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

mcdermott_c

thanks Linton

You are correct everyone must do the maths for themselves and work out what they want/need.

Couple of points - The final salary option is going. The figures you talk about are assuming the government continue to make contributions (which could very well stop) and no further changes are made (which they most certainly will). My point is if these changes go ahead in my opinion public sector pensions will head the same way as private pensions (downhill).

I agree with your statement regarding people generally living longer although this doesn't apply to every family sadly. I also totally agree with you that people do not become decrepit and house bound at 70 ! but still think you don't spend as much as money when you are 70 as say when you are 40.

Work out what you need and plan for it somehow but enjoy life now.


One final aside - a lot of the people I have come across who I would say are financially ok and prepared for retirement, not many of them pay into a pension but have invested well in other areas

thanks

Linton wrote: »

I dont think you have really looked into this. Suggest you put together a speadsheet model. You will find that costs of retiriement provision outside the cosy Final Salary world are staggering. Roughly speaking you need to multiply the annual income you need for what you consider a reasonable standard of living by 30 to get the lump sum you need to retire. And its not 30 times the current income, its the income after say another 30-40 years of inflation.

I believe you will find that if you want to retire early at 60 (or earlier) it will be far cheaper to ensure that you have the teachers pension from whatever age it is paid and to save/invest separately to fill the gap years than to invest to support your full retirement. So you would have more money to play with now, not less.

Look at the life expectancy tables. I know it seems a long way off, but to retire at 55 means that you will be working for significantly less than half your remaining life and retired for more.

Finally people these days do not become decrepit and house bound at 70. Many people now are remarkably healthy into their 80s, by the time you reach that age it could well be later.

Linton

mcdermott_c wrote: »

.....
all i was trying to do was offer an alternative and possibly more rounded view of how to look at the changes. Money is not the be all and end all ! and pensions are certainly not the only option !

I wasn't suggesting pulling out of the scheme on the basis on what might happen 20 years down the line as you suggest. I was looking at the radical changes taking place now and suggesting that this could possibly be just the start - it isn't inconceivable that they could end up as bad as private sector pensions ! or that the government could stop contributing to them altogether ! Once these changes come in anything could (and will) happen but one thing is certain they will only get worse not better !

I am suggesting looking at what you may want in retirement and planning for it. Keeping things simple and just working off today's prices for simplicity, lets say you wanted 20000 a year for the period 60yr to 70yr
if you invested in property, rented it out to cover mortgage, and by 60 you sold the property for 200000 that would give you your 20000 a year for ten years. Now if I took my £400 a month and just stuffed it under bed. £400 a mth for 30 years = £144000 (obviously you would be looking to invest it to increase the return) that would still give me £14400 between 70yr - 80yr

During this time I could use the 2nd property for holidays with family and have enjoyment out of it and still retire at 60 !

My point - pensions are not the only option and money isn't the be all and end all - enjoy life too !

1) Money isnt the be all and end all - until you dont have any and you are struggling on state handouts.

2) pensions are not the only option. Final Salary ones tend to be the cheapest for the prospective pensioner.

3) It is very unlikely IMHO that the government will remove accrued benefits. They may change things for the future, but if that is going to happen it makes even more sense to get the current offerings whilst they are available.

4) You cannot ignore inflation - over a working lifetime it changes everything. Try the calculation.

5) Why stop at 80? On current statistics you are likely to live til 90 and there is a 20% chance you will live to 100.

6) You should certainly look at want you want for retirement and plan for it - if you dont it wont happen. It seems you havent yet done this.

dunstonh

Care to elaborate how given you do not know everyone's circumstances and personal outlook on life ?

It is the general view that you should be in an occupational final salary scheme 99 times out of 100. I have actually recently, for the first time in nearly 20 years, told someone to leave the teachers pension scheme. It felt very strange but justifiable but even then it was a close run thing.

So, why do you think you are in the 1 in 100 that shouldnt be in such an excellent scheme?

mcdermott_c

1. No comment

2. The final salary is going

3. Agree anything accrued so far will be safe but if you don't have many years to date you don't have much safe

4. Agree you can't and I wouldnt

5. Not sure I agree as most people I k ow who passed away recently didn't get near 90 !

6. That's exactly what I've been saying if you read my posts and yes I am at present looking into it

Linton wrote: »

1) Money isnt the be all and end all - until you dont have any and you are struggling on state handouts.

