuations take place every four years. The cost-sharing agreement has also led to a stronger role for NHS employers and trade unions in the governance of the scheme and a stronger partnership between the two.

from www. employeebenefits.co.uk/cgi-bin/item.cgi?id=8327

As someone who has played a large part in helping several employers close their final salary scheme I feel I can give a good view on why it is happening. Note closing the schemes is bad news for my future work as I work with these schemes so I don't do this because I want to!

Reasons for closure:

1. When they started members were only expected to live to 70-75. They are now epected to live to around 90. From 65 this is a 200% rise in cost and from 60 a 100% rise.

2. When they started there were generally no pension increases. Schemes are now forced to provide increases. This makes investing to match benefits harder and exposes the scheme to greater risk from improvements in life expectancy as well as being generally more expensive!

3. When they started there was limited levels of governance and running costs. There is now a myriad of rules and regulations that make pensions law difficult even to an expert and keep requiring expensive additional advice.

4. Investments have had a very bad run and been extremely volatile over the last 10 years.

5. Companies now have to put deficits in their accounts on the balance sheet and in profits. They do this every year using a crazy concept of marked to market meaning the deficit or surplus is extremely volatile - more so than the stock market. There is no control of this from the company point of view. Any control methods that do exist increase the long-term costs.

6. Funding, which affects cash contributions is also now done using marked to market so again volatile. In the past investment returns were smoothed to aim for long-term health rising out the peaks and troughs of the market. Funding assumptions now also have to be mouch more prudent.

7. Maturing schemes. The schemes were largely started in the 60s, 70s and 80s. Many of these are now only just getting to their peak size liabilities are increasing at the same or lesser rate than they are being paid out at so the the total pot doesn't get any bigger. Using completely fictional numbres, in the past a 10% swing in the funding might have been e.g. 2% of turnover but now it's 10% of turnover so the risks of the scheme are much greater in comparison to the size of a company. There are many companies (and an airline) that are effectively a pension scheme with a company attached rather than the other way round.

8. PPF levies.

9. Surplus rules - surplus can often not be put on a company balance sheet - only deficit and surplus can only be refunded if a scheme is so well funded that there is more money there than needed by an insurer to gurantee the benefits, pay expenses and make profits.

Perhaps going for record post length here but what should be done?

Firstly we need a government with balls. I would like to see legislation brought in that would allow some worsening of past benefits to reflect changed expectations of life expectancy. This would be phased in such that there was no immediate impact to those retiring today, similar to proposals on state benefits. The key here is that it would affect all benefits, not just future accrual so would be a big sea change. It would also affect both public and private sector companies and may go some way to stopping the rot in those schemes that are left by removing or at least minimising exposure to mortality changes. I would also abolish the requirement for pension increases (but keep revaluation for leavers - I would never have taken this down to 2.5%, an absolutely terrible decision).

Ultimately though I think the way forward is:

1. a proper state pension for all with no means testing funded through taxation - a keep it simple philosophy to this, no complexities like SERPS and S2P). The government is the biggest company in the country and the only one really able to handle the risks.

2. Encouragement of risk sharing schemes. We've gone from a position of employer has all risk to employee has all risk. Let's look at the middle ground such as collective DC (requires legislation change) or cash balance schemes.

3. Relaxation of accounting and funding policies to reflect the long-term nature of a pension scheme.

Rant over.

:-)

daveyjp

bumpoowee wrote: »

Where did anyone say public sector should get no pensions?

I notice you are not big on performance related pay, interesting. Not big on shareholders eg. pension funds receiving a return on their investment either, also interesting.

Eh? Why the personal attack?

I was simply making the point that there will always be a need for a public service and it needs to be paid for. I don't really care who carries it out.

bumpoowee

marklv wrote: »

Performance pay is a colossal con trick. The arselickers get the big rises, everyone else gets little or nothing. It's not a fair system of rewarding staff; too many favoured people get preferential treatment just because they are some manager's blue eyed boys (or girls). Pay rises should be equal for everyone, and high performers rewarded in extra bonuses if needs be. The other thing is that with assessing pay rises on performance alone, companies tend to have one common 'pay pot', which is deliberately not sufficient to award cost of living rises to all staff, so the ones who get the lowest marks in their appraisals get nothing, and the so-called 'high performers' get big rises. It's basically a way of telling a lot of staff to f**k off without actually having to go through the process of dismissing them. This whole scam should be made illegal.

I've worked at two companies that offered bonus schemes, and although I do agree there is always going to be an issue with brown nosers in the workplace getting more than they deserve, the schemes I was part of were administered very fairly.

Essentially they both worked on a points system where you had objectives at the start of the year and if you met them (and they were clearly mesurable) you would get points. By the end of the year a formula was applied based on your points and used to work out your bonus. I'm the most anti brown-nosing person I know and I've had no problems with these schemes, and did find that they motivated me to work harder.

So in conclusion I have found performance related pay, when administered correctly, to be a very positive thing.