Will there be Pension apartheid?

Andy_L

Silvertabby said:

chiefie said:

nigelbb said:

itwasntme001 said:

The very important point I will make now is that if you look at annuity rates over the last 3 decades they have fallen considerably.  This means it is a lot more expensive to fund a db pension scheme now then it was 30 years ago.  Hence the reason for this move to cut back on public sector benefits such as db pension schemes.  Clearly the markets are saying the current cohort of doctors should not be compensated as well as the previous generation of doctor unless the general public (and more specifically the private sector) pay for it (one way - inflation - or another - higher taxes).  This is the fight, a tug of war if you will, between the public and private sectors that will escalate over the coming decades.

There is indeed no free lunch unfortunately.

You clearly don't understand how public sector pensions are funded. No annuity is purchased from a pension pot accumulated over the pensioner's career. Like all other government spending public sector pensions are paid out of a mixture of current taxes & future borrowing. Government borrowing is actually much cheaper now than previously as interest rates are at an historic low.

The LGPS is a funded scheme. Boris a few years back wanted to consolidate them all and invest the money in infrastructure. Watch this space 

There are 89 separate LGPS funds in England and Wales, including several in London alone.  Rumours about possible amalgamation, into a lesser number of bigger funds, have been rumbling for years.  Can't see how combining them into one fund would work.  Yes, I know the NHS has done it, but the LGPS is far more complex, with its Admitted Bodies and the tendancy for a lot of manual workers to have more than one post, to keep changing hours, etc.  Just the first two points that came to mind, but there are many more.

The NHS pension is unfunded

Silvertabby

Andy_L said:

Silvertabby said:

chiefie said:

nigelbb said:

itwasntme001 said:

The very important point I will make now is that if you look at annuity rates over the last 3 decades they have fallen considerably.  This means it is a lot more expensive to fund a db pension scheme now then it was 30 years ago.  Hence the reason for this move to cut back on public sector benefits such as db pension schemes.  Clearly the markets are saying the current cohort of doctors should not be compensated as well as the previous generation of doctor unless the general public (and more specifically the private sector) pay for it (one way - inflation - or another - higher taxes).  This is the fight, a tug of war if you will, between the public and private sectors that will escalate over the coming decades.

There is indeed no free lunch unfortunately.

You clearly don't understand how public sector pensions are funded. No annuity is purchased from a pension pot accumulated over the pensioner's career. Like all other government spending public sector pensions are paid out of a mixture of current taxes & future borrowing. Government borrowing is actually much cheaper now than previously as interest rates are at an historic low.

The LGPS is a funded scheme. Boris a few years back wanted to consolidate them all and invest the money in infrastructure. Watch this space 

There are 89 separate LGPS funds in England and Wales, including several in London alone.  Rumours about possible amalgamation, into a lesser number of bigger funds, have been rumbling for years.  Can't see how combining them into one fund would work.  Yes, I know the NHS has done it, but the LGPS is far more complex, with its Admitted Bodies and the tendancy for a lot of manual workers to have more than one post, to keep changing hours, etc.  Just the first two points that came to mind, but there are many more.

The NHS pension is unfunded

I know.  I was just talking about the practicalities.

itwasntme001

nigelbb said:

itwasntme001 said:

The very important point I will make now is that if you look at annuity rates over the last 3 decades they have fallen considerably.  This means it is a lot more expensive to fund a db pension scheme now then it was 30 years ago.  Hence the reason for this move to cut back on public sector benefits such as db pension schemes.  Clearly the markets are saying the current cohort of doctors should not be compensated as well as the previous generation of doctor unless the general public (and more specifically the private sector) pay for it (one way - inflation - or another - higher taxes).  This is the fight, a tug of war if you will, between the public and private sectors that will escalate over the coming decades.

There is indeed no free lunch unfortunately.

You clearly don't understand how public sector pensions are funded. No annuity is purchased from a pension pot accumulated over the pensioner's career. Like all other government spending public sector pensions are paid out of a mixture of current taxes & future borrowing. Government borrowing is actually much cheaper now than previously as interest rates are at an historic low.

When did I say that public sector pensions buy market annuities?  Thanks - you have shown my point about how many people really do not understand the complexities behind this debate/topic.

Public sector pensions are exactly like index linked annuities you can buy in the market.  Since these annuities have become a lot more expensive in real terms over the last 30 years, it means that the public sector workers need to pay in an equivalent increase in their pensions to maintain the same real terms borrowing and taxes used to fund these pensions compared to 30 years ago.

Has this increase happened or are public sector workers not contributing any more in real terms then they did 30 years ago?  Because if not then clearly the taxpayer and the private sector have an increasing burden to  fund public sector pensions.  Which will therefore eventually lead to higher inflation and taxes - both which the private sector will not take lightly.

Andy_L

itwasntme001 said:

nigelbb said:

itwasntme001 said:

The very important point I will make now is that if you look at annuity rates over the last 3 decades they have fallen considerably.  This means it is a lot more expensive to fund a db pension scheme now then it was 30 years ago.  Hence the reason for this move to cut back on public sector benefits such as db pension schemes.  Clearly the markets are saying the current cohort of doctors should not be compensated as well as the previous generation of doctor unless the general public (and more specifically the private sector) pay for it (one way - inflation - or another - higher taxes).  This is the fight, a tug of war if you will, between the public and private sectors that will escalate over the coming decades.

There is indeed no free lunch unfortunately.

