Pensions - Where to Start

FatherAbraham

Nick_C wrote: »

Originally Posted by FatherAbraham
Since that's a defined-benefit pension scheme, there isn't a "pot", that concept belongs to money-purchase or defined-contribution pension schemes. What you have acquired are rights to an income in the future.

That's just semantics. You have paid into a pension scheme and accrued something of value. Call it a treasure chest if it makes FA happy. If you wanted to transfer your Nuvos pension to a different scheme, they would give you a valuation and transfer the cash to a new provider if you wanted them to. (I'm not suggesting that you do this!!)

It's not "just" semantics -- it is semantics -- there's a fundamental difference in meaning.

Defined-benefit rights are rights to a known income in the future. Those income rights are preserved, no matter what it costs the pension fund/employer. The capital value is variable; the income to be delivered is not. From the employee's point of view, the pension rights are fully hedged.

The income to be produced by a defined-contribution scheme is entirely unknown in advance, until crystallization, when an annuity (in other words, a "pension") can be bought.

Getting a capital-equivalent transfer value for a DB scheme, and adding it to whatever's in a DC pot in order to get an overall picture of one's pension position is crazy accounting -- since the CETV and the DC pot will move in different directions as the investment market changes.

Warmest regards,
FA

FatherAbraham

Nick_C wrote: »

According to the BBC in 2012

The median average salary-linked public sector pension that is currently being paid out to a pensioner, is worth £5,600 a year.

That compares with £5,860 in the private sector, according to the National Association of Pension Funds (NAPF).

Using a mean average, some £7,800 a year is being paid in a public sector pension compared with £7,467 for a private sector salary-linked pension.

You're comparing public-sector defined-benefit schemes with private-sector defined benefit schemes.

Hardly anyone in the private sector has a defined-benefit scheme. For anyone taking a new job, it's even smaller, since many of the remaining schemes don't accept new members.

The BBC article you carefully cut from (http://www.bbc.co.uk/news/business-15925017) immediately goes on to say:

But this is where a comparison becomes tricky.

Some 87% of public sector employees are currently paying into a salary-linked pension scheme, compared with 12% of private sector employees.

Many of the salary-linked pension schemes in the private sector have been shut by employers.

Instead, 32% of the private sector workforce, including the self-employed, contribute to personal pensions and other schemes where there is no promise of a particular level of retirement income.

I think your attempt to use skewed statistics speaks volumes for the credibility of your case. Defined-contribution pensioners aren't represented by the NAPF, because we are individually our own pension funds.

Perhaps you'd care to suggest how much you think the original poster should save for retirement in a money-purchase pension scheme, as a proportion of his or her salary, in order to continue to accrue benefits broadly similar to those which were being received as a state employee? Please show your working and assumptions for growth, bearing in mind the current 2.8% annuity rate for index-linked annuities (with 50% survivor bennies) at 65, and the 2.5% real growth mandate for projections which the FSA/FCA mandates from 6th April 2014.

Because that is the OP's problem.

Warmest regards,
FA

PeacefulWaters

That's why most of my colleagues recently endured a 4 year pay freeze - a 15% pay cut in real terms - instead of moving to the private sector

I think they'd have found huge swathes of private sector employees enjoying similar pay rises had they jumped ship.

Where I used to work has seen pay frozen for most, benefits in kind reduced in value, bonus schemes decimated (effectively a 5%-10% pay cut) and a final salary gold plaited pension scheme turned into a scheme that has knocked 40% off the likely retirement income of anybody in their forties with many younger staff shafted further.

So, in summary, the pain from public sector pay freezes is a dose of the real world. The private sector employee is sharing a similar pain.

Southend1

bigadaj wrote: »

Can you find some of those private sector salary linked pensions in your final quote?

Don't believe they exist anymore, it's defined contribution or nothing.

Tesco and John Lewis are two I am aware of

bigadaj

Southend1 wrote: »

Tesco and John Lewis are two I am aware of

Any more?

JL are moving to a hybrid pension and tesco are increasing retirement age to 6£ and capping inflation linking so even these are being diluted.

atush

And jon lewis reported today thqt this year's bonus is DOWN on last year's as they have a pension black hole they are trying to fill.

The only reason they still have one at all, is that they have no shareholders to pay.

Carnival789

hi manic rower

unfortunately, i dont know anything about public sector pensions but with reagrds to your current employer's scheme it does seem VERY measly !

most companies that i have worked for will either match (or sometimes double) the amount of the employee contributions.

i suppose some free money is better than none at all but with it being such a low amount it may be worth doing future projections to get an idea of what you can expect to receive in retirement... if this doesnt live up to expectations at least you will have plenty of time to think about alternative savings mechanisms.

while im here, i just want to say that this forum can be a really fantastic source of advice and information for this kind of thing. however, it does get rather spoiled by comments from people who, although knowledgeable, seem to have some kind of superiority complex and take the posts completely off topic.

BillJones

alongtimetogoyet wrote: »

The government's cuts, have led to many losing their jobs and this is set to continue for many more years...

Far, far too few public sector workers have lost their jobs than they should. You simply on't get under-performing teachers, for example, being shown the door at anything like the right level.

It's also not clear that the pay freezes are even vaguely unfair. Many would contend that the vast rises in public sector spending under Labour were always unrealistic, and need to be scaled back. Doing it via a prolonged freeze rather than an immediate cut seems a particularly gentle way of realigning amounts with where they need to be.

bigadaj

paulfinlay29 wrote: »

hi manic rower

unfortunately, i dont know anything about public sector pensions but with reagrds to your current employer's scheme it does seem VERY measly !

most companies that i have worked for will either match (or sometimes double) the amount of the employee contributions.

i suppose some free money is better than none at all but with it being such a low amount it may be worth doing future projections to get an idea of what you can expect to receive in retirement... if this doesnt live up to expectations at least you will have plenty of time to think about alternative savings mechanisms.

while im here, i just want to say that this forum can be a really fantastic source of advice and information for this kind of thing. however, it does get rather spoiled by comments from people who, although knowledgeable, seem to have some kind of superiority complex and take the posts completely off topic.

Fair point about going off topic but nothing radical or offensive is being discussed, it's just about fairness and sustainability really.

The OP hasn't been back but I've never heard of a pension contribution that matches what he's stated which leads me to believe that he's probably misunderstood what he's got.

Most defined contribution schemes are either matching those of the employee up to a limit or a flat rate of x%. It would be interesting if he or she could come back and confirm this.

whodathunkit

PeacefulWaters wrote: »

I think they'd have found huge swathes of private sector employees enjoying similar pay rises had they jumped ship.

Where I used to work has seen pay frozen for most, benefits in kind reduced in value, bonus schemes decimated (effectively a 5%-10% pay cut) and a final salary gold plaited pension scheme turned into a scheme that has knocked 40% off the likely retirement income of anybody in their forties with many younger staff shafted further.

So, in summary, the pain from public sector pay freezes is a dose of the real world. The private sector employee is sharing a similar pain.

Benefits in kind and bonuses - not many of those in the public sector!