Pensions - whats the truth about changes to public sector pensions?

a1mistert

Can anyone clarify what the true changes are that the government are proposing for public sector pension contributions please?
I've tried the LGPS who won't comment as they are just proposals.
Unions have information but there seems yo be an element of scaremongering.
Based on rumours, I have to find a significant additional contribution from April so need to understand my options. Any constructive help ios welcome please.

dunstonh

I have to find a significant additional contribution from April so need to understand my options.

No-one is having to find a significant increase. Many are going to see an increase but you wouldnt class the amount as significant.

http://www.lgps.org.uk/lge/aio/14100703

• No increase in employee contributions for scheme members whose full-time equivalent earnings are less than £15,000.
• A moderate increase of 1.5% from 1 April 2014 for those earning between £15,000 and £21,000.
• An increase of 2% to 2.5% from 1 April 2014 for those earning over £21,000.

Remember that the amount quoted as being paid (i.e. 6% or whatever your band goes to) is the gross contribution. You pay less NI and get tax relief on the contriubtion. So the net cost to you is much less. Focusing on tax relief alone, an 8% pension contribution is actually costing you 6.4%. The 1.6% is tax relief (assuming you are a basic rate taxpayer).


So, if you are earning £20,000 a year then the pension contribution will increase by 1.5% gross (which is an net contribution of 1.2%). That equates to a net contribution increase of £20pm on a £20k salary.

CLAPTON

just to say, NI is based on the gross pay so there is no reduction in NI payable if you increase your pension contributions (unless salary sacrifice applies)
there is of course tax relief

dunstonh

I was really just thinking about the contracted out state. i.e. if someone opts out of the scheme, the amount they pay will change.

atush

The other faqctor is that you will have to work a few years longer before taking your pension. As everyone is living longer. "You will be able to take early retirement is you want to, but your pension will be reduced.

But any years you have in the pension now will not be affected by these changes, the change will be for the years you accrue in the future.

Backbiter

atush wrote: »

But any years you have in the pension now will not be affected by these changes, the change will be for the years you accrue in the future.

So there will be no actuarial reduction of the pension accrued up to 2015 if someone with a current retirement age of 60 decides to go at 60 after 2015?

Poosmate

Thanks for asking this A1mistert. I am one of the lower paid public sector pension contributors and I worry about how much my contributions are going to go up by.

I know the increase may "only" be £10-£20 pcm but when you're on an ever tightening budget that is a lot of money to lose each month.

I have considered coming out of the pension scheme. This is mainly because I am worried about the increase in contributions, I've had 7 years added to my working life within the last few years and still have 23 years to work. There is so much uncertainty in those remaining years, I mean, who's to say that in five years time the pension age isn't going to be put up to 70? I do wonder if I will ever see pension age - working for a living, having to pay for everything with no consessions (except 25% off Council Tax for being a single occupant), the stress of continually living on the breadline certainly takes it's toll.

This assurance policy (my pension) is starting to look more and more like I'll never get receive a payout on it, so is it really worth continuing with the payments? Would I be better off coming out of it and using the extra cash in my pay packet each month to help pay off my debts and mortgage?

These next few years or so feel really scary to me. As the country comes out of recession, the interest rates will go up on the mortgage and they will rise much more rapidly than they went down, certainly more rapidly than any kind of future pay rise. Yes I benefitted eventually when they went down, but i haven't had a payrise for over 2 years and in that time the price of almost everything has gone up so much there is no surplus left. What was once being paid to the mortgage is now being paid on food and fuel. Things are going to get worse and that "only" £10-£20 becomes even more significant.

I wonder what would happen if all of the lower paid people opted out of the pension scheme? Don't forget we outnumber the "Gold Plated" pension takers by 99/1. Many of us LGPS members are in the 99%.

Poo

hugheskevi

So there will be no actuarial reduction of the pension accrued up to 2015 if someone with a current retirement age of 60 decides to go at 60 after 2015?

Correct.

I have considered coming out of the pension scheme.

That would be a bad decision.

I've had 7 years added to my working life within the last few years and still have 23 years to work.

Are you referring to your public service pension or your State Pension here?

It is best to view it not as imposed additional work, but a change to the value of pension benefits. That loss can be made good by a combination of saving more, working longer or accepting a lower standard of living in retirement. If you choose to work longer, the additional work to make good the loss will be significantly less than 7 years.

There is so much uncertainty in those remaining years, I mean, who's to say that in five years time the pension age isn't going to be put up to 70?

No-one, there is always inherent uncertainty in life. You might lose your job, become disabled, win the lottery, and so on. Plan for as many contingencies as possible, maybe taking insurance for those contingencies with which you cannot deal with should they occur.

This assurance policy (my pension) is starting to look more and more like I'll never get receive a payout on it

Why? I haven't seen anything that suggests changes to accrued benefits, aside from the RPI-CPI change.

As the country comes out of recession, the interest rates will go up on the mortgage and they will rise much more rapidly than they went down, certainly more rapidly than any kind of future pay rise.

If you cannot deal with that contingency, consider fixing the rate.

I wonder what would happen if all of the lower paid people opted out of the pension scheme?

LGPS has a take-up rate of about 75%
(source here).

I think it reasonable to suggest most of those not taking the pension are lower paid, and that the take-up rate will fall when contribution increases are implemented alongside pay restraint.

sammyjammy

Remember also that nobody is being forced to work and extra seven years, if you want to retire at 60 or any age between the two then you can, it just means you won't get a full pension, it is your choice which you do.

I really think you need to educate yourself a little about pensions. IT can be a complicated subject but with a defined benefit scheme such as that of public sector its very easy to work it out and there are calculators available to help.

It really would be ridiculous to opt out on the basis of additional contributions.

dunstonh

I know the increase may "only" be £10-£20 pcm but when you're on an ever tightening budget that is a lot of money to lose each month.

It may well be but the [STRIKE]public [/STRIKE] private sector already have to pay many hundreds of pounds more to get the same benefits and typically increase it each year by £10-£30 as by default.

I have considered coming out of the pension scheme

It would probably be the worst financial decision in your life.

I've had 7 years added to my working life within the last few years and still have 23 years to work.

How have you had 7 years added in the last few years? Ignoring the fact that you decide when you retire, if you are looking at changes in state provision in the last few years then the only increase is by 2 years at most but given as you say you are 23 years away then your recent increase is just 1 year.

I mean, who's to say that in five years time the pension age isn't going to be put up to 70?

Given the ever increase and life expectancy then you can expect that to happen. Of course, the alternative is for you to spend 25-30 years in retirement on a pittance.

i haven't had a payrise for over 2 years and in that time the price of almost everything has gone up so much there is no surplus left.

That is worrying considering how much extra disposable income you have had from lower mortgage payments.

I wonder what would happen if all of the lower paid people opted out of the pension scheme?

The lower paid are not getting any increases. However, if they want to be condemn themselves to having a quarter of their life in poverty so they can afford the mobile phones, mcdonalds, sky subscription now then they only have themselves to blame.

Poosmate

Thanks for your reply.

I was talking about the state pension age. I am a female and live alone so for so many years I thought I was going to be able to retire at 60 then that went up to 65 in line with being equal with the guys. Fair enough. But as you say last year it went up another year after being upped by a year the previous year.

I am currently trying to get out of debt and pay off my mortgage (in that order) and my mobile phone is about 6 years old and I spend about £10 per year in credit on it. I don't do fast food either. I actually can't remember the last time I had McD or a KFC or a takeaway. Yes I have a cable tv/broadband package but that is my main entertainment as I rarely go out socialising.

I have to go shopping now so will post back later.

Thanks for you reply.

Poo