benefits and public sector pay

chucknorris

howee wrote: »

errm I am not female thanks.

Although my attempts at staying out of bother on a rugby pitch were often called girly lol.

H

I didn't think that you were (but you never know), but mulronie must be confused, he/she was referring to you as she.

mulronie

chucknorris wrote:

I don't think that you could teach me anything about the value of the public sector pensions, my wife is an actuary and I can work it out without her help. I know what value it is, why do you think I am paying for additional contributions at the rate of over £25,500 per year.

mulronie wrote:

You don't want her help... she'd spot the survivor benefits straight away!

chucknorris wrote: »

what point are you trying to make?

I was making a light-hearted comment that if your actuary-wife got too familiar with the survivor benefit terms of your pension, she might get ideas.

Jeez! You might want to relax if you want to avoid a massive stroke finishing you off before you reach the promised land of pensionable age.

chucknorris

mulronie wrote: »

I was making a light-hearted comment that if your actuary-wife got too familiar with the survivor benefit terms of your pension, she might get ideas.

Jeez! You might want to relax if you want to avoid a massive stroke finishing you off before you reach the promised land of pensionable age.

I'm perfectly relaxed thanks, sounds like you aren't though. She couldn't do that because I didn't elect to pay for survivor rights.

sammyjammy

howee wrote: »

Its not a race to the bottom its what can be afforded. What really makes me mad is you guys (teachers), are intelligent folk, don't tell me you think the old scheme was workable

You are kidding? Most teachers don't have a clue about how pensions work just like the majority of workers elsewhere.

grizzly1911

sammyjammy wrote: »

You are kidding? Most teachers don't have a clue about how pensions work just like the majority of workers elsewhere.

IME teachers finances. aren't the highest priority for a good few.

ILW

grizzly1911 wrote: »

IME teachers finances. aren't the highest priority for a good few.

Have you met many teachers? Rather unimpressive.

Perelandra

chucknorris wrote: »

I don't think that you could teach me anything about the value of the public sector pensions, my wife is an actuary and I can work it out without her help. I know what value it is, why do you think I am paying for additional contributions at the rate of over £25,500 per year.

This post isn't meant to be an attack- I'm genuinely interested.

In your calculations, have you looked in to the comprable amount that gets put in by your employer for the pension with/without the additional contributions? If so, would you be willing to share?

I was trying to think the other day about the implications of timing into final/average salary schemes. If my understanding is correct, a year's worth of contributions buys you the same benefits at the start of your career as a year's worth of contributions at the end (1/60th or 1/80th). For someone on a relatively stable (in real terms) salary over their working life, the cost to them of contributing would be the same.

However, for people on defined contribution schemes in a similar situation (stable lifetime earnings), the impact on your final pension is MUCH greater for the contributions made in your early career, rather than those towards the end, due to compounding of the pension pot.

After a bit of number crunching, I concluded that I would prefer to be in a defined contribution scheme early in my career, and a final salary scheme for the last x years.... in other words, in some situations the "private sector" model is more valuable than the "public sector" one, in our current situation.

What am I missing?

chucknorris

Perelandra wrote: »

This post isn't meant to be an attack- I'm genuinely interested.

In your calculations, have you looked in to the comprable amount that gets put in by your employer for the pension with/without the additional contributions? If so, would you be willing to share?

I was trying to think the other day about the implications of timing into final/average salary schemes. If my understanding is correct, a year's worth of contributions buys you the same benefits at the start of your career as a year's worth of contributions at the end (1/60th or 1/80th). For someone on a relatively stable (in real terms) salary over their working life, the cost to them of contributing would be the same.

However, for people on defined contribution schemes in a similar situation (stable lifetime earnings), the impact on your final pension is MUCH greater for the contributions made in your early career, rather than those towards the end, due to compounding of the pension pot.

After a bit of number crunching, I concluded that I would prefer to be in a defined contribution scheme early in my career, and a final salary scheme for the last x years.... in other words, in some situations the "private sector" model is more valuable than the "public sector" one, in our current situation.

What am I missing?

Ask me anything I don't mind.

No the 25.5k is purely my additional contributions. I don't actually live off my salary so I can easily afford it, and it also keeps me under the 100k 60% tax band.

One good thing is that the accrual rate is now 1/57th (the one good change they made). Yes you are right and that is the reason that the average/final salary change doesn't affect me because I came out of industry (after early retirement) straight into a senior lecturer role. I'm not sure about the private sector defined benefits being better at the early stage though, because it doesn't concern me I didn't look at it. But the public sector pension is so generous that it is hard to imagine the private sector beating it for value, so I very much doubt it. What you should be looking at is how large your pension pot in teh private sector has to be to buy an annuity that matches the defined benefit pension.

Perelandra

Here's the number crunching I did... I found this fascinating, as the scheme doesn't look as generous as I'd (as a private sector worker) assumed- for career public sector people. If I've gone wrong anywhere, please let me know!

Figures based on the scheme that's open to new entrants within teaching.

For a teacher earning £30k/year (steady state, for simplicity), on a 1/60th scheme, your final pension over a 40-year career will be c. £20k (no lump sum). This will include contributions from the teacher of 7.3%.

In order to achieve a pension of £20k through an annuity, you would need a pension pot of c. £400k. This will require, for the £30k income, a total pension contribution of about 19% p.a., at 3% real growth rates- so if the employee is paying in at the same rate- 7.3%- the employer will need to pay in c. 12% for the 40-year lifespan. This 12% would be reasonable for a big company, but clearly very generous for a smaller company.

(The big difference, of course, being that there is a lot more risk for the defined contribution scheme than the defined benefit scheme).

However, now let's look at a teacher who works for only the first 5 years of their career (again at £30k... the number doesn't matter!), and then stops.

This will earn a pension of £2,600, requiring a lump-sum of £52k at the 5% annuity rate.

If the employer is still putting in 12% (for those first 5 years), the pension pot at the end of 40 years would be closer to £85k- including the 7% from the employee. So that's a win for the private sector model. As long as the employer contributions were over 5%, the numbers are in the private sector employee's favour for start-of-career earnings.

Finally, for someone paying in for the LAST five years of their career, you'd need private-sector-employer contributions to be around 26% to give the same benefit as a public sector employee. That's a rate you can't get in the private sector (if you can, please tell me where...).

So unless I've gone wrong somewhere, from a whole-career perspective, I reckon the current teacher's pension scheme is about as generous as a large company's. If you're at the start of your career, you'd be better off with a large company's pension scheme. If you're nearing the end of your career, the final (or average) salary scheme is unbeatable.

I'm a little surprised by this result, as I had expected the teacher's scheme to beat my own one (in the private sector) hands-down, but it's actually a close call. I'd still prefer the teacher's pension, though, 'cos of the guaranteed pension rate!

chucknorris

Perelandra wrote: »

In order to achieve a pension of £20k through an annuity, you would need a pension pot of c. £400k.

That is equivalent to a 5% annuity, annuity rates are nowhere near 5%. With spouse benefits and index linked it is nearer 3.53% which takes that 400k up to 565k!


Also in the public sector you can buy additional pension, which is also heavily subsidised.

http://www.ft.com/personal-finance/annuity-table

EDIT: There is also the death in service benefit I think that it is 3 times your salary, although I must admit that I don't put much weight on benefits that I have to die in order to gain from.

Plus the fact that it is guaranteed is advatageous! Rather than having to rely on investments/funds performing.