Makes my blood boil

Tromking

uk1 wrote: »

I suspect that as a generality there is a legacy presumption amongst some, particularly older people when it seemed truer for some reason or other, that better more able people went into industry and lesser able people went into the non-professional parts of public service. I can think of teaching for example where there use to be a phrase along the lines of people that can "do" and people that can't "teach".

Do you think there was that undertone and if so, do you think it persists?

Jeff

First off, I would suggest that teachers are a professional role within public service. Unless you're having a dig of course!:) Outsourcing has reduced dramatically the "non-professional" areas of the public sector, I`m not sure the idea you put forward re. the intellectual comparison of private vs public sector is particularly pertinent any more.
I can only speak for myself and say that my career in the Prison Service was one I selected solely for its stabilty and pension benefits and of course it was one that suited my 'achievements' at School ie. 1 o-level and a handful of CSE`s. I`m now surrounded by Uni-types with degrees of dubious quality who are here one minute and gone the next, that`s great for pension liabilities but rubbish if you're trying to run a public service. I am genuinely intrigued as to the plan when the 50 somethings like me finish.

mgdavid

LXdaddy wrote: »

This thread is another that needs an ignore button - but like car crash TV* drags you back wondering what crazy ideas will come out next.


* as per Bowlhead

A better result is to just put a couple of posters on the Ignore list.

agarnett

mgdavid wrote: »

A better result is to just put a couple of posters on the Ignore list.

Sorry? Did anyone else hear a mouse squeak? Something trod on its tail I guess ... or does it squeak for the sake of it ?

Caught a reminder from another thread about the state of UK private sector DB schemes which again is an arena containing lots of comparative data for this discussion.

FT.com is quite a useful source.

No-one has yet added up the total members in the public sector schemes for us, but we know there are about 5M active working public servants out of a total UK working population of about 30M i.e. about 1 in 6. But we don't know how many deferred members there are or actual pensioners already receiving payment of their public sector pensions.

We have picked up some form of measurement of the outstanding HMG liability for paying public sector pensions as a current £1,000,000,000,000 and that surely is growing not least because life expectancy continues to increase. I think it is probably fair to assume that as it was offered as an HMG liability, then that means £1tn (am copying ft.com's way of writing a trillion now ) is currently unfunded and in DB pension parlance could be said to be a "deficit" not a debt but even Cameron gets these things mixed up. I think it could equally be called a "shortfall".

Today I stumbled upon a new figure from a pointer to a 6 month old article from FT - the estimated total liability of the almost 6,000 remaining UK private sector DB schemes, or at least those that subscribe to PPF is, FT thinks, is around £1.1tn - very similar to the HMG liability for theirs. The authors of the report, a section of CASS Business School called the Pensions Institute, I think are offering several figures in that ball park including a round £2tn which they estimate would be the cost of a full insurance company buyout. The total private sector membership - that's existing pensioners, active working members, and deferred members is around 11M. Should we assume that the similar total membership for public sector beneficiaries is about the same ?

Whether the two aggregate liabilities for public versus private sector are indeed very similar, be it £1tn or £2tn depending on the basis of valuation, is debateable, as we don't know on which basis the public sector valuation estimate has been offered, but we can at least say the two are in the same ballpark.

Of the private sector aggregate deficit (or shortfall?) of those nearly 6,000 schemes is said to be around 40%, which is extremely worrying.

The December 2015 CASS Business School Pensions Institute report "The Greatest Good" was the main source of the FT.com article I think.

The obvious question it raises for me, is that if the country's biggest corporates can make such a muck of a liability of that size, what chance do HMG have of managing their similar liability? Those suggesting "steady as she goes" for the public sector must surely be in cloud cuckoo waters?

bowlhead99

agarnett wrote: »

My bad, bowlhead99. I apologise if you are offended, but are you suffering as a private sector prospective pensioner?

I am not 'suffering' by being a private sector employee or prospective pensioner. I just, am one.

