Public Sector Strike(s)

jem16

bigheadxx wrote: »

But they haven't paid for that entitlement

By joining and contributing to their pension scheme, they have paid for that entitlement just the same as joining any pension scheme.

I can guarantee that if the state felt they could save money by not having public sector pensions contracted out they would have done so long ago.

thescouselander

bigheadxx wrote: »

But they haven't paid for that entitlement as they pay less NI contributions on the basis that the state does not fund their S2P (or its equivalent). Does the state fund the S2P equivalent of private sector defined benefit pension schemes? No. That liability has been transferred to the pension scheme. It DOES fund public sector pensions and the S2P equivalent, which is generally paid from age 60. On that basis you will have paid less, you will get it earlier and you will get more.

Actually they don't need to pay because the pension is part of their remuneration package. That is, in exchange for work, employees recieve a salary and accrued pension rights. Presumably if public sector workers weren't contracted out they would recieve their pension AND s2p.

bigheadxx

thescouselander wrote: »

Actually they don't need to pay because the pension is part of their remuneration package. That is, in exchange for work, employees recieve a salary and accrued pension rights. Presumably if public sector workers weren't contracted out they would recieve their pension AND s2p.

http://www.guardian.co.uk/money/blog/2011/apr/09/state-pension-reform-nasty-truth

In 1988, Margaret Thatcher allowed workers to contract out, diverting some of their NI into a personal pension, but, in return, getting a lower level of Serps. Public sector workers also paid less NI, as if they were contracted out, but, peculiarly, they did not, in return, receive a lower entitlement to Serps/S2P. So when contracting out is abolished, public sector workers must be in line to lose their NI discount – currently 1.4%.

They already do.

Also see page 6 of this: http://www.nhsbsa.nhs.uk/Documents/Pensions/sdguide.pdf

The NHS Pension Scheme which proudly boasts that after tax relief and NI reductions the true cost to the employee is around 3.4% of salary and the true benefit is 20%.

jem16

bigheadxx wrote: »

http://www.guardian.co.uk/money/blog/2011/apr/09/state-pension-reform-nasty-truth

In 1988, Margaret Thatcher allowed workers to contract out, diverting some of their NI into a personal pension, but, in return, getting a lower level of Serps. Public sector workers also paid less NI, as if they were contracted out, but, peculiarly, they did not, in return, receive a lower entitlement to Serps/S2P. So when contracting out is abolished, public sector workers must be in line to lose their NI discount – currently 1.4%.

Contracting out means that you receive no SERPS/S2P and not that you receive a lower amount. Public sector workers will receive no SERPS/S2P so that article is quoting a load of rubbish.

If contracting out ends for defined benefit pensions, then those pensioners will be entitled to S2P which they never were before. If the flat rate pension comes in they will be entitled to all of it as opposed to losing some of it which has been rumoured.

The NHS Pension Scheme which proudly boasts that after tax relief and NI reductions the true cost to the employee is around 3.4% of salary and the true benefit is 20%.

And why shouldn't it? Any scheme with a defined benefit pension scheme would be doing exactly the same thing. It's what attracts people to a job as it's part of the overall package.

bigheadxx

jem16 wrote: »

Contracting out means that you receive no SERPS/S2P and not that you receive a lower amount. Public sector workers will receive no SERPS/S2P so that article is quoting a load of rubbish.

If contracting out ends for defined benefit pensions, then those pensioners will be entitled to S2P which they never were before. If the flat rate pension comes in they will be entitled to all of it as opposed to losing some of it which has been rumoured.



And why shouldn't it? Any scheme with a defined benefit pension scheme would be doing exactly the same thing. It's what attracts people to a job as it's part of the overall package.

You receive an equivalent to S2P via your pension. As I have already explained the difference between a public sector defined benefit scheme and a defined benefit private sector scheme is that with the private scheme the liability to pay this "S2P equivalent" is transferred to a pension company but in the public sector the liability rests with the state.

The flat rate pension will deduct a set amount for each year contracted out so anybody retiring immediately after it is introduced will lose the full 30 years multiplied by this amount. I cannot see this being any different otherwise it will penalise those who have not contracted out and paid full NI contributions.

It was a bit much to swallow knowing that public sector workers would receive gold plated pensions that they were only paying 6% of salary for. Now it transpires (and back up by the Welcome to NHS Pension) that with tax relief and reduced NI this is more like 3.5%.

If you earn £20,000 a year you are effectively being asked to pay just £945 per annum, for 40 years giving you a pension of £10,000 each year. Add on the basic state pension (flat rate of £140 pw take away £40pw due to contracting out)X 52=£5200

Your pension entitlement is: £15,200 per annum.

