Career Average Pensions

property.advert

But the electric, gas, council tax and all other bills will not be magically averaged over your lifetime come retirement day will they ? they will be whatever they are at the date you retire, which is where your final salary comes into it.

Loughton_Monkey

property.advert wrote: »

But the electric, gas, council tax and all other bills will not be magically averaged over your lifetime come retirement day will they ? they will be whatever they are at the date you retire, which is where your final salary comes into it.

Well nothing wrong with the observation.

But simply to equate this somehow to your 'final salary' is presumptive. It implies that your entire final salary is 100% 'spent' on something.

I think even before I ever went to work, I had worked out from first principles that:

(a) At some stage, you go to work and earn money.
(b) At a later stage, you finish work, and get a miserable state pension which is peanuts compared to a decent salary.
(c) ergo if you want to pay your gas, electricity, and council tax after retirement, you'd better save for it, by not spending all your salary.

Or is this too simple?

jamesd

bristol_pilot wrote: »

The best people in the public sector will move to the private sector as and when they can

Then they can have the excitement of a generous money purchase pension scheme with 1.5% a ear annual fund management charges and 0% employer contribution matching. Or a more generous one with say 6% matching. Or if they are really fortunate, one with 0.5% fees and 6% employer matching.

The pension deal is still very generous compared to the private sector.

cvd

Despite many people being against CARE, the majority of people will not actually notice that much difference.

I believe Hutton has recommended that the CARE scheme should use indexing by average earnings until the date the pension is paid. A CARE system with that type of indexing is a really good pension scheme for low earners.

The problem is that CARE systems depend critically on the type of indexing used. A CARE system with CPI indexing whilst the pension is being accumulated is a really poor scheme even for low earners because that CPI indexing would be used for 40 years before the pension is paid out.
My guess (I have done no calculations) is that such a scheme is so poor that someone in such a scheme for just a few years and a long way from retirement might be better off transferring the money to a money purchase scheme.

Loughton_Monkey

cvd wrote: »

My guess (I have done no calculations) is that such a scheme is so poor that someone in such a scheme for just a few years and a long way from retirement might be better off transferring the money to a money purchase scheme.

Although I understand the sentiment behind this, I sincerely hope that this never gets to be a reality. You see the trouble is in what you have called "the money". There is no such thing as "the money". This is because:

(a) In a non funded scheme (like many of the Public Sector ones) there is literally no money. They are paid from revenue in the same way as state pensions.

(b) In a funded scheme, 'the money' is a large account - not specific to any pension scheme member - based upon rather assumptive projections.

The minute you start trying to apportion such a fund between members, and quote a 'transfer value', then it's like having a mouthful of hot food. Whatever you do next is wrong.

Forget the 0.01% chance that the actuary has accurately forseen every aspect of CPI, investment rates, and future salary of the specific employee for the next 20 years. Either he will have got it wrong one way. Or he has got it wrong the other way.

So if hindsight shows that the transfer value [for a specific staff member] produces a bigger pension in his own fund, then by allowing the transfer, the government has wasted tax payers' money. If the private scheme produces less, then we all know that there will be a huge hue and cry about having been 'raped' either by the Government or the poor IFA that set up the private pension.

wakeupalarm

bristol_pilot wrote: »

I tend to agree. The best people in the public sector will move to the private sector as and when they can, especially as job prospects generally improve and then we will be left with the dross running public services. Why anyone with a good degree in, say, science would go into teaching now is beyond me. People can already earn twice as much in industry, even more in finance, pensions were the only attractive feature of the public sector.

All these top public sector workers with degrees leaving their generous future CARE pension schemes to join money puchase schemes in the private sector is surely going to reduce the cost of funding these public schemes. In addition, the influx of these highly qualified people will surely increase competition for jobs in the private sector, thus reducing the wage inflation of private sector employees as they compete with this huge influx from the public sector. Lower pension costs and lower wage inflation.

bristol_pilot

jamesd wrote: »

The pension deal is still very generous compared to the private sector.

The type of pension is still very generous compared to the private sector. I am actually in the private sector with a money purchase scheme and would not swap that for a public sector pension but roughly one third of the salary (in my case). I paid 45% of my salary into my pension pot last year, more than my gross salary would have been if I had been doing the same job at HMG.

bristol_pilot

It seems the changes are going to hit the high-flyers the most; CARE delivers similar pensions to final salary for people who do not make so much of their careers. This would be fine if public sector workers didn't do very much, but I don't really want most nurses, teachers etc to be recruited from the bottom cohort of the ability range.

butterfly72

bristol_pilot wrote: »

This would be fine if public sector workers didn't do very much, but I don't really want most nurses, teachers etc to be recruited from the bottom cohort of the ability range.

What do you mean be this?

bilbo51

butterfly72 wrote: »

What do you mean be this?

I suppose (s)he means (s)he would like teachers and nurses to be able, ambitious and forward looking... If so, then personally, I'd agree.