Rhetoric media on state gold plated pensions

Altior

NedS said:

Altior said:

From April next year, stop all public sector pension accrual dead, and make it the auto enrolment rate going forward. The difference in implied benefit gets added to gross salary (they keep any accrued DB entitlement). Employees can then make their own arrangements, in addition to the 3% as they see fit. Let's see what their salaries would be then. 

Well, a 30% plus pay rise would certainly be more palatable than the 2% on offer. How do I vote for you

That's the point isn't it, it would never happen in reality as public sector db pensions are effectual stealth salaries. It would however expose the monumental unfunded liability being built up on the heads of future taxpayers.

And that isn't even considering the other numerous additional advantages of working in the public sector. 

The people in that part of society might be a little more welcoming of 'tax cuts' though 

CorseyEdge

zagfles said:

The cost to the taxpayer of the unfunded public service pensions is