The fact that someone else, as a result of their work and life choices, has (say) a £20k a year guaranteed pension from public sector while mine must come from my own defined contribution plan or other investments, does not mean I am 'suffering'. I along with most other people (including public sector employees) pay taxes which pay for public employees to get salaries and pensions. Such is life. I don't say I'm automatically "suffering" just because the pension component of total compensation for a public sector employee is relatively higher than for a typical private sector worker. Just like I don't say I am 'suffering' if the man down the street has a shinier car than mine.

It is natural to feel envy if someone has something that you don't, and you would like to have it. But if your life feels like a 7 out of 10 as a normal private sector employee and prospective pensioner, you are not 'suffering' simply because someone else is an 8 or 9 out of 10. It would be quite rude to go and say to them that you want them to pay a special extra tax to pull them down to a 7 because you were envious of what they had. You could have had what they had if you chose a different career path. You didn't, you chose the path you did, for the job satisfaction, prospects and salary it provided, which you preferred to the public sector route.


Do you say you are 'suffering' if your neighbour takes home a higher salary or pension than you? Should the salaries and pensions arbitrarily be equalised to give both of you the exact same number of pounds regardless of what work is being done and regardless of whatever was contractually agreed when you each accepted your job offers?

Do you realise just how the majority of private sector workers haven't a clue what their pension requirement are, let alone on how their pension will come together? I am guessing not.

Why do you guess that I would not know that some workers don't know what they require in retirement. Actually I would assume the majority of workers, public and private, don't truly know what their requirements are in retirement because it is a complex question and many do not think about it. Most do not come on 'money saving expert' or pensions or retirement planning forums.

The ones who have an element of those retirement requirements sorted by being given a fixed level of defined benefit, are fortunate that they don't need to worry about investment shortfalls from market performance. Whereas retirement funding for someone like you or me is based on how much I or my employer puts away and the performance of the market over the next 20 to 60 years.

If it is such a problem that individuals do not know what they need in retirement or whether they can realistically get it, perhaps it would be better than everyone moved onto a defined benefit system, and then nobody would have the problem of not knowing what they were going to get. From a personal financial safety perspective it is better and more comfortable to be on DB.

However, the government can't practically legislate for everyone in the private sector to be on DB because they do not control the private sector employers and many of the private sector employers can't afford to take the market risks with multi million or multi billion pension pots. So, while DB might be best for all, you can't mandate that all get it. The best you can do, if DB is a desirable thing for the workers in the economy to have, is to say you will give DB to the several millions of employees from the employers that you can control (the public sector ones).

This then leads to envy by people like you, who now want to rip away the promises made to the public sector workers because you acknowledge that the retirement provision they have is better than what you have and you don't think it is fair that someone should be allowed to have better pension than what you have even though you might have had better salary than what they had.

I haven't any confidence that I know with any kind of reasonable accuracy what recent government new state pension reforms will do to my prospects,

Your prospects for employment shouldn't change, because the NI burden on employers is basically staying the same, it is a broadly cost neutral change producing winners and losers.

Your prospects for receiving a comfortable amount of state pension in retirement may have been changed for the better or the worse depending on your personal circumstances.

For some, they will get an increased amount (e.g. £155 is more than the old basic level which excluded SERPS/S2P). For others, they will get a reduced amount (e.g. £155 is circa a hundred quid worse than what you could have got with the highest level of earnings and contributions. Personally I will be worse off as I was building up a decent s2p entitlement. But now, the amount I've built up so far is set at £120-odd quid, and in six or seven years time it will cap off at the £155, and then the next 20 years plus until state pension age I will be paying my NI with no increase to state pension entitlement whatsoever. So, I am more a 'loser' than a 'winner' from the reform. Perhaps you should get a state pension forecast too rather than moaning that it's all an unknown.

let alone the enormous ongoing risks associated with whether or not my private sector pensions will perform.

You seem to be moaning that there are 'enormous ongoing risks' with DC pensions, and yet when there is a solution to protect people from such 'enormous ongoing risks', such as the availability of a DB model, you want to deny it to people because then they would perhaps be better off than you, and you are greedy. That doesn't sound very nice.

