Unacceptable pensions divide?

Milarky

Andy_L wrote:

Much as I hate sticking up for MPs, why have you not grown the MPs contributions by a 7% pa investment return?

So basicly what you are saying is that a final salary scheme with employers contributions is better than a money purchase scheme without. Hardly surprising news

Just recalculated

MP contributions @ 10% of starting salary £60,277 increasing in nominal terms of 4% with growth of 7% pa for 20 years:


= £60,277 x [(1.07^20)-(1.04^20)] / [1.07 -1.04] = £337,260

RI makes this £360,870 - but they should be indentical.

However the point made that whereas the pension this might be expect to buy is only about 3% (? - seems a bit low, but there you are!) of this - at £12,000 starting level - the MPs would be starting on more than five times that sum.

So either their fund managers are beating everyone else in the same game or (in reality) there must be an undeclared subsidary of approximately 40% (in addition to the 10% MPs actually pay) going into the fund to underwrite such liabilities (the pensions, not the MPs)

cheerfulcat

conradmum wrote:

Your original statement was that the Government backed down over plans to make them work past 65 'like the rest of us'. This implies state pensions. People on private pensions don't have to work past 65 to receive their private pension - why should public sector workers? Private pensions can be taken at 55 - or is it going to be 60? - anyway, it is only state pensions that we will ALL have to wait longer for.

Many people will rely on the state pension to top up their private pensions; most company pensions are not anywhere near as generous as that for public sector employees. I don't think that those employees really understand that, which is why I would like to see their interests more closely aligned with those of the rest of us.

In any case, public sector workers' pensions, like the state pension, are paid by the taxpayer and are thus not comparable to either company or personal pensions.

ReportInvestor

Citywire

The pace of change in the private sector is astonishing.

This is the first year that there are more people contributing to a defined contribution scheme rather than a final salary scheme and yet defined contribution schemes have leapt into the lead.

"....Figures from the Association of British Insurers show that 4.7 million people (17%) are currently saving in a work-based defined contribution pension, compared with 3 million (11%) in a private sector final salary schemes....."

The low 3% starting point for annuity is what you get when you add in inflation linking, start at 60 and 50% for a surviving partner These small details result in one big bill. This is also the reason why people are so surprised & appalled at the low pension quotes they have been getting from their pension fund managers.

Higher inflation risks or increased longevity in future could make this worse.

I just shows you the extent of national ignorance when someone as well-informed as Milarky is surprised at this low figure. [Actually, so was I .]

Check it out yourselves on the FSA Comparative tables for annuities.

Andy_L

Milarky wrote:

(in reality) there must be an undeclared subsidary of approximately 40% (in addition to the 10% MPs actually pay) going into the fund to underwrite such liabilities (the pensions, not the MPs)

If you look at some of the links in the document milarky mentioned the're quite upfront that there are additional contributions going into the fund from the exchequer (~20% in 2001).

ReportInvestor

Er - that % was before changed longevity assumptions and the vote by MPs to up their accrual rate from 1/50 to 1/40 :rolleyes:

Parliament publications

"...From 1 April 2003 to 31 March 2005, Exchequer contributions were paid at the recommended rate of 24% of pensionable salaries..."

Andy_L wrote:

So basicly what you are saying is that a final salary scheme with employers contributions is better than a money purchase scheme without. Hardly surprising news

How many employers you know add 24% of salary to the pension fund of new scheme entrants which is what the taxpayer is doing here?

And how can MPs be expected to understand the wider pension issue from this protected ivory tower?

ReportInvestor

Getting away from MPs who are one symptom, if a very important one, of the growing public sector v private sector divide.

See this MSE thread on Teachers' pensions

Local Authorities have had to steadily increase their contributions to the TPS from 9% to 13.5% and now up to 14.1% from 2007.

Meanwhile teachers themselves have had to increase their contributions only from 6 to 6.4%.

It doesn't seem to mirror what is happening in the private sector.

The extra cost to the taxpayer for that 5% increase in pension contributions over the last few years = £4bn = 1.25p annually on income tax (except it's local athorities that foot the bill). Assumptions are 400,000 teachers on average £20Kpa.

Scheme liabilities were estimated at £143bn this month.
November 2006 questions to the Secretary of State for Education

Andy_L

ReportInvestor wrote:

How many employers you know add 24% of salary to the pension fund of new scheme entrants which is what the taxpayer is doing here?

Quite a few if you're talking about people at the top of the tree rather than us plebs

http://www.guardian.co.uk/executivepay/story/0,,1865816,00.html
"average executive of a FTSE 100 company can retire at 60 on a final salary pension worth nearly £3m. The largest director's pension in each company is on average nearly £5m, more than 40 times most staff pensions"

http://www.hrmguide.co.uk/rewards/directors-pensions.htm
"Employer contributions to directors' DC schemes was, on average, the equivalent of just under 19 per cent of salary, and 20 companies paid 25-35 per cent of salary into pensions, compared to the average for all employees of just 6.6 per cent."

ReportInvestor

Quite. The taxpayer treats our MPs as if they were FTSE100 Company directors.

Even an MP can't claim that his average job life is 3/4 years. (Job insecurity was the winning argument when the ******** voted themselves a 1/40 accrual rate.)

The Bournemouth MP who proposed the 1/40, even had the gall to say that he wouldn't vote for his own measure if he believed it would cost the taxpayer any money :rolleyes: .

My own proposed reform would be to increase MPs' pay by 15% :eek: (we still need top people in Parliament) but stop their future pension benefits provided by the Exchequer .

This would

a) save the taxpayer pots of money
b) educate the taxpayer / voter about the incredible value of public sector defined benefit pensions compared to their own pitiful schemes
c) educate MPs about the problems of ordinary people and pensions and the "annuity trap".
d) create clarity about what we actually pay our elected representatives .

BTW I recently put this case to one of the Conservative Party Whips and I had my fingers rapped! The MPs of all parties are in this conspiracy of ignorance together .

EdInvestor

50% for a surviving partner

This will be less likely to be a factor in pension calculations in future as more people have pensions in their own right.

ReportInvestor

An MP's surviving partner (same sex or other sex) will get a bundle from the taxpayer whether or not he or she has a pension in their own right.

I don't see how your statement affects this, Ed.

Presumably it relates to state pensions rather than work pensions?