Fairness pension

chiefie

Fairness ? Young people live longer, have better health, have better quality leisure time, have two cars in the family, low mortgage rates, more sex (just guessing !), better tv, ......

Southend1

chiefie wrote: »

Fairness ? Young people live longer, have better health, have better quality leisure time, have two cars in the family, low mortgage rates, more sex (just guessing !), better tv, ......

Actually I think today's youth are the first generation since the war who don't have most of these. Youth unemployment is high, jobs are mostly minimum wage and often zero hours contracts, house prices are high etc etc

hugheskevi

What do you mean by the government? Public Sector pensions have changed, but are still generous, I am in my twenties and pay into the LGPS with a 1/49th accrual rate.

Im accruing £750 a year of pension, which I think is more than fair for the £2700 contributions I pay a year.

Assume you are aged 25 and inflation is 2% each year. The LGPS pension you accrue this year will increase to £1,757 p/a when you reach your State Pension age of 68.

Now assume you were in a DC scheme instead, where your employer simply matched your contribution. That would be £5,400 going into a pension as a result of your contributions plus the employer contribution. If that increases at a pessimistic 5% p/a net of charges this year's contribution will increase to £44,008 by age 68. If you draw-down the DC pension at 4% in retirement that is an income of £1,760 p/a.

A long-run rate of return of 5% net of fees is quite a lot lower than the long-run average, and a drawdown rate of 4% is generally considered safe, although there would be arguments that it should be higher or lower. Add in the probability that your Normal Pension will be increased in the next 40 years too (as it moves in line with State Pension age), which will reduce the value of the DB pension but not DC pensions.

So with cautious assumptions the value of the employer contribution to your pension looks to be about the same as what you put in. From the figures quoted, it looks like your contribution rate is about 6.8% of salary. A high quality private sector DC pension (based on NAPF Pension Quality Mark Plus) would have an employer contribution of 10%+

This sort of comparison gives quite surprisingly low value of employer pension contribution because you are young, and revaluation of LGPS accrued pension is low, set at CPI (some other public service pension schemes have higher revaluation rates and lower accrual rates, which is better value for young members as long as they remain in service for a long period). If you were older the pension would be much more valuable, but the effect of 40 years of CPI increases which will be well below long-run investment returns has a significant impact on the value of the pension for younger members.

i_was_taught_2b_cautious

I'm mean government in terms of the legislation changes affecting pensions. Changing to the age of retirement, the tax paid on pensions. Some civil service departments recently closed their classic pension scheme.

Basically the government are always changing the goal posts, new changes to pensions every year.

Drp8713

hugheskevi wrote: »

Assume you are aged 25 and inflation is 2% each year. The LGPS pension you accrue this year will increase to £1,757 p/a when you reach your State Pension age of 68.

Now assume you were in a DC scheme instead, where your employer simply matched your contribution. That would be £5,400 going into a pension as a result of your contributions plus the employer contribution. If that increases at a pessimistic 5% p/a net of charges this year's contribution will increase to £44,008 by age 68. If you draw-down the DC pension at 4% in retirement that is an income of £1,760 p/a.

A long-run rate of return of 5% net of fees is quite a lot lower than the long-run average, and a drawdown rate of 4% is generally considered safe, although there would be arguments that it should be higher or lower. Add in the probability that your Normal Pension will be increased in the next 40 years too (as it moves in line with State Pension age), which will reduce the value of the DB pension but not DC pensions.

So with cautious assumptions the value of the employer contribution to your pension looks to be about the same as what you put in. From the figures quoted, it looks like your contribution rate is about 6.8% of salary. A high quality private sector DC pension (based on NAPF Pension Quality Mark Plus) would have an employer contribution of 10%+

This sort of comparison gives quite surprisingly low value of employer pension contribution because you are young, and revaluation of LGPS accrued pension is low, set at CPI (some other public service pension schemes have higher revaluation rates and lower accrual rates, which is better value for young members as long as they remain in service for a long period). If you were older the pension would be much more valuable, but the effect of 40 years of CPI increases which will be well below long-run investment returns has a significant impact on the value of the pension for younger members.

