Public Sector Pensions - Are they really so bad?

Cleaver

flimsier wrote: »

I joined the profession promised a lifetime 1/80th final salary pension. Why is it ok to change my T&C of employment 13 years in?

Because, bluntly, life changes. Circumstances change and the public sector should adapt to those changes.

In the 'olden days' my understanding is that the public sector had a generous pension because their wages were significantly lower than the private sector and the whole scheme was affordable because the public sector was significantly smaller than the private sector. Fast forward to now and public sector salaries are pretty much in line with the private sector (if not a bit more) and we have a very sizable percentage of the population working in the public sector. Something has to give.

A private sector employee could find that their company goes bust and they lose their job. This wasn't in their terms and conditions of service either, but they have to cope with it. Same with you and your pension I guess.

I should point out that I'm a public sector worker with a public sector pension. But I have no idea why I get such a generous allowance for my pension when my pay seems pretty much in line with what I earned in the private sector in a very similar job.

Loopgames

Final salary schemes are very expensive. The public sector is one of the few 'places' to get them.

I used to be on a final salary scheme in the private sector and I only put in £1800 worth of contribution over 3 years to get a fund value of £11,000.

The liability of these pensions are enourmous..this is why most private sector corporations have changed to defined contributions schemes (as opposed to defined benefit).

Defined contribution scheme takes the risk away from the pension provider onto the individual. And it will depend on the markets at the time of withdrawing your benefit (or within 10 years of retiring depending on how your funds are managed within that timescale before you decide to retire).

grizzly1911

Loopgames wrote: »

I used to be on a final salary scheme in the private sector and I only put in £1800 worth of contribution over 3 years to get a fund value of £11,000.

Just 1800 or 1800 a year?

That is incredible if it were the former even allowing for the employer contribution. Who was it with if I may be so nosy.:question:

Don't know how old you are but I do hope it doesn't wither away , now it is deferred, as so many have done.

cootambear

You have to admire how the government has made low paid workers and the vulnerable in need of social care and benefits the scapegoat for the banking crisis.

The richest 1,000 people in the UK saw their wealth increase by 18% last year, however they are tightening their belts like the rest of us, as they expected a greater inflation of their wealth.

That new super yacht may have to wait a bit.

WhiteHorse

flimsier wrote: »

However, I went into teaching partly because of the secure pension. It's a job for life.

A case in point, perhaps.

grizzly1911

Loopgames wrote: »

Defined contribution scheme takes the risk away from the pension provider onto the individual. And it will depend on the markets at the time of withdrawing your benefit (or within 10 years of retiring depending on how your funds are managed within that timescale before you decide to retire).

Just hope we don't have to retire in a mirror of the last 4 then:eek:
Whilst there will some winners under DC I predict that the outcome will be poorer for the average Joe.

The bulk of my own is under DB, the element I have added, under a spread of funds under AVCs, has performed poorly over 15 years. In the end I gave up and have concentrated on my own initiative producing a better result so far.

The fund managers are still doing nicely though;)

the_flying_pig

jamesd wrote: »

...That makes you one of the big winners of the final salary related pension system, someone who gets a pension related on relatively high ending salary. It's unclear whether a system that provides such distorted rewards to a relatively small percentage of the workforce is a good pension system design if the idea is to incentivise all workers. Good for you, though.

did you read his post? the "13 years" bit implies deputy headship in his early 30s, i.e. nearly all the way up the career ladder less than a third of the way through his working life, i.e. very far from one of the very rare cases of a 58 year old civil service lifer being given a nice little final promotion for a year or so so just to top up his pension fund [I believe this did used to happen sometimes back in the day, especially at very senior levels {and hence affecting very few posts & not being v relevant to the affordability debate} but it does not now on any kind of scale AFAIK].

Loopgames

grizzly1911 wrote: »

Just 1800 or 1800 a year?

That is incredible if it were the former even allowing for the employer contribution. Who was it with if I may be so nosy.:question:

Don't know how old you are but I do hope it doesn't wither away , now it is deferred, as so many have done.

It was £1800 in total.

The two figures are at different dates though!!! So your question is valid.

To clarify:

£1800 over 3 years to Dec 2002

Value of £11,000 as at July 2010 (last summer) - about 8 years later.

I am now managing it under a SIPP since last september 2010.

And the DB was with one of the global actuarial consulting firms.

Loopgames

grizzly1911 wrote: »

Just hope we don't have to retire in a mirror of the last 4 then:eek:
Whilst there will some winners under DC I predict that the outcome will be poorer for the average Joe.

The bulk of my own is under DB, the element I have added, under a spread of funds under AVCs, has performed poorly over 15 years. In the end I gave up and have concentrated on my own initiative producing a better result so far.

The fund managers are still doing nicely though;)

Before I go nosying around all of your investment posts - how did you start your research on which investment was best suited for you? And where to you source info from.

I'm just starting this route.

jamesd

ViolaLass wrote: »

With a starting salary of £21k, employee contributions of 6.4% and employer contributions of 14.1%, I end up with about £17200 a year (I'm 27, assuming retirement at 68)... Am I missing anything other than the possibility that a teacher working that long might reach a higher salary?

Maybe. In a private sector situation the maximum employer match is likely to be up to 4% or 6% of salary, with few going higher than that. So a good private sector case would be 6.4% from you plus 6% from the employer, paid via salary sacrifice to save a bit of NI.

the_flying_pig wrote: »

did you read his post? the "13 years" bit implies deputy headship in his early 30s, i.e. nearly all the way up the career ladder less than a third of the way through his working life, i.e. very far from one of the very rare cases of a 58 year old civil service lifer being given a nice little final promotion for a year or so so just to top up his pension fund

You're right that those who do it near the end are the biggest gainers but those who reach the higher levels at any point are the big winners in final salary systems, taking a relatively high share of the total benefit pool.

If I was designing a system from the start I'd look to find one that kept more of the benefit for the more normal part of the salary range and also made it easy to move between public and private sector and back. That'd look really distasteful to public sector workers though, because the private sector has largely migrated to defined contribution systems and that's what the public sector would also have to use.