Career Average Pensions

traineepensioner

Hi,

I work within the private sector and our final salary pension has recently been changed to the Career Revalued Average Pension and it's everything that the acronym suggests (C.R.A.P). Our's increases on yearly basis and is calculated on the lower of RPI or wage increases.
:mad:

seven-day-weekend

jem16 wrote: »

With teaching (at least in Scotland) the classroom teacher who wants to remain a classroom teacher has little in the way of reward. To move onto Principal Teacher, Depute Headteacher and Headteacher normally also sees a move out of the classroom and into a management role. There are many excellent class teachers who don't want to be managers - they want to teach.
..............
Clapped out the 58 year old may be, but he may be the best classroom teacher having opted to stay in class.

This is exactly what my husband did. He did have a management role, but gave it up (with the associated drop in salary) as he wanted to be in the classroom teaching, not in the office being an administrator.

He remained in the classroom until he took early retirement at the age of 55.

jamesd

nic_santorini wrote: »

it looks like we are going to be penalised for wanting to better and develop ourselves.

Just rewarded less.

nic_santorini wrote: »

When will people realise, it is ONLY people that stay in the same job, at the same pay scale for their entire career that it will NOT affect. Any change in pay scale throughout a 30 (well now 35-40 years) will see a lower pension

Lets consider:

Final salary pension: everyone pretends that you've been doing the higher paying job for your whole career and that you're so wonderful that it makes sense to do that.

Average salary pension: your pension is based on how much you were actually making each year, so you get the full benefit for each year at higher wages but nobody pretends that you deserve to be treated as though you were doing it for your whole career.

The people who should be unhappy are upper level managers and high flyers who will find that a scheme that could have been set up to reward them and penalise the ordinary workers is changed to one that's fairer for the ordinary workers because it doesn't shift so much of the money to those who get lots of promotions.

nic_santorini wrote: »

I believe the government have a duty to provide EVERY public worker with a personal projection of the loss they are causing.

How can they do that? It requires predicting the future to know how far someone might be promoted. I suppose they could do it with average careers but that would't help your point because those with average careers are the ones who benefit from the change.

nic_santorini wrote: »

I know there has to be a certain change, but it should be for new employees, not existing ones.

All are gaining from the increase in life expectancy that's driving this. The employer has been and continues to deliver longer lives and it's fair to try to find ways to split the cost of that benefit.

jem16

jamesd wrote: »

The employer has been and continues to deliver longer lives

How does the employer deliver longer life?

clc5

Informative thread. As a civil servant I have to concede that career average is fairer than final salary. However, the 3% rise in contributions on top of real terms pay cuts for the next ?? years will cause hardship for many. And of course the pay cuts will reduce the value of our preserved final salary pensions. Tough times ahead.

jamesd

jem16 wrote: »

How does the employer deliver longer life?

The employer in this case is successive governments and tax payers, who have chosen to use taxes to fund improving health care, which all, including its employees, benefit from. Individual life durations vary but the life expectancy change is on average a good thing.

Take a look at Chart 1.A on page 22 of the Hutton Report to see how life expectancies have both been systematically underestimated and rapidly increasing. Chart 4.A on page 88 is also interesting, showing the increase in the percentage of adult life spent in retirement.

Loughton_Monkey

I can understand no-one in public sector like to see their pension rights become less favourable. That is to be expected and there are good reasons for it (in my view).

But I wonder how many of them - when looking at the Career Average aspect - understand exactly how unfair a true final salary scheme can be?

Take a senior guy with 39 years under his belt. Age 59, with one remaining year of service to do. Salary, say, £80K and so ultimate goal is to do one more year. £80K at 40/60ths gives him a pension of £53,333.33

But because he's a 'good chap' and his boss wants him to go away in style, he awards a 10% pay rise. That's £88K and a pension of £58,666.66. An increase of £5,333.33.

Now a glance at the annuity tables shows the RPI annuity rate for a 60 year old is about 3.6%. Therefore the additional pension has a value in the order of £148,000.

I may be wrong (but don't think I am), but even this guy's bosses don't realise what they have done. They think they have done him a favour worth around £8K. He's a 'good guy' after all. At what stage would the MD bring in this 'boss' and tell him that he has cost the company £148K! That's thrown away almost twice his salary!

jrawle

edinburgher wrote: »

Actually, pensions are uprated in line with inflation from day one. Still, this is now CPI, not RPI, so they've already reduced the value.

You're right, for the Nuvos scheme anyway. Nuvos pension earned each year increases with RPI every year thereafter (CPI from April). Premium (final salary) pensions are not uprated according to inflation as the fact they are based on final salary should account for inflation, assuming salaries rise in line with inflation in addition to any promotions.

This fact makes the Nuvos scheme look quite attractive, as you earn 1/43 of your salary each year instead of 1/60 with Premium. But as I said, there is no guarantee any new scheme that's introduced for existing members will be as good as Nuvos. Is isn't so much whether a scheme is average- or final salary that makes it good or not (this will vary from person to person). It's how generous the accrual rate is.

clc5

Hutton suggestions I as a civil servant find reasonable in principal are: tiered contribution rates, an accrual rate of 1/61st salary, pre retirement indexation in line with earnings, an end to abatement, more flexible retirement. However, higher contribution rates and increased retirement age will be painful. And the govt is giving our accrued final salary benefits a parting knee to the groin by cutting our pay for the next few years and consequently the value of said benefits. Ah well, at least we've got job security! Oh, hang on..

paparossco

Loughton_Monkey wrote: »

But because he's a 'good chap' and his boss wants him to go away in style, he awards a 10% pay rise. That's £88K and a pension of £ order has cost the company £148K!

I'm not saying this never happened in the NHS, perhaps at very senior level, but as a department head for over 30 years I've never had this type of authority. In these times it is not going to happen either, we are too busy dealing with crippling 'efficiency' savings!