MSE News: Public sector pension benefits should be cut – report

Old_Slaphead

JamesU wrote: »

Can you explain how you reach the 7% figure? You have lost me on this bit.

JamesU

Difference between RPI & CPI has been 0.7%pa

Year 1 lose 0.7% year 2 1.4% year 3 2.1% etc.......to year 20 14%

The average is therefore 7%pa

Old_Slaphead

will-in-estoril wrote: »

Of course relative to GDP. How else would it be measured if we are talking about affordability???

Absolute terms.

Saying something like "the cost of the scheme begins to fall from 2015" could lead to the impression that actual pension costs are reducing which is not the case. They are increasing but at a slightly lower rate than forecast output.

Old_Slaphead

will-in-estoril wrote: »

Let's have some honesty in this debate around the issue of affordability. Remember, public sector pensions were reviewed and a fair settlement reached within the past five years.

By whom - the Labour Party with TUs as paymaster and main beneficiary.

Fair settlement - you're having a laugh!

Old_Slaphead

will-in-estoril wrote: »

You see, you have been smoked out and shown your true colours: blue to the core. Your prejudices are there for all to see and make their own minds up about.

Bom fim de semana!

I prefer to see it as reflecting a common sense view rather than one of those with vested interests.

BTW I'm not a Tory supporter

Amazing how quickly some posters start to slag off those without similar views!

ds9074

will-in-estoril wrote: »

• The lower paid certainly will notice, especially on their 60th birthday when they realise they have up to another 8 years to work!
• Where exactly do you get your 'evidence' that the schemes are being undermined by a few big payouts at the top? Certainly not from Hutton or the Office for Budget Responsibility, which has confirmed that costs of the schemes begin to fall from 2015.

When Maxwell stole his employees' pensions there was much condemnation. The current proposals are no better and should, and will, be opposed.

You would have to have a pension big enough that you do not need the state pension to retire at 60. How many lower paid workers does that apply to? For most the combination of the state pension + occupational pension is needed to retire. So my arguement would be that linking the normal retirement age of these schemes to state pension age will mainly impact those on higher wages who can afford to retire before drawing their state pension.

These schemes are being undermined by large payouts at the top because that is what gets the headlines and that undermines public support for the whole system - even when a lot of public sector pensions will be very modest. The career average should help to reduce some of the very generous treatment of high flyers.

JamesU

Old_Slaphead wrote: »

Difference between RPI & CPI has been 0.7%pa

The average is therefore 7%pa

I still do not understand what you mean by an average of 7%pa, what is this figure supposed to be and mean? And how is it calculated?

JamesU

Old_Slaphead

JamesU wrote: »

I still do not understand what you mean by an average of 7%pa, what is this figure supposed to be and mean? And how is it calculated?

JamesU

Over last 22 years RPI has averaged 3.4% and CPI 2.7%

For someone with a £1000 pension over the next 20 years they would receive £26065 total payments with indexing at CPI (ie compounding at 2.7%) or £27990 at RPI (ie compounding at 3.4%)

RPI would therefore over 20 years pay out 7% more.

JamesU

Old_Slaphead wrote: »

Over last 22 years RPI has averaged 3.4% and CPI 2.7%

For someone with a £1000 pension over the next 20 years they would receive £26065 total payments with indexing at CPI (ie compounding at 2.7%) or £27990 at RPI (ie compounding at 3.4%)

RPI would therefore over 20 years pay out 7% more.

I am not sure if you can calculate the figures like that. How about this:

RPI=3.4%, £1k, 20yrs = a pension of £1952 (excel)
CPI=2.7%, £1K, 20yrs = a pension of £1704 (excel)

Annual pension value in 20yrs time is 248/1952 = 13% less

And if you do the same calculations over 30yrs:
RPI pension is £2727, CPI pension is £2224
Annual pension value in 30yrs time is 503/2727 = 18% less

A person who retires in 2011 will see a 13% reduction in pension over 20yrs with the switch from RPI to CPI based on a 0.7% RPI/CPI differential.

Somebody in work aged 48 will see the value of their pension to be 13% less on retirement, rising to 18% less ten years into retirement (but the effect on pension less obvious as the pension will still be higher on retirement due to any increased salary and additional years of service).

Somebody who left work at age 38 with a deferred pension will see an 18% reduction in value on retirement at age 68. And of course the value will continue to drop over the next 20yrs too.

Note: A marginally lower long term estimate of the difference between RPI and CPI of 0.7% has been used here and the calculations above are not overestimated: Lord Hutton's Independent Pensions Commission reports (0.75%), the Government (0.8%), Office of Budgetary Responsibility (0.75%) and the Pensions Policy Institute (0.75%).


JamesU

Old_Slaphead

I agree with your calcs that someone is 13/14% worse off at the END of 20 years but, throughout that span the reduction is half or 7%.

As regards the other comments - pensions weren't designed to be paid for 30 or 40 years but I don't disagree with your figures

Re. deferred pensions - I don't see why certain people in their 20s & 30s should be given lifetime protection when they've lots of time to make other provision and it's not something afforded to the majority of the population - but then again, as we know, that's another argument

jamesd

Old Slaphead added up the money paid each year under each rate. The calculation is correct: after 20 years the RPI increase will have resulted in total payments 7% more than the CPI increase. It takes about 1.4 years of extra life to make up the money, so the change to CPI is compensating for about that much of the increase in life expectancy that we've been seeing. Not enough, but beats landing only the tax payers with the extra cost of government doing a good job on life expectancy over the years.