MSE News: Millions face cut in final salary pensions

owainglyndwr

The government seem to be selective in their approach to the gold plated public sector pensions. The teachers scheme seems to be the first port of call but the higher cost police and GP schemes are less of a priority.Do we need to ask why?

Old_Slaphead

LindsayO wrote: »

how does ill-health retiral figure into this? what about people forced to retire early due to ill-health, who can't work, still have mortgages to pay? does their loss with the switch from RPI to CPI seem fair?

What about the ill-health early retirees who don't have vastly taxpayer-subsidised pensions who face hardship brought on by the last Government's destruction of their pensions?

The reductions in payouts will be minimal in the early years. Retirees have no idea what future inflation (and therefore future pension increments) will be so it would be imprudent if they had set up mortgage arrangements predicated on inflation assumptions.

Pensioners with CPI indexing will still see their pensions increase so it shouldn't affect their ongoing mortgage payments if they've fixed for a decent length of time. It's not the state's responsibility to indemnify a certain group of priviliged pensioners from all future potential cost increases - remember many poorer people are having to subsidise these schemes.

There's an aweful lot of wailing about losing around 1/2%pa of pension increase - given what's happened to annuity rates and consequently non-guaranteed pension in the last 15 years (down around 70%) that reduction is barely noticeable.

If public sector debt is not brought under control then mortgage-holding pensioners will have far more serious things to worry about as interest rates spiral upwards.

Old_Slaphead

owainglyndwr wrote: »

The government seem to be selective in their approach to the gold plated public sector pensions. The teachers scheme seems to be the first port of call but the higher cost police and GP schemes are less of a priority.Do we need to ask why?

Do you have any evidence for this observation ?

owainglyndwr

good point --- simple answer is no -- i withdraw the comment

cvd

It was pretty easy to see that the Govt was spending beyond its means.

Some commentators pointed out at the time that switching the Bank of England to target the CPI rather than the RPI was a mistake because the CPI underestimated the real level of inflation and caused interest rates to be too low. Indeed, some Tories pointed that out at the time!
It is nice to see they have learnt the lesson.

Sapphire

Old_Slaphead wrote: »

If public sector debt is not brought under control then mortgage-holding pensioners will have far more serious things to worry about as interest rates spiral upwards.

What do the pension arrangements between employees and private companies have to do with public-sector debt?

If you are a pensioner you shouldn't have a mortgage! Should have planned better/not over-extended yourself.

If interest rates go up perhaps savers will get better interest on their hard-earned savings.

hugheskevi

The average difference between RPI & CPI over the last 20 years is 0.7%, (0.56% net of tax). Over 20 years this compounds to about 11%net - someone on £7000 it will 'cost' an average of £350pa. Costs will be lower in the early years and higher in the later years when pensioners tend to spend less money but use a lot more public services (ie NHS). This seems emminently reasonable.

Remember that the rules will also apply to revaluation of pensions before they come into payment, as well as indexation applied once they are in payment.

This means people who leave the schemes before retirement lose a lot more, eg a 40 year old with a pension age of 65 would have their pension reduced by about 20% compared to RPI up-rating before they even receive it.

And given the review of public sector pensions, it wouldn't be surprising if the schemes were closed, meaning that everyone gets a much lower pension, not just early-leavers.

I would say this is the most likely scenario, meaning that 40 year old has just lost a total of about a third of his pension due to the lower revaluation and indexation. For some schemes in the private sector (depending on scheme rules) it seems this is already the case given the annonucement this thread is based upon.

It would also be helpful to keep two issues separate:

1) Are public sector pensions too generous
2) Should promises made be honoured

Whether or not (1) is the true, it does not follow that (2) is consequently justified.

Gorgeous_George

The credit crunch started because Americans sold bad debt rated as AAA around the world. Had they not done so, America would have been bankrupt and that would have been a huge security problem for all of us.

When we look for people to blame, we need to look further afield. It was neither the public sector worker nor the private sector worker. It as America and the banks.

GG

Old_Slaphead

I recognise your valid comments hugheskevi however we all know that PS FS pensions are hugely expensive and this seems a realistic way of starting to clawback some of the costs in a generally equitable way.

As I understand it ex-employees can transfer the funds to another pension provider and take their chances - the fact that hardly any do (and I suspect that will not change) suggests that the scheme on offer is amazingly generous (though probably slightly less so than in the past)

wakeupalarm

The problem is that those who have benefited most from FS schemes are those who have recently retired (last 10 years) and those who will retire in the next 10/15 years, with longer life, higher salaries, low levels of inflation. Any change from RPI to CPI will effect the younger generation more severly. Those who have benefited should pay more. A fairer proposal would be the hybrid of a FS or CARE scheme with a cap of up to say £20000 per annum and then anything above would be DC scheme. Too many people are looking at their own situation and not realising that those not lucky enough to have FS schemes will end up paying more. Look at the increase in VAT, the cuts in benefit and services which will effect the poor more then the rich. Society as a whole will suffer if you make the poor poorer in order to protect the comfortable and rich. The whole approch is wrong.