Now lets look at the private sector:

£945 per annum paid into a private pension would buy you an income of around £2000 per annum. Add on the full flat rate state pension of £140X52 gives you £9280. Your income is around 2/3 that of a public sector retiree, plus this is based on a projection retiring at 60 whereas you would not receive the state pension until 65. Its important to include state pension income in pension projections because public sector workers effectively receive a proportion of their state pension at age 60 (ie the S2P equivalent from contracting out)

Conclusion

Public sector workers effectively receive a portion of their "state" pension at the age of 60 (S2P equivalent from contracting out)

Working in the public sector would see you retiring on double the equivalent private sector worker

It is important to look at the difference tax relief and reduced NI payments make to the real contribution level of the employee

jem16

bigheadxx wrote: »

You receive an equivalent to S2P via your pension.

As we are all very well aware. It is still not S2P.

As I have already explained the difference between a public sector defined benefit scheme and a defined benefit private sector scheme is that with the private scheme the liability to pay this "S2P equivalent" is transferred to a pension company but in the public sector the liability rests with the state.

Public sector pensions are still run by a pension agency, just as private sector pensions. They could all have been self funded just like the LGPS but the government would rather use the contributions now by "borrowing" off the pension agencies.

The flat rate pension will deduct a set amount for each year contracted out so anybody retiring immediately after it is introduced will lose the full 30 years multiplied by this amount. I cannot see this being any different otherwise it will penalise those who have not contracted out and paid full NI contributions.

Evidence of this?

It could well be the opposite with those who paid S2P getting more.

It was a bit much to swallow knowing that public sector workers would receive gold plated pensions that they were only paying 6% of salary for. Now it transpires (and back up by the Welcome to NHS Pension) that with tax relief and reduced NI this is more like 3.5%.

Oh dear the wee green eyed monster has appeared again.

You are very welcome to get a job in the public sector if you wish.

Conclusion

Public sector workers effectively receive a portion of their "state" pension at the age of 60 (S2P equivalent from contracting out)

Private sector workers can obtain their S2P at age 55 if in a DC scheme or age 60 if in a DB scheme.

Working in the public sector would see you retiring on double the equivalent private sector worker

Your Maths is a long way out. £9280 x 2 is £18,560 not £15,200.

Of course your figures assume no employer contribution which is not always the case. There are still many private sector workers whose employers at least match their contributions and some who double them. Even the proposed NEST scheme will have employer contributions.

Plus your figures of £945 net would see an actual gross pension contribution of £1181.25 which would see a pension of £2715 and not £2000, so a total of £9915. Of course this is only assuming growth is 3%pa which I think is a little conservative. 5% would probably be a better estimate which would see a pension of £4396 plus state pension plus S2P giving a total of £11676.

Do try to give realistic figures please.

It is important to look at the difference tax relief and reduced NI payments make to the real contribution level of the employee

All employees receive tax relief on pension contributions. The only difference is NI contributions.

bigheadxx

jem16 wrote: »

Plus your figures of £945 net would see an actual gross pension contribution of £1181.25 which would see a pension of £2715 and not £2000, so a total of £9915. Of course this is only assuming growth is 3%pa which I think is a little conservative. 5% would probably be a better estimate which would see a pension of £4396 plus state pension plus S2P giving a total of £11676.

Do try to give realistic figures please.



All employees receive tax relief on pension contributions. The only difference is NI contributions.

Presumes growth of 5% over 40 years.

Public Sector:

£51914.40 Total NI over 40 years assuming £20,000 salary

Private Sector:

£61305.60 Total NI over 40 years assuming £20,000 salary

Annual pension contributions @ 6% equate to £960 in each scheme as both receive tax relief

Pension contributions for each: £38,400

Total contributions by public sector worker: £90314.40

Total contributions by private sector worker: £99705.60

Total pension including state pension received by public sector worker: £15200 (assuming state pension is £140 p/w but reduced by £40 p/w due to contracting out)

Total pension including state pension received by private sector worker: £11796 (assuming state pension is £140 p/w and full amount received)

Lump sum received by public sector worker: £30,000

Lump sum received by private sector worker: £26000

Divide this by 20 years gives a difference of £200 per annum

We also need to adjust the figure to reflect that the public sector worker has paid about £10,000 less in NI contributions over 40 years. Invested on the same basis as above in a pension scheme over 40 years this would provide a further £1500 p/a of income (including lump sum spread over 20 years)

£11796-£1500=£10296



£10296 for private sector worker

£15200 for public sector worker

There is a 50% difference and crucially for the private sector worker, he takes the risk with his investment and has to presume that his investment will grow by 5% per annum and that annuity rates will not change.

It also presumes that contracting out will be taken into account otherwise there would be a further £2000 difference.