Might be interesting to know where in the grand scheme of things you do actually sit, as between 5 or 6 neighbours in the street, its not good to get the wrong idea about one another without understanding a bit about background and motives, is it?

I live in a semi detached house. I sit on a chair. It's very difficult to understand where I sit in the grand scheme of things without context. Are you trying to understand the ins and outs of my family life, career history, salary bracket, number of pounds in the bank and GPS coordinates so you can put me in some pigeon-hole? Why would I give you that?

I have mentioned I don't work for the public sector and all my pensions are employer DC or SIPP. If you take the alleged £1 trillion real-terms unfunded liability and split it equally 30 million ways among the taxpaying population, and divide it equally by the 80 years over which the money must be paid, my share of the tax this year would probably represent a percent of the total tax I pay. Is that sufficient financial context?

But that £1T is not due over 80 years. My understanding is that it is an unfunded liability and that there is no plan other than to suffer it as it comes.

So if there is an unfunded liability quantified at £1T in real terms, and it is going to be paid (or 'suffered', as you call it) as it comes, and it is coming over 80 years (a current school leaver in the public sector dying in his late 90s must surely form part of the estimate), how is it 'not due over 80 years'. Surely the school leaver is not demanding his first payment yet?

Ah, you're saying it's 'due' now but just won't be paid for 80 years. When it's paid in 80 years it will cost more than £1tn total because of the time value of money. Fine, but the cost is £1tn in today's prices, no? We are simply choosing not to 'fund our unfunded liability and hope the market keeps the liabilities fully funded' (which comes with risk) and instead 'taking it as it comes' with an unfunded scheme.

It is due right now. But of course we don't have it. That part of it which is for exising pensioners and for deferred not active working members (and I guess that's a very big part) is surely a 100% shortfall if looked at like a private sector DB scheme ?

Correct, if the plan was for it to be fully funded at all times it would look like it was falling 100% short of that plan. As is the state pension. However, it is not, because it's deliberately an unfunded scheme.

You, bowlhead seem to be saying, nah, it's small change each year which we won't miss given all the other stuff we'll have to pay for?

I have no doubt that it will cost real money to pay off all the people to which we have promised money.

Your solution is to just not pay them, or pay them and immediately tax it all back, because you don't like the idea of them having a better funded pension than you, because you took the private sector lifestyle that came with private-sector salary and benefits and DC pension, and didn't provide for your retirement. You are having a larf.

I acknowledge that providing for retirement in the DC world is challenging. I am trying to do it myself and started late. I wouldn't have had to worry about it if I went into teaching, as my pension would have been taken care of from day one without me needing to think about it because part of what you sign up for is X salary and an annuity of Y linked to salary (now career average rather than final). If I had gone that route and you said "hey, some people don't have as good a pension as that, so we're cancelling yours", I'd tell you to go forth and multiply, using different words.

I worked in insurance. At it's basic level, that's about taking the worry out of nasty surprises in order to free up customers' "management" time for wealth producing ventures which would otherwise be wasted on wandering in the smoke between car-crashes, (firefighting) actually achieving nothing much and maybe finding oneself totally without transport to the next adventurous destination - ever!

Are you condoning self insurance by the UK government?

You buy insurance to cover the ups and downs of risks. If you have deep pockets you can self-insure. I have my car insured fully comp because it would be strain to buy a whole new car on average once a decade after being involved in an accident on some random date within that decade, and you didn't know when it was coming, Maybe I'd be lucky and crash only once a lifetime or maybe unlucky and crash three years in a row. So I buy the policy and let insurers profit from my money.

By contrast a former employer had several thousand cars on a lease deal. They essentially self-insured because with a much greater base for the statistics their experience was inherently closer to the average than I would experience with just my one car. They would generally be paying out every month or two for repairs and replacements. They had the size and scale for it to make sense. Many companies have internal risk functions to deploy as needed.

