BBC: Public sector pensions face big hit, claims report

JoeCrystal

Link to BBC article

I am confused what the value of pension actually meant? Is it how much the government have to pay toward the pension or just how much contribution requires to get a pension of their income?

Still, I am actually surprised they reduced it to 15%, maybe it is taking into account of career average public sector pension reform in 2014?

Cheers,
Joe

jem16

JoeCrystal wrote: »

Link to BBC article

I am confused what the value of pension actually meant? Is it how much the government have to pay toward the pension or just how much contribution requires to get a pension of their income?

It basically means that being a member of a public sector pension is the equivalent to having a salary 15% higher with no pension.

jamesd

The most important message is this quote from the report "the benefit offered by all four of the largest public service pension schemes remains more valuable, on average, than the pension benefit offered by Defined Contribution (DC) schemes that are now most commonly offered to employees in the private sector, into which employers typically contribute around 7% of a DC scheme member's salary".

Don't let the fuss and hype prevent you from signing up! Today, about 15% of employees opt out of these remarkably generous schemes! Don't be one of them.

The report also seems to have ignored the other changes to pensions. Things like the availability of flexible drawdown preferentially to those with salary-related workplace schemes like those that are now mostly confined to the public sector for new joiners. There are some pretty substantial benefits available from things like that, on top of the underlying pension provision and lack of investment risk.

For anyone concerned about fairness these bits from the report might also be of interest, since the changes make the schemes more fair to normal workers than the relatively few high flyers:

• high-flyers and low-flyers have a pension benefit worth the same percentage of salary
• the value of the pension received by lower earners will be higher as a percentage of their salary than that of higher earners, as higher earners must pay higher contributions for the pension they receive, compared to lower earners.
• For NHS and Teachers' there is a smaller difference between the value of the pension earned for each year of service by a long-stayer and an early leaver (but for the NHS it's still 14% for a long-stayer and 9% for an early 5 year leaver; it was 26% vs 14%, for the same earnings while there for both people!)
• For Civil Service and Local Government schemes the amount of pension earned in a year would be the same percentage of salary for members of similar characteristics who leave the scheme early and for members who stay in active service until they retire. ... the value ... is not affected by whether the pension was earned at the beginning of a member's career or over their whole career.

So if you want a public sector job for a while, but not for life, better to pick Civil Service or LGPS than NHS or Teachers', both of which remain heavily biased towards those who work there for a long time and take no or shorter career breaks.

In the defined benefit schemes that are more common in the private sector the value of each Pound of pension contribution is higher the younger you are, because investment returns depend in part on how long money is invested.

If you really want to plan based on pension accrual rates it'd be better to work in the private sector at relatively young ages, then the public sector some time after you have reached the peak of your normal employee level career and are relatively close to retiring.