EXTRA NOTE:

The private pension payable (and lump sum) is not adjusted to todays prices whereas all other figures are based on money today (salary, contributions, state pension S2P) Based on the forecast this would reduce the value of the private pension in todays money by around £1200 per annum. This reduces total private sector pension in todays money to around £8800 (maximum) compared to a public sector worker with £15200 which would be almost 75% more for the same level of contribution by the employee. Obviously there is more risk to the private sector worker in terms of how the fund performs.

jem16

bigheadxx wrote: »

We also need to adjust the figure to reflect that the public sector worker has paid about £10,000 less in NI contributions over 40 years. Invested on the same basis as above in a pension scheme over 40 years this would provide a further £1500 p/a of income (including lump sum spread over 20 years)

£11796-£1500=£10296

The public sector worker has no choice in whether or not to contract out so you can't have it both ways. If the private sector also wants to save NI contributions and also contract out then they lose the extra S2P of £2080 and accept the £1500 that you say it would provide. If they prefer to stay contracted in then they accept they have to pay the extra NI and instead get the S2P.

You can't have both I'm afraid.

EDIT : Just found out that the above would only apply to COMPS schemes and that those who decide to contract out of personal/stakeholder pensions would not pay a lower rate of NI but would have the rebates paid into the pension scheme itself.

Personal & Stakeholder Pension Schemes

Under a personal pension plan or stakeholder pension scheme, the decision whether to contract out or not rests with the individual. If an individual elects to contract out, they continue to pay National Insurance Contributions at the full rate but the government will make a contribution to their pension plan. The contribution consists of a rebate of part of both the employer's and employee's National Insurance Contributions that has been paid, plus income tax relief on the individual's share of the rebate.

This contribution is invested separately from any additional contribution the individual may make and the refund subsequently built up is described as Protected Rights. There is no guarantee that the pension eventually purchased by the Protected Rights fund will be greater than the state additional pension given up as a result of being contracted out. You will be allowed to take 25% of your Protected Rights fund as a cash sum, which will be tax free.

It would normally be expected that those contracted out from age 16 to age 44 approximately would be better off but obviously not guaranteed. There is the additional benefit of being able to take this from age 55 and being able to take 25% tax-free.

This reduces total private sector pension in todays money to around £8800 (maximum) compared to a public sector worker with £15200 which would be almost 75% more for the same level of contribution by the employee.

To be complete you had best include tax. The private sector worker would pay no tax but the public sector worker would have to pay tax of £1052pa which would reduce the income to £14,148. So 60% more.

So now that you have thought about what a wonderful deal public sector workers are getting, which public service will you be joining?

Backbiter

jem16 wrote: »

So now that you have thought about what a wonderful deal public sector workers are getting, which public service will you be joining?

How about teaching? If you are on average salary of £27000, you could make a career switch that could see you earn a lot more. You would need to get a degree, which would take 3 years. So that would cost you £81000 in lost income. Plus, you'd have tuition fees of £9000 a year, which comes to £108000. Obviously, you'd need to live somewhere - say another £80 a week for a student room, which would be another £4000 a year in rent, or £12000 total. Plus food, books, clothing, the odd trip to the pub or cinema, phone bills, maybe some presents for people, transport costs, which would be another £10000 or so at the very least. So that bit would cost you £130000.
You'll then have to get a teaching qualification, which will take another year. So that's another £27000 in lost salary, plus another £7500 to cover rent, food, transport etc. Which takes the total to £164500, before your first salary.
You'll start on £22000, so you'll be down another £5000 after the first year, which brings the total cost of the career switch to £169500. You'll be below average earnings for the next three years, but will only be about £6000 down, as you'll rise up the pay scales, towards the top at £32000 after 6 years, so you'll then start to reduce the £175000 that you'll have lost.

EDITED FOR OMISSIONS: You'll have to add in a further £9000 for the tuition fees for the post-graduate teaching qualification. Which means you'll be £184000 down. In addition, during those 4 years, you won't be contributing to a pension. According to this article http://news.bbc.co.uk/1/hi/business/8611072.stm, average employer contributions vary between 6.1% and 16.6%. Let's assume they are 7%, that's another £7000 you'll be down in lost pension contributions, which takes the cost to £191000. With growth, that 7k in lost pension would be worth a lot more over 40 years, so the true cost of a career switch from private to public sector teaching would be around £200000. It's hard to understand why there isn't a stampede.

bigheadxx

jem16 wrote: »

EDIT : Just found out that the above would only apply to COMPS schemes and that those who decide to contract out of personal/stakeholder pensions would not pay a lower rate of NI but would have the rebates paid into the pension scheme itself.

Thats what contracting out means!! You accrue S2P alternative in a private pension. The liability is transferred to a pension company. The worked example presumes that you DO NOT contract out.



It would normally be expected that those contracted out from age 16 to age 44 approximately would be better off but obviously not guaranteed. There is the additional benefit of being able to take this from age 55 and being able to take 25% tax-free.


If they take it at 55 they are unlikely to be better off. The money is used to buy an annuity, it is not guaranteed by the state.

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