Public Sector Pension Strikes – A JOKE !

Ygor

Stargazer57 wrote: »

I'm not advocating funding public sector pensions - although one benefit of that would be greater financial discipline. I'm advocating charging public sector employees for the quality of the guarantee they are being given. At the moment they aren't just not being charged for the guarantee, they are being given it at a discount by the use of this ridiculous 3.5% discount rate.

The guarantee only has value when comparing with riskier investments to explain the difference in return. The guarantee itself has no value. It can't be claimed on. Unfunded pensions have nowhere else to invest so any comparison to investments it can't invest in are meaningless.

Of course, enabling the government to borrow off the books in this way distorts the market, reducing supply, causing Gilt prices to rise and yields to fall.

As you point out in post #116, the real return on ILGs in 1997 was 4%. So there was a surcharge back then. As the discount rate is intended to be stable, it's not so surprising it's better when the market's low and worse when the market's high. It's exactly what I'd expect.

Stargazer57

Yorkie1 wrote: »

You conveniently forget the fact that for the majority of comparable positions, the public sector pays lower salaries than the private sector. That's where the 'charging' comes in. It's the overall remuneration package.

No. What I'm arguing about is the value to be placed on the pension. Any difference in salaries is a different matter altogether.

Stargazer57

Ygor wrote: »

The guarantee only has value when comparing with riskier investments to explain the difference in return. The guarantee itself has no value. It can't be claimed on.

Tell that to the unfortunate beneficiaries of the Financial Assistance Scheme who spent the best part of a decade stripping off on whichever beach was nearest to the Labour Party Conference before they got any pension at all. I think they can see the value of the guarantee I am talking about. So too can those people whose pensions are determined by market returns. If they want a guarantee, in advance, of what their pension will be they have to accept a lower return.

Ygor wrote: »

Of course, enabling the government to borrow off the books in this way distorts the market, reducing supply, causing Gilt prices to rise and yields to fall.

There's very little economic difference between having unfunded public sector pensions and choosing to fund them by issuing a large volume of gilts and index-linked gilts. In theory such an issuance shouldn't affect the market price of gilts at all.

Ygor wrote: »

As you point out in post #116, the real return on ILGs in 1997 was 4%. So there was a surcharge back then. As the discount rate is intended to be stable, it's not so surprising it's better when the market's low and worse when the market's high. It's exactly what I'd expect.

3.5% may have been a reasonable rate to use before 1997 when rates had been between 3% and 4% for long periods. Following the step change over the next 18 months, and the further decline, the market rate is around 0.5%. Are you seriously claiming that to discount future payments at 3.5% does anything other than massively understate their value?

dshart

Desperate_Housewife wrote: »

The tories are too scared to say they want to get rid of the NHS outright...give them time though and they will erode it away like they tried to do in the 80s and 90s.

And the labour party did wonders for the NHS during their long years in power!!!!

No matter what party was in power now cut would still have to be made somewhere. If the government are not seen to be doing something to control the debt then confidence in their abailaty to pay is eroded and it becomes more and more expensive to borrow. It is similar to the people with bad credit who post on these forums, the banks doubt that they are credit worthy so they lend to them at exorbitant rates. This will go on until no one will lend to them anymore and what do they do then to pay the wages and pensions of public sector workers.

The old Tatcherism record is a bit broken now, labour had enough time in power to change things but they did not.

jamesd

I wrote last week that I'd provide some data on how life expectancy has changed. Here's some, briefly summarised as the period in retirement for a woman aged 65 has increased from 18 years in 1981 to 23 and is expected to increase to almost 28 years by 2055. Look at the cohort line, that's the one that applies for pensions (it's based on living through the changes in care, the period assumes nothing changes throughout life).



Here's the underlying data and a summary, look at the cohort expectation of life, principal projection for the UK. Women aged 60 then men aged 60, for each year could expect to live this many years on average:

1981 22.3 18.0
1985 22.9 19.0
1990 24.1 20.6
1995 35.7 22.5
2000 26.9 23.9
2005 27.8 24.8
2010 28.3 25.6

So for a woman who joined a pension scheme and retired at age 65 in 2010 after working in it for 30 years her deal would have improved by expecting to pay out for an extra 27% years. For a man it's 42% more because some of the life expectancy difference between men and women has been reduced.