I am not sure they are qualified to underwrite risks they really haven't bounded at all! Thirty years ago, it was in vogue for the biggest corporates to insure themselves. Results were very mixed!

The government could set up its own risk department, insurance department, its own captive insurance company, and maybe its results would be mixed. Maybe outsourcing to another insurer or wealth manager, its results would be mixed. None of the options are cheap. If they had a £1tn fund it would be easy for changes in market returns or gilt yields to make its value keep flipping between hundreds of billions overfunded and underfunded. And it would cost a trillion to set it up.

We don't have a trillion and would have to borrow it. So we would be owing a trillion and using it to buy assets which we then pay someone to manage in the hope that they will be able to pay out the pensions while we pay back the trillion. It's one way to do it, but unsurprisingly nobody really has the appetite to go and borrow the trillion that we don't even plan to pay out to pensioners for decades. Whichever government suggested it, the public would be up in arms about it.

Bottom line, I agree that defined benefit schemes can be very expensive and from time to time will appear even more expensive, when for example interest rates drop as they have done to their lowest level in a hundred years implying the annuity is more valuable, until they go up again, when the annuity will appear less valuable.

So, action should be taken to limit the open-ended promises that are made, and the schemes modified (move final salary to career average or perhaps full DC).

If you were going to switch out the schemes and have the employees move from DB to DC for future accrual you wouldn't want to do it now when interest rates are very low and the estimated present value of future benefits discounted by those rates appear very large, because to give the employees a 'decent' replacement you would be offering them a massive percentage of their salary. Perhaps in future you could get away with less.

GwylimT

I have worked in both the public sector and private, the terms of my private sector mortgage are far more generous.

Where contributions are concerned I pay in 10% and my employer pays in 20%. Due to it reducing my tax bill, if I only paid 2% my take home pay would be the same, its a no brainer.

In the public sector I contributed 10.2% and my employer contributed 14.1% and the payout terms were far less generous.

agarnett

Thank you bowlhead99 for engaging again in depth.

I find all your points interesting and as I have done a bit of it myself, I will overlook the false assumptions you have also made about my motives.

Howver, I honestly do not feel envy. I could use more money but I don't envy those who have it. I do however feel annoyance and a sense of injustice when I see imbalance in society such as we are discussing here.

I use many things other people have thrown away. Generally there are far too many people in society who do have more money than they would need if they were careful not to waste. Too many of them claim they "earned it" so they have the right to do as they like with it. "Earning something" is as you know a very relative term.

So rather than envy those who have chanced upon so much money that they spread it around like lords, and waste so much as if that's a habit that shows success, I am often puzzled by them.

I do not throw food away when I have had enough. I keep it as "leftovers" for a next meal.

You don't like the word "suffering" to apply to you - no.one likes to admit they are suffering as a result of life choices, especially those who are quite comfortable.

You said it looked like I was bemoaning DC pensions. Actually I was thinking about both my remaining private sector DB scheme and my DC pensions - both are appallingly regulated and run by very dodgy people such is the world of finance which runs on pension funds like other business runs on road fuel.

This question nationally of people generally not knowing what they are going to get is one I have raised before. There is actually no government excuse for that whatsoever. We have been badly let down by successive governments because we do not have a government portal where we can all log in and see ALL our pensions, public, private, basic state, additional state, DB scheme entitlements, DC scheme entitlements - literally all of it, laid out in ne place under a login via our NI No.

Cameron was briefly reported as having this in mind a few months ago, but no.one picked up on it and it seems to have been dropped.

If the new state pension illustrations are anything to go by, then it'd never be accurate anyway.

Of course, the portal I refer to has already been done. Right now I am in Scandinavia waiting to catch a flight back to UK.

Guess what they've had for a good few years now?

I am not having a larf as you put it when I suggest that promises will have to be broken, and perhaps big time.

Your assertion of the viable prospect of self-insuring because HMG is big enough is far too shallow. I don't criticise for the sake of it - your skills and knowledge perhaps aren't those accumulated over a career in the risk business. They may have been collected in financial management perhaps - I don't know, do I? But not I venture, in transfer of massive insufficiently quantified risks like this?

