Is it fair that Govt employees get DB and private sector employees DC (in general)

michaels

The current market turmoil highlights just how much more valuable a DB pension is compared to DC.  Is it fair that the govt gives such valuable pensions to their own employees leaving everyone else to either accept low returns if pursuing a safety first approach or huge risk if hoping to see any growth or even just keep up with inflation?
Given where we were before, my total remuneration in the private sector was probably fairly similar to what I would have got in the public sector.  Where we are now, public sector remuneration is probably 25% higher.

Mick70

Why not join the public sector if feel so aggrieved ? 

bioboybill

In general, public sector workers receive less pay for the same level of responsibility and qualifications. Those of us in the public sector often think of our pensions as deferred pay. In other words we earn less during our working life, but get a decent pension. 

Thrugelmir

michaels said:

The current market turmoil highlights just how much more valuable a DB pension is compared to DC.  

Nobody was interested while the stock market was booming. Wind changes direction. So does the fad. 

If you've any complaints. You need to go back to 1997 and the decision by the then Labour Chancellor of the Exchequer to raid company pension schemes to fund his welfare plans. Was a death knell for many. Closing entry to new members. 

Employee contributions to Public Sector schemes have risen considerably in more recent years. 

Mick70

bioboybill said:

In general, public sector workers receive less pay for the same level of responsibility and qualifications. Those of us in the public sector often think of our pensions as deferred pay. In other words we earn less during our working life, but get a decent pension. 

Most would agree with this statement 

GunJack

Oh come on michaels, we've been here before!!
As I stated at the time, when I left the CS 13 years ago and into the private sector, I got a 20% pay rise for less responsibility and moved into the company DB scheme (which is still going, having moved to a CARE scheme a few years back)...just illustrates the lower salaries in the CS and the need for the decent DB pension to try and compensate..

Anyone who has transferred out of a DB and into DC knew the risks they were taking... (or should have done...) 

Bravepants

I'm in the public sector and we are struggling to hire a software engineer at the moment, for no other reason than the difference in salary levels compared to the private sector. We need multiple software and IT skills in quite a demanding discipline, but when you see jobs offering upward of £70k plus for an Oracle database developer, well what chance do we have? In the job advert we highlighted the CS pension as an incentive, but we only had three applicants!

princeofpounds

Is it fair? Not really, although as you get older you realised lots of thing in life aren't fair, and it's not always possible or even desirable to level everything out. 

Public sector jobs are at least a generally-open career option, although I've never had great sympathy for overblown arguments of 'why don't you join the public sector then?', because the really sweet pension deals of time-past are normally closed to new entrants, preserved for incumbents (and sometimes not even them for new contributions), and we all know it. Public sector jobs are, on average, actually paid more in salary than private sector jobs, although that's probably not an apples-for-apples comparison.

DB pensions are deferred pay, but they are a very unusual form of pay in that the value of it can change dramatically as interest rates change (up/down). So a promise to pay for a retirement can be made with one assumed future value, and it has turned out to be far more valuable than that in reality.

A practical example of this - I have a relative who was an army officer. Retired on the cusp of (but not quite at - never made full Colonel) the higher ranks at 57. His pension pot, to replicate on today's DC annuity terms, would be worth something in the order of £1.8 million. If you include inflationary and partner benefits, probably more like £2.5m. This is FTSE 100 CEO bonus type of territory - proper fatcat sums. There are hundreds of people out there like him; thousands if you look at other government services. 

This is of course now impossible for a private sector individual nowadays (and increasingly so). This is probably the unfairness that grates the most for me; the ludicrously fake rates at which public sector DB pensions are capitalised for lifetime and annual allowance purposes. It amounts to significant tax privileges for favoured sections of the populace, and enacted through decree rather than democratic legislation.

Ultimately though, this debate revolves around two ethical concepts. One is the contractual rights of public sector (future) pensioners. The other is intergenerational equity. It is true that older public sector workers were promised their pensions. It is also true that their generation signed their own cheques but left the liability to their children. Take your pick on which is more fair.

GunJack

There's so much in @princeofpounds 's post above that's wrong...how about:-
1. even the later public sector pensions are good options, so the argument of why not work in the PS still holds for a lot of people.
2. PS jobs aren't paid more than private sector, but there's a big variation even within the "public sector"...the Civil Service very often lags local govt., the NHS has very big salary differences between it's staff, there really is no One Size Fits All for the entirety of the public sector, it's just too big for that.
3. the salary link is just that...if inflation goes up/down, that has a bearing...politics has a bearing (CS 1% MAX pay rises through 10 years of austerity leaving CS staff worse-off due to inflation also has a knock-on effect on their pensions).
4. Equating an army officer's DB pension to a DC pot is nonsense - it's apples and oranges...for one thing, there's no £2.5mil pot to pass on on their death, and when officer and spouse die, there's nothing to pass on to anyone else unlike a DC pot. And, it's damn-near impossible for the pensioner and spouse will take anywhere near that £2.5M over retirement, so if you really must try and equate it to a DC pot, £1M would be more like it over a 40-yr retirement, not £2.5M, which is far less unachievable than you seem to inply...

Sorry, but your post smacks of pension envy.... 

Durban

I will have a DB pension and my husband will have a DC pension. 

I don’t think that it is particularly fair , but then lots in life isn’t fair 

I am well aware how fortunate I am and it means that we can take a bit more risk with my husbands DC pension. 

Most people in my workplace have have no idea how lucky they are to have the DB pension. 
A lot of them don’t need understand it and moan about how’s little it will be 

[Deleted User]

No. 

The main differences are:

1. the level of contribution by the taxpayer (DB) or company (DC). Typically the difference is massive 
2. in a DC all risk is with the employee. In a DB it’s with the taxpayer.

For equivalent jobs, public sector employees out earned private ones in 2010. In 2017 private sector salaries were 1% higher but it does not begin to compensate for 1 and 2. https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/articles/ispayhigherinthepublicorprivatesector/2017-11-16

Basically, private sector Bill not only pays for public sector’s Joe’s gold-plated benefits, but also takes on all the risk while also carrying 100% of the risk for himself. 

Humphrey has it sussed.