2) pensions are not the only option. Final Salary ones tend to be the cheapest for the prospective pensioner.

3) It is very unlikely IMHO that the government will remove accrued benefits. They may change things for the future, but if that is going to happen it makes even more sense to get the current offerings whilst they are available.

4) You cannot ignore inflation - over a working lifetime it changes everything. Try the calculation.

5) Why stop at 80? On current statistics you are likely to live til 90 and there is a 20% chance you will live to 100.

6) You should certainly look at want you want for retirement and plan for it - if you dont it wont happen. It seems you havent yet done this.

mcdermott_c

The final salary scheme is going so I won't be in one if the changes come in.

If you have only been in the scheme for a few years do not have many years built up, have to pay 50% more in work 8 years longer and get 40% less out it might be worth looking at other options is all I'm saying.

The question is in 30, 35, 40 years time are the government going to be able to afford to keep paying money in for PS workers, are employees going to still be paying in contributions for me ? And will it be a final salary scheme with lump sums etc - I seriously doubt it. The government themselves hve said the pensions are unsustainable, the private sector will also not be happy for the government to keep making contributions for PS workers when private sector pensions are doing so badly.

Bottom line PS pensions will not be anywhere near as good as they are today in 35 years time so if someone still has 30+ years to go making a change now may (and I say may) possibly be a good idea

Cheers

dunstonh wrote: »

It is the general exception that you should be in an occupational final salary scheme 99 times out of 100. I have actually recently, for the first time in nearly 20 years, told someone to leave the teachers pension scheme. It felt very strange but justifiable but even then it was a close run thing.

So, why do you think you are in the 1 in 100 that shouldnt be in such an excellent scheme?

Meeper

So, what's your alternative. Even though it's going to a career-average salary scheme instead of final salary, it's still a defined-benefit scheme which has significant guarantees. Your alternative is to invest your money in a range of investments in order to (hopefully) get a better return over the long-term which will outweigh those guarantees. The nature of a defined benefits scheme means that there are specific guarantees. A defined contribution scheme can have fluctuating performance and no guarantees. So, it's not a simple matter of the numbers.

Let's say you wanted to get a personal pension instead, and pay into that. In order to obtain the same level of guarantees that a DB scheme would give, you might need an investment return of, for example, 9.8% per annum for 35 years, adjusted for inflation and net of charges. That's a pretty tall order.

mcdermott_c

Hi meeper

I am not in a position to offer anyone financial advice as I am not trained in that field I was merely offering an opinion about PS pensions.

I did give an example of property as an alternative to a pension which I may consider but this will not be best for everyone.

My point is work out what you want in retirement and plan for it don't just assume a pension is the best option. I will however admit if no changes were being made to PS pensions then yes for sure I would be staying in the scheme, that's why I joined it in the first place. I do however feel these changes are the start of a major change in the pensions.

I would also be looking into investing in myself (sounds a bit weird lol) what I mean is I am a trained and qualified teacher who loves his job but even so I cannot see myself doing This job until I'm 69-70
I am however already teaching myself new skills e.g new language and instrument. What this will give me is the possibility of retiring from full time employment at 60 but suplimenting my income in retirement with private tuition - where I could get £30 an hour and by quick calculation I could work about 5 hours a week and stay just under tax free freehold. My wife will do the same so when we retire we could earn upto £15000 a year tax free for about 10 hours a week work between us. Some people play sudoku in older age to keep the brain going lol I would use my skills and earn a bit of pocket money.

Anyway likei say these suggestions may work for me but not everyone so I wish the OP all the best and I'm sure thee helpful comments people have given on here will help him decide

All the best







QUOTE=Meeper;51054067]So, what's your alternative. Even though it's going to a career-average salary scheme instead of final salary, it's still a defined-benefit scheme which has significant guarantees. Your alternative is to invest your money in a range of investments in order to (hopefully) get a better return over the long-term which will outweigh those guarantees. The nature of a defined benefits scheme means that there are specific guarantees. A defined contribution scheme can have fluctuating performance and no guarantees. So, it's not a simple matter of the numbers.