You have to look at where it is on the risk scale though. You are comparing equities to what is basically an index linked gilt.

The LGPS has no inflation risk, no investment risk, no charges. Built in life cover, ill health cover, spouses pension cover.

My S&S ISA, SIPP and AVC are all basically 100% equities and I agree equities will outperform pretty much everything in the long term. But I can be 100% in equities and have peace of mind that regardless of whether there is a great depression a year before I start drawdown, I will still have a guarenteed income and not have to change my plans based on the markets.

If I get run over tomorrow, my spouse will get £100k+ in a death grant, £9k a year for life and my son would get £4.5k a year until hes 18. Compared to a fund return in a DC scheme.

There are positives to each option, but I am more than happy to be getting a risk free secure income while I can. Im sure even the CARE schemes will be done away with at some point and I wouldnt swap my DB scheme for anything.

kidmugsy

Almost all discussions of "fairness" are completely fatuous. They should be left behind with the primary school playground.

Southend1

kidmugsy wrote: »

Almost all discussions of "fairness" are completely fatuous. They should be left behind with the primary school playground.

Yes, along with the Equalities Act, the NHS, gay marriage, equal pay, etc

Even if someone was so selfish genuinely to believe that it is fatuous to discuss fairness, they would do well to consider the prospect of civil unrest that arises from an unfair society, as this may impinge on their private little bubble.

atush

Part of the reason DB pensions are no longer the norm is rising life expectancy. And you can be expected to live even longer than the babyboomers?

Is that unfair?

Babyboomers had to use maths, not computers and phones. Didn't have access to the inernet when they were younger. Unfair?

They may already or soon get dementia, or have suffered from diseases that can now be treated or prevented. Unfair?

They may have had to undergo National service- you volunteering?

Lots of things are different to each generation- some good and some bad.

atush

Southend1 wrote: »

Actually I think today's youth are the first generation since the war who don't have most of these. Youth unemployment is high, jobs are mostly minimum wage and often zero hours contracts, house prices are high etc etc

Or they have baby boomer parents like my kids do, who paid for their university (so no debt) and paid for driving lessons and gave them a car (to share lol, they aren't trustafarians) buy their food and clothes and pay for health insurance.

When they graduate, they are allowed to live home for a year to save, but have to pay rent.

They will live longer than we do.

They are really disadvantaged lol.

AlanP_2

The government also changed the rules on child labour, school leaving age (and thus starting work age), maternity / paternity pay & leave, working hours and thousands of other workplace terms & conditions most of which improved things for the younger generation at the time.

Nothing stands still or is cast in stone.

The government never "closed" private sector DB schemes, the companies did as they saw the potentially "bottomless pit" they had in front of them in terms of how long people are now living for and the costs of that.

They also considered how well their business was performing in whatever market they were in and their profit levels and thought saving costs was a good idea and pensions are a COST to a business at the end of the day.

These things should not be looked at in isolation but in the context of overall cost of living and the like.

For example would you be prepared to pay say 5% extra for everything you purchased so that the UK based manufacturer / provider could continue to offer an "old style" DB pension to it's employees?

House prices up even more, food prices up and so on and so on.

Or, for a range of goods would you do what we all would I suspect, and go online and purchase the same / equivalent item from a cheaper supplier?

Based on a personal perspective don't think or believe that all DB schemes are a land of Milk & Honey. I have a deferred private sector DB pension (where the original company has been taken over twice since I left) and the pensions in payment have increased by 1% in the last TEN YEARS. For 9 of those years the company made the decision that there would be no increase at all.

Current pensioners are up in arms as you can imagine as until the latest takeover it had been typical to get a cost of living rise each year.

Life isn't fair, things change and are unlikely to be the same when you are 25 compared to when you are 65.