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

Mick70

Dox said:

Life isn't fair - and this argument has been rehearsed time and again until most people are sick of it. Right now there are much more worrying things to do than bleat about 'fairness', especially if you look at the number of people who have chosen to transfer from private sector DB schemes to DC arrangements because they view flexibility as more desirable than certainty and security.

good point at the end 

princeofpounds

GunJack said:

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.... 

I think you miss the mark on a lot of your criticisms. Whilst i'm willing to accept that my explanations may not always be clear, I think you are reading a lot of what you expect (want?) to read from my posts. For starters, I don't have a great deal of pension envy - you'll note that I start my very first sentence off explaining to the OP that not everything should be fair and equivalent, and that was specifically meant to convey that I don't have the same level of problems that they do with public/private sector pension inequity.

1. Yes, many later public sector pensions are still good options. And, as I said myself, the public sector is generally open to hiring. But I was saying that 'work in the public sector then' arguments were sometimes overblown, not outright wrong. These are entirely different things, as I'm sure you appreciate, and does not smack of pension 'envy'. And I'll stick with that point - people who complain about public sector pensions are generally not complaining about entry level pensions for new hires, they are complaining about the massive accumulated liability that has been built up over time. So the two sides often talk past each other.

2. I agree that there is huge variation within the public sector, but I hate to break it to you that the public sector is paid more on average. One such source: https://www.bbc.co.uk/news/uk-politics-40480766. As I noted in my comment, I don't think you can do such an apples-to-apples comparison, although adjusting for qualifications as the linked source does gets you much close to the underlying situation. The only reason I mentioned this is because there were already several instances of the old canard 'public sector get paid less so deserve bigger pensions' - it's just not true (or the first part, at least).

3. I didn't mention a salary link. I do not know what you are trying to get across here - perhaps you are confused over one of the points I made.

4. Fortunately, comparing the value of DB pension to a DC pension can be done, in rough terms. A DC pension can be effectively converted into a DB pension through the purchase of instruments called annuities. 
You can do it yourself if you like - https://www.moneyadviceservice.org.uk/en/guaranteed-income-for-life/quotes. A £1m pot for 57 year old, with 50% protection for a spouse, no residual value protection (which is different to your assertion), RPI indexation and with ok health now provides £15.3k p.a. income. 
Now I'm not saying this is a good deal, or a sensible thing to do - I agree that a DC pensioner can do significantly better than an annuity if they are happy to bear investment risk (although the past month shows the risks involved in that...). But it shows entirely factually what it costs to replicate this on a private sector basis.

The army pension in question I was comparing it to pays in the order of £50k p.a. Life expectancy at 57 for a 6' 13 stone male in decent health is a further 32 years (life expectancy rises as you get older, statistically). 50 x 32 is £1.6m, so even in simple cash terms (which is not the right way to look at it, but will do crudely) he could expect to  collect the sort of sums I was talking about over his lifetime quite easily. https://www.direct.aviva.co.uk/myfuture/LifeExpectancy/YourLifeExpectancy. If using the more financially-accurate annuity-equivalence calculations I outlined above (those partner protections and RPI indexation cost big money), I came up with a lower number than £3m+ at the time as annuity rates were better than they are now.

I don't make these statements flippantly - I know what I'm doing when it comes to actuarial calculations. 

But, as I noted, this isn't the unfairness that particularly exercises me, despite your claim about my envy. What annoys me most are the lifetime/annual allowance capitalisation rates for DB pension benefits, where DB pensions are treated with a 16x multiple. That's capitalising the pension income at 6.25%, compared to the 1.5% available on annuities currently. That enables well-paid public sector employees to build up epic amounts of pension benefits beyond the reach of anyone else, at the threat of emergency taxation rates. And the only reason that holds is because some public sector bureaucrat in the treasury has decided it's one rule for them, and another for the private sector. 

Thrugelmir

princeofpounds said:

GunJack said:

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.... 

2. I agree that there is huge variation within the public sector, but I hate to break it to you that the public sector is paid more on average. One such source: https://www.bbc.co.uk/news/uk-politics-40480766. As I noted in my comment, I don't think you can do such an apples-to-apples comparison, although adjusting for qualifications as the linked source does gets you much close to the underlying situation. The only reason I mentioned this is because there were already several instances of the old canard 'public sector get paid less so deserve bigger pensions' - it's just not true (or the first part, at least).

That's the nature of much of the employment within the public sector. Many services that the public sector uses are outsourced to companies such as Mitie, Steris, PHS etc. 

princeofpounds

Thrugelmir said:

That's the nature of much of the employment within the public sector. Many services that the public sector uses are outsourced to companies such as Mitie, Steris, PHS etc. 

Yes I totally agree; the composition of employment can be very different, and with good reason too. Although that's why studies like the one I linked to, which attempt to adjust for that mix, are so interesting. But I'll say again I have no particularly axe to grind on this point, I was merely refuting the baseless point that gets made countless times that 'the public sector gets paid less so higher pension entitlements are ok'.

Mick70

@princeofpounds DB LTA calcs are x 20,  not x 16 , And add on any lump sum 

myfyr

Mick70 said:

@princeofpounds DB LTA calcs are x 20,  not x 16 , And add on any lump sum 

He/She must have got confused with the 16 multiplier used for the annual allowance test.

GunJack

princeofpounds said:

I was merely refuting the baseless point that gets made countless times that 'the public sector gets paid less so higher pension entitlements are ok'.

So how come, when I came out of the CS and into private sector I got a 20% pay rise and a DB pension scheme? For less responsibility..and that was not unusual. It makes those studies seem to be a bit, well, wrong....

[Deleted User]

steampowered said:

Deleted_User said:

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. 

What risk? Your comment is oblivious to how pensions work and how investments work. There is no "risk" investing in stock markets for the 30-40 year period of a working life.

When you hold shares for 10 years or more the chances of making a loss dwindle to zero (i.e. at pretty much no point in the history of the major stock markets would you have made a loss even if - unlike a pension where you invest monthly - you had put literally all of your money in at the top point of the market immediately before a recession).

You cannot be serious. At least I hope so.  Past ~100 years’ worth of data do not guarantee future returns over the next 40.  And your claim that there has never been a loss in “major markets” over any 10 year period is plain wrong. Ask the Japanese. Market still hasn’t reached peaks from the last century. Or Americans who remember the 1970s. 

Thrugelmir

GunJack said:

princeofpounds said:

I was merely refuting the baseless point that gets made countless times that 'the public sector gets paid less so higher pension entitlements are ok'.

So how come, when I came out of the CS and into private sector I got a 20% pay rise and a DB pension scheme? For less responsibility..and that was not unusual. It makes those studies seem to be a bit, well, wrong....

Why does one micro example change the macro conversation?  

atush

Yes, it is fair