As for government borrowing a trillion, there are ways to do it without alerting the public if you really do wish to keep these crazy over generous now pension promises in the air. Goodness knows the government has done enough of that with QE and bank bail outs where the true extent is kept from us until a few years later. We wouldn't even need to be banding about the term "trillion" to describe any part of the economy just yet if they hadn't already made a muck of it. UK should be feeling austerity cuts but we aren't are we, those of us who think we have all the answer and are alright and whose names are Jack?

I mentioned Scandinavia. Its not all good. In Denmark there national energy company DONG has had Goldman Sachs crawling all over it for a few years now, much to the annoyance of most Danish citizens when they are reminded of it. Some family silver has been sold off to the usual suspect.

Rothesay Life (originally a GS subsidiary) is the name most pension trustees think of when looking for ways to securitise their longevity risk.

It isnt good either. They've been taking advantage of an anomaly in the yields on Network Rail bonds so effectively Goldmans have been crawling all over that in UK. Another sell off of the family silver?

What else has HMG got it could quietly sell via Goldmans? I am sure they are not short of ideas.

I'm afraid its the devil or the deep blue sea and if your idea remains that the deep blue sea is for pleasure cruising, then we might simply do a Titanic in the not too distant future.

Gotta fly now ...

saver861

LXdaddy wrote: »

This thread is another that needs an ignore button - but like car crash TV* drags you back wondering what crazy ideas will come out next.

But that's the thing about these forums .... and it is why people keep putting their tuppence worth in ....

Brevity is in short supply for some posters though ....

uk1

agarnett wrote: »

Howver, I honestly do not feel envy. I could use more money but I don't envy those who have it. I do however feel annoyance and a sense of injustice when I see imbalance in society such as we are discussing here.

I use many things other people have thrown away. Generally there are far too many people in society who do have more money than they would need if they were careful not to waste. Too many of them claim they "earned it" so they have the right to do as they like with it. "Earning something" is as you know a very relative term.

So rather than envy those who have chanced upon so much money that they spread it around like lords, and waste so much as if that's a habit that shows success, I am often puzzled by them.

I do not throw food away when I have had enough. I keep it as "leftovers" for a next meal.

Gotta fly now ...

I think the tragedy of your style is that I think you've raised topics and issues worthy of mature discussion and debate, but within the comments above you've rather given the impression that you presume that everything you do that causes you to deal with your finances and the underlying philosphies behind them are a sort of "gold standard" by which all others should be criticised.

Rightly or wrongly it has given me the impression (which I know you will deny ... and you will say you will deny it because I'm "wrong") that you harbour a degree of bitterness towards those with more and their "wastage" for example. That gives the impression that this standpoint has moved on to a bitterness towards those in the public sector with their decent pensions. It isn't what you intended, but it has given me the impression that it isn't about "wrongs in society" but more wrongs to you personally. It is just an impression right or wrong.

That being so I feel the discussion about the actual issue has been a bit derailed by the way you choose to express it.

For the removal of doubt, I am one that is envious of those pensions but feel that once promised it would be immoral to impose changes except in the exceptional circumstances that it can be shown that it is to their benefit.

Onwards and upwards .....




Jeff

[Deleted User]

Good points well made there, uk1.

WR

Andy_L

I just want to emphasise, as some people seem to have missed it, that the £1t number is based on investing in Government Gilts not the stockmarket. Neil Record chose Gilts to represent the value of the zero investment risk of a public sector DB pension.

That means that, were we to fund them in that way then the NHS, Education, MoD, Police etc budgets would go into the red by £1t but then the treasury would have an extra £1t and a liability to pay out on those gilts for the next ~80 years.
The departments would then go to the treasury saying "we're a bit strapped for cash, got any spare?" and the treasurey would say "absolutely loads, some nutter just bought £1t worth of Gilts, fill your boots"

Net result: no change in the public finances