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Value of db pension

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  • GunJack
    GunJack Posts: 11,837 Forumite
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    It seems to me that too many people want to have DB pensions scrapped.... is it just down to jealousy, or what??
    ......Gettin' There, Wherever There is......

    I have a dodgy "i" key, so ignore spelling errors due to "i" issues, ...I blame Apple :D
  • Kynthia
    Kynthia Posts: 5,692 Forumite
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    It seems like the interviewers probably don't know much about the scheme on offer to new employees, possibly because they were part of older schemes and/or don't understand the changes. Plus if they've worked there for a long time they may not understand private sector pension schemes and how much better theirs is. That is their failing as recruiters but it doesn't mean it isn't an attraction to new joiners or that it doesn't work as a retention product to existing employees.
    Don't listen to me, I'm no expert!
  • hyubh
    hyubh Posts: 3,725 Forumite
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    bigadaj wrote: »
    For public sector schemes then it might be better for all if people had the opportunity to get say a 10% pay rise and give up their db pension or not. Savings for the giver meet would be large

    You are forgetting the cash accounting model of the unfunded public sector schemes. If teachers, police officers, firefighters, civil servants etc. en masse got a hefty pay rise in exchange for losing further DB pension accrual, from the point of view of the current Chancellor of the Exchequer that would be an extremely large new spending commitment (where's the money for paying current and future DB pensioners going to come from?).
  • BobQ
    BobQ Posts: 11,181 Forumite
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    I also think it is odd that employers do not explain the value of a DB scheme. All DB schemes carry significant costs for the employer but they are effectively extra salary. If the employer is having to pay 25% into the scheme to provide the benefits that is 25% more salary. Conversely an employer that offers such a scheme should be saying to anyone who they think is useful who submits a resignation, have you really been offered a higher salary that makes up for this 25%.

    I too am surprised this is not explained. I still recall when I joined the civil service 35+ years ago they had such a conversation with me when the pension was they said worth 7-8%. I left after 10 years but they were right, if a little conservative in the actual figure.
    Few people are capable of expressing with equanimity opinions which differ from the prejudices of their social environment. Most people are incapable of forming such opinions.
  • JoeCrystal
    JoeCrystal Posts: 3,329 Forumite
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    edited 18 April 2016 at 11:23AM
    GunJack wrote: »
    It seems to me that too many people want to have DB pensions scrapped.... is it just down to jealousy, or what??

    :D Yes, I think it is. (Naturally as someone working in private sector whose employer contributing the minimum amount as legally required, I would be envious of an excellent retirement provision. Especially when I am already making my own expensive retirement provision and yet it is still so uncertain).
  • RickyB2000
    RickyB2000 Posts: 321 Forumite
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    I think age of workforce plays a big part in affordability. My first job I was in a DB scheme and I calculated that to get the same benefit in a DC scheme, a total contribution of around 17% was required. Now if I joined as a 50 year old, because there were many fewer years to grow, the total contribution was hitting the 40% mark. So someone joining the civil service for life would be cheap. Someone joining in their 50s would be rather expensive. So arguably the move from jobs for life has also made these schemes more expensive.

    Of course, I can't believe when DB schemes were set up, they were set up to fail. Surely it is the low growth environment that is creating these problems. So in theory if growth was to return to pre crash levels, those with DC schemes may be quids in......
  • redpete
    redpete Posts: 4,735 Forumite
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    GunJack wrote: »
    It seems to me that too many people want to have DB pensions scrapped.... is it just down to jealousy, or what??
    Also because a lot of the surviving DB schemes are in the public sector - so the benefits have to be paid for out of the public purse, so I am paying for some of them.
    loose does not rhyme with choose but lose does and is the word you meant to write.
  • bigadaj
    bigadaj Posts: 11,531 Forumite
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    RickyB2000 wrote: »
    I think age of workforce plays a big part in affordability. My first job I was in a DB scheme and I calculated that to get the same benefit in a DC scheme, a total contribution of around 17% was required. Now if I joined as a 50 year old, because there were many fewer years to grow, the total contribution was hitting the 40% mark. So someone joining the civil service for life would be cheap. Someone joining in their 50s would be rather expensive. So arguably the move from jobs for life has also made these schemes more expensive.

    Of course, I can't believe when DB schemes were set up, they were set up to fail. Surely it is the low growth environment that is creating these problems. So in theory if growth was to return to pre crash levels, those with DC schemes may be quids in......

    The problem is that as ever risk is being Mis priced.

    Given a full range of economic scenarios then db or dc might work out better, it's just that the cost of Dc guarantees are much higher than many people foresaw.

    The risk has now been recognised in the private sector which has led to the closure of the vast majority of non public sector schemes.

    More worrying to me on a wider basis is the current situation with gilt yields and life expectancy combining to give huge transfer values for what would, appear to be fairly modest final salary pension schemes.

    This in itself represents a huge problem to the stability of schemes as has been pointed out above the liabilities for schemes are both gradual and spread out over time. A large number of people cashing in now would provide problems as the cash may not actually be there, though the book value may be even more than the transfer value and on paper the scheme would appear better off.
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