Since we live in the real world, that extra 27% and 42% has to be paid for somehow out of the budget for employee payroll for that job. Demanding that taxpayers pay it all just doesn't cut it - nobody but a mug is going to agree to pay 42% more to someone doing the same work when they are already getting the boon of living more years.

So that's part of the big picture between why we've been seeing increases in state pension ages as a result of Labour and now the coalition, why the private sector has mostly eliminated defined benefit pensions and why it's inevitable that the public sector is going to have to adjust to longer living as well.

Those adjustments can take many forms, from getting lower pensions for more years through working longer but getting paid more in pensions and trying to persuade taxpayers to pay more. A combination is most likely.

Note that these are UK projections and don't take into account the life expectancy of different groups of employees. Those working indoors and int he professions have longer life expectancies than those outdoors doing manual labour.

Backbiter

On life expectancy, the last Government valuation of the Teachers Pension Scheme published in 2006 used the following projections (Table 3 of the report, p22):
Male retiring at 60: 28 years
Female retiring at 60: 31 years.
Here's the full valuation:

http://tna.europarchive.org/20070108...ber%202006.pdf

The point is, the last valuation DID take account of rising life expectancy, and concluded "The contributions should be just sufficient to meet the cost of benefits....The Regulations require that a deficiency should be met by a supplementary contribution payable for 15 years. Under a UK wide agreement, the member contribution rate has been set at 6.4% from 1.1.2007 until it is reviewed in light of the next actuarial valuation". The employer contribution will NOT rise to meet any shortfall.

It shows the average teacher's pension as £8800. It will have risen since then, due to inflation and rising earnings in the profession, although, with below inflation rises for the years prior to a the current pay freeze, the rise in earnings will have been negative, in real terms. In other words, wages have declined in real terms.

Based on the vauation, the 2007 changes increased both contributions and the retirement age for new entrants (to 65). Hutton's report found that, on that basis, the total liabilities of the scheme were projected to fall over the next 35 years.

Stargazer57

Backbiter wrote: »

Based on the vauation, the 2007 changes increased both contributions and the retirement age for new entrants (to 65). Hutton's report found that, on that basis, the total liabilities of the scheme were projected to fall over the next 35 years.

You seem to have missed my response (at #464) last time you regurgitated figures from Hutton

And just because costs fall from their present levels it doesn't prove they are affordable. Hutton reminds us that when the Teachers scheme was set up, members' contributions covered half the total cost. I'd say that would be affordable.

Desperate_Housewife_2-2

dshart wrote: »

And the labour party did wonders for the NHS during their long years in power!!!!


The old Tatcherism record is a bit broken now, labour had enough time in power to change things but they did not.

yes, the labour party did indeed do wonders for the NHS while they were in power, and that is partly the reason I went back. I remember when ops were routinely cancelled, no/broken equipment, no staff, in short, chaos. They pumped money in which was desperately required for the benefit of all in this country.

Whether or not the record is broken, it plays a true rendition of what happened in the 80s, the social problems in this country have become so entrenched, that despite trying, Labour could not repair all the damage done. The did try but were accused of spending too much.

zygurat789

Yorkie1 wrote: »

You conveniently forget the fact that for the majority of comparable positions, the public sector pays lower salaries than the private sector. That's where the 'charging' comes in. It's the overall remuneration package.

That's only true at the lower salary levels. Above rthat salaries rise spectacularly to the extent that an early retiree can receive a lot more in pension than a working nurse with dec ades experience.

Yorkie1

zygurat789 wrote: »

That's only true at the lower salary levels. Above rthat salaries rise spectacularly to the extent that an early retiree can receive a lot more in pension than a working nurse with dec ades experience.

I'm sorry but you are wrong. At my level of technical specialism, I would earn x2.5 more in the private sector but I wanted to serve the public rather than go down the private profit route.

The figures at the highest levels (which I am nowhere near, by the way!!) show that external recruits are paid significantly more than internal recruits - the salary requirements / drop in income potential for external recruits being more stringent.