You clearly don't understand how public sector pensions are funded. No annuity is purchased from a pension pot accumulated over the pensioner's career. Like all other government spending public sector pensions are paid out of a mixture of current taxes & future borrowing. Government borrowing is actually much cheaper now than previously as interest rates are at an historic low.

When did I say that public sector pensions buy market annuities?  Thanks - you have shown my point about how many people really do not understand the complexities behind this debate/topic.

Public sector pensions are exactly like index linked annuities you can buy in the market.  Since these annuities have become a lot more expensive in real terms over the last 30 years, it means that the public sector workers need to pay in an equivalent increase in their pensions to maintain the same real terms borrowing and taxes used to fund these pensions compared to 30 years ago.

Has this increase happened or are public sector workers not contributing any more in real terms then they did 30 years ago?  Because if not then clearly the taxpayer and the private sector have an increasing burden to  fund public sector pensions.  Which will therefore eventually lead to higher inflation and taxes - both which the private sector will not take lightly.

Yes. Increases to employee contributions happened as part of last lot of changes. As well as an increase in retirement age, CPI instead of higher RPI indexation & the change from final salary to career average (although the latter is more of a redistribution amongst members than a cost saving)

itwasntme001

Andy_L said:

itwasntme001 said:

nigelbb said:

itwasntme001 said:

The very important point I will make now is that if you look at annuity rates over the last 3 decades they have fallen considerably.  This means it is a lot more expensive to fund a db pension scheme now then it was 30 years ago.  Hence the reason for this move to cut back on public sector benefits such as db pension schemes.  Clearly the markets are saying the current cohort of doctors should not be compensated as well as the previous generation of doctor unless the general public (and more specifically the private sector) pay for it (one way - inflation - or another - higher taxes).  This is the fight, a tug of war if you will, between the public and private sectors that will escalate over the coming decades.

There is indeed no free lunch unfortunately.

You clearly don't understand how public sector pensions are funded. No annuity is purchased from a pension pot accumulated over the pensioner's career. Like all other government spending public sector pensions are paid out of a mixture of current taxes & future borrowing. Government borrowing is actually much cheaper now than previously as interest rates are at an historic low.

When did I say that public sector pensions buy market annuities?  Thanks - you have shown my point about how many people really do not understand the complexities behind this debate/topic.

Public sector pensions are exactly like index linked annuities you can buy in the market.  Since these annuities have become a lot more expensive in real terms over the last 30 years, it means that the public sector workers need to pay in an equivalent increase in their pensions to maintain the same real terms borrowing and taxes used to fund these pensions compared to 30 years ago.

Has this increase happened or are public sector workers not contributing any more in real terms then they did 30 years ago?  Because if not then clearly the taxpayer and the private sector have an increasing burden to  fund public sector pensions.  Which will therefore eventually lead to higher inflation and taxes - both which the private sector will not take lightly.

Yes. Increases to employee contributions happened as part of last lot of changes. As well as an increase in retirement age, CPI instead of higher RPI indexation & the change from final salary to career average (although the latter is more of a redistribution amongst members than a cost saving)

When did all these changes happen and to what were the changes from and to?

itwasntme001

Just as a comparison between public sector DB pension LTA of £52,750/yr and DC pension LTA of £1.055m.  Dividing the former by the latter gives 5% exactly.  However a market index linked annuity rate is 3.2% for a 65 year old retiree (even lower for earlier retirement age and we know most doctors retire earlier then 65 given they have already accrued the benefits to hit LTA before 65).

This is just one element of the pension comparison debate that shows that the public sector have not adjusted their costs of db pension funding which is having a negative impact on the taxpayer.  Again rightly or wrongly.

kuratowski

LTA is about tax treatment, and has no bearing on the funding of the public sector pension schemes.  The Government Actuary's Department defines the contribution rates; as stated above, these are varied every few years.  Contribution levels have been increased significantly over the years, in addition to the changes in the scheme rules, which on a net basis have reduced the level of benefits.

crv1963

Doctors form a tiny percentage of the PS workforce. Most PS pensions are less than 5k pa according to my Trust Pension Officer. Very few of us retire having worked a lifetime at fulltime hours on a reasonable pay grade. The reforms to the NHS pension scheme (2015) means it is still good but is now career average as opposed to being based on final salary (1995 scheme).

Even worse IMHO are those that shun being in a pension at all. There are numerous people I've worked with who tell me either they can't afford to join the pension scheme or will do it later but later never comes! 

itwasntme001

kuratowski said:

LTA is about tax treatment, and has no bearing on the funding of the public sector pension schemes.  The Government Actuary's Department defines the contribution rates; as stated above, these are varied every few years.  Contribution levels have been increased significantly over the years, in addition to the changes in the scheme rules, which on a net basis have reduced the level of benefits.

LTA does have a bearing on the burden to the taxpayer because as the LTA changes, so does the liability on the taxpayer all else being equal.

Now show me how much contributions have changed over the years and when; even though on a net basis the level of benefits have reduced, have they reduced enough so that they have fallen in lockstep with the significant rise in the cost for index linked annuities?  Lockstep being the key word here because reducing the benefits late will not have helped the taxpayer much.

kuratowski

You raised the LTA in the context of comparing the DB pension LTA against a DC pension LTA and noting the ratio is 1:20.  I was simply pointing out that this ratio is fixed in tax legislation.  It has nothing to do with the operation of the public sector pension schemes.  Any private sector DB pension is treated in exactly the same way.

Taxpayers' liabilities in respect of public sector pension schemes are valued by the Government Actuary's Department who sets the contribution rates to ensure these costs are recovered.  This information is in the public domain - all the accounts are published which include the GAD report and the contribution rates.