Unacceptable pensions divide?

ReportInvestor

Or a more recent example from the UK.

The 1970s oil crisis and inflation of 15-20%.

It is always relevant to know whether or not your retirement savings are secure.

Economists can't predict interest rates or inflation next year, never mind in twenty or forty years time.

Or a current example from the UK

Having a private sector defined contribution pension - as opposed to a state guaranteed final salary pension - is like having an endowment mortgage.

The state employee knows that they will have their mortgage paid off and the insurer (or the taxpayer) will make up by far the largest part of any shortfall.

The private sector employee is left constantly anxious wondering what bad news the next "red letter" will bring & whether (s)he will have a roof over their heads in retirement.

How this has worked in practice over the last 15 years for someone on a defined contribution pension compared to their expectations on starting the pension?

Annuity rates have halved - so they have to save up twice the amount fo get the pension they planned. Only the stock market crashed 2001-3 which clobbered their pension pot (with all the associated worry) so making the increased target a distant fantasy.

EdInvestor

What percentage of people in the private sector are in money purchase as opposed to final salary pensions?Aren't most people still mainly in the final salary variety?

There is considerable risk in all pensions: whether it's stockmarket risk, regulatory risk, risk that the rules will change to your disadvantage, incompetence risk (the actuaries are really not at all good at making investment decisions, setting annuity rates or predicting longevity),corporate bankrupty risk,political (usually tax, but also public opinion related,as on this thread) risk, disclosure risk ( nobody understands what the pension information means) etc etc.

The biggest risk of all is that that once you put your money in a pension, you can't get it out, even if you can see it's at risk from any one of the above. This loss of control and flexibility applies to all types of pensions: we are all in the same boat really.

ReportInvestor

EdInvestor wrote:

What percentage of people in the private sector are in money purchase as opposed to final salary pensions?Aren't most people still mainly in the final salary variety?

Do pay attention and keep up to date, Ed . The answer was on this thread.
We'll excuse you though, because the turnaround has been so rapid. This is a nothing short of a retirement revolution .

CityWire

".....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.

This is the first year when the numbers of employees in final salary linked schemes have fallen below those in more risky defined contribution schemes..."

## - It is worth noting that staff turnaround in a major bank can average 10% pa - even among those eligible for final salary pensions. So the closure of schemes to new entrants can have a big impact in a very short space of time.

## - Ed is right in one respect, though. Saving outside a pension can have benefits. Buy-to-letters in Germamy 1922-24 would have come through better than anyone else (unfortunately most housing wa then owned by larger landlords).

EdInvestor

first year

Ah so.

Final salary is still well in the majority overall then, when you add in the public sector.

Note that the main problem with money purchase vs final salary pensions is not really the risk factor, but the level of company contribution: usually companies pay as much as three times the money into a final salary scheme.

We would see much less difference in the eventual outcome if the contribution rates were the same, albeit most people would probably prefer the extra money in their pocket now, if they had a choice.

I wonder what category they are putting career average and hybrid schemes into? Some of the better firms are going this route, which has big advantages for both sides, removing risk for both companies and employees and keeping the company contribution at a lower, but still reasonably generous level.

Career average is probably the way to go for the public sector schemes.

Andy_L

novice-saver wrote:

I'm sorry to hear that.

I can't find both the places I had looked, and my mind does play tricks these days... but here's an extract from LGPS

"* If you will be age 60 or over by 31 March 2016 and choose to retire before age 65, then, provided you satisfy the 85-year rule when you start to draw your pension, the benefits you build up to 31 March 2016 will not be reduced."

The 85 year rule applies if age plus contribution years = 85 or more.

My interpretation of that for me at 54 years old and 30 odd worked would mean no reduction, if I was in that scheme.

No, because you wouldn't be aged 60+. You'd meet the rule of 85 but fail the 60+ bit so differant rules apply (IIRC actuarial reduction unless your employer lets you retire early)

ReportInvestor

Unions threaten strike action over LGPS reform

"....the new scheme would initially increase average employee contribution rates from 5.8% of salary to 6.3% and allow them to be raised further still if required.

Unison head of local government Heather Wakefield told PF that unions were also angry that no further concessions had been offered to existing scheme members to protect them from a recent increase in the earliest retirement age from 60 to 65......"

ReportInvestor

It's no surprise that this post by Mortgage & debt free is the most thanked post in the entire thread, in spite of its totally unrealistic "pie in the sky" aspirations .

After all, we'd all like more retirement money for ourselves, our friends, our colleagues and our fellow posters :rolleyes: . We're all generous human beings at heart .

Mortgage_&_debt_free wrote:

I would have thought the most positive approach would be to make private pensions better rather than make public sector pensions worse, so eventually everyone gets dragged down to the same level.

This may be difficult but perhaps more realistic than getting the turkeys (MPs, Public Sector unions, Government, etc) voting for Xmas by taking their own pensions away.

But actually, in the real world the proposed Turner Pension Reform which asks employers to contribute 3% of salary will, in practice and over time, act as a measure that drags down private sector pensions towards this very low minimum level . b]That's 3% [AND NOT EVEN COMPULSORY] v STATE CONTRIBUTIONS for MPs of 24% & for Teachers of 14%[/b

And the other drag down factor is a legal one.

As more recent City employees (on defined contribution schemes) eye up their senior colleagues (on defined benefit schemes) with understandable envy, their lawyers are busily preparing suits on the grounds of age discrimination.

The outcome - in the private sector [and these people are going to win their case] - is likely to be a levelling down rather than the the "levelling up" that gained so much MSE support for M&DF.

After all, these private sector companies have to compete in the cut throat global economy, unlike our public sector departments.

Mortgage_&_debt_free

Erm, I didn't mean to hit such a raw nerve, but take solace in that one poster thanked me twice, so either they're very impressed or maybe just got a trigger-mouse finger.

All I was trying to say is that those in public sector pensions have it good now with no real expectation of it getting worse, if this did happen a la Dexion, etc, they would be in a far worse state than those who have known for many years they have to make extra provision.

You may well be right about private sector pensions being dragged down rather than up, but there is the possibility that companies will start using their pension provision to gain a competitive edge in recruiting/retaining staff, which the public sector is currently doing.

Pie in the sky it may be, today, but wasn't that the same for lots of things in the past that we now take for granted?

Anyway, it was just my view and I don't claim to have any great wisdom, I just wanted to contribute to the debate.

ReportInvestor

Thanks for your contribution.

You didn't hit a raw nerve at all . I just poured cold water on your unrealistic post because it is not on the government's or companies' agenda.

Mortgage_&_debt_free wrote:

Pie in the sky it may be, today, but wasn't that the same for lots of things in the past that we now take for granted?

It would be a mistake to assume that history = progress. Especially in the field of pensions.

Paul_Herring

ReportInvestor wrote:

But actually, in the real world the proposed Turner Pension Reform which asks employers to contribute 3% of salary will, in practice

... reduce the amount employers currently contributing, to lower than what they are at the moment. My employer is currently contributing more than 3%. In fact even the government are contributing more that the '1%'. At the moment.

These 'new' rules would reduce my personal pension contributions, not increase them, and my emails to the 'people concerned' (the MP asking for comments) have, perhaps unsurprisingly, gone unanswered.