Let's say you wanted to get a personal pension instead, and pay into that. In order to obtain the same level of guarantees that a DB scheme would give, you might need an investment return of, for example, 9.8% per annum for 35 years, adjusted for inflation and net of charges. That's a pretty tall order.[/QUOTE]

atush

I appreciate you taking the time to reply and yes some of your comments were a tad offensive (like a child taking his football home - not really needed lol).

all i was trying to do was offer an alternative and possibly more rounded view of how to look at the changes. Money is not the be all and end all ! and pensions are certainly not the only option !

I am sorry my tone offended you, but it was based on your tone in the OP which sound s a bit stamping your feet childish.

You still are get all of a bother abt the difference between FS and Average salary. AS can actually be beneficial to those who will not reach giddy hieghts of their sector such as lower paid workers. It is those who earn a middle amt and spoend the last few years at the very top running depsts etc that 'cream' the top off as the old FS system benefitted them most. Changing to AS took those high flyers out of the equation as they wont retire on the basis of their last few years when they might be on say, 100K. Unless you expect to make a headmaster or deputy head, the change should not affect you very much in the scheme of things.

Second, you say you understand that accrued rights are 'safe' but were talking of leaving the scheme which makes no sense. Every single year you accrue will be a huge factor in your retirement income, as it is far better than what is out there for you if you leave. So stay in and earn years. By leaving and 'seeing a finacial advisor' you will in fact be going to a private sector pension, which will only be worth a fraction of your PS one.

You did present an alternative view, but it is not informed nor rounded I am afraid. As your AS PS scheme is still better than anything you can possibley arrange yourself.

Hopefully you will read thru the actual benefits of your scheme and not be tempted to leave it.

mcdermott_c

hi atush

dont worry you didnt offend me, you had said you hoped you didnt offend and i was justing saying the comment was a bit offence but no worries. Oh and by the way I am not the OP I just commented on the topic lol

There is a government calculator which can be used to look at the impact of changes and the changes do make a significant difference for the worst for me !

"By leaving and 'seeing a finacial advisor' you will in fact be going to a private sector pension"

if i came out of the PS pension i certainly would not be investing in private pension ! i would look at other investment options

"
You did present an alternative view, but it is not informed nor rounded I am afraid. As your AS PS scheme is still better than anything you can possibley arrange yourself.
"

In your opinion ! if my suggstions come to fruition then i would have exactly what I personally wanted and would be retiring at 60 ! staying in the PS pension would be uncertain and would most importantly have me working till 68 which is major factor for me ! if family life expentancy history says you might not make it too much past early 70s i'd rather retire at 60 on less money than have more money for 2 or 3 years.

Which takes me back to my whole point - work out what you want and plan for it - what works for one person doesnt work for another and nobody knows someone elses personal circumstances.

PS pensions I believe will get progressively worse so changing focus now may be better option.

To the original poster - good luck and hope you work out what is right for you ! all the best

To the rest thanks for the interesting debate and wish you all well too !

atush wrote: »

I am sorry my tone offended you, but it was based on your tone in the OP which sound s a bit stamping your feet childish.

You still are get all of a bother abt the difference between FS and Average salary. AS can actually be beneficial to those who will not reach giddy hieghts of their sector such as lower paid workers. It is those who earn a middle amt and spoend the last few years at the very top running depsts etc that 'cream' the top off as the old FS system benefitted them most. Changing to AS took those high flyers out of the equation as they wont retire on the basis of their last few years when they might be on say, 100K. Unless you expect to make a headmaster or deputy head, the change should not affect you very much in the scheme of things.

Second, you say you understand that accrued rights are 'safe' but were talking of leaving the scheme which makes no sense. Every single year you accrue will be a huge factor in your retirement income, as it is far better than what is out there for you if you leave. So stay in and earn years. By leaving and 'seeing a finacial advisor' you will in fact be going to a private sector pension, which will only be worth a fraction of your PS one.

You did present an alternative view, but it is not informed nor rounded I am afraid. As your AS PS scheme is still better than anything you can possibley arrange yourself.

Hopefully you will read thru the actual benefits of your scheme and not be tempted to leave it.

atush

You do not have to work til 68 if you are in a PS pension.

You can retire early if you like, but you pension is reduced accordingly (as you will have it paid longer so it is an actuarial reduction).

So, coming out of a PS scheme just because you don't want to wrk til 68 is still an unsound idea.

There is nothing to stop you investing OUTside your PS pension so you can retire earlier and is what many do. But you should run your PS pension alongside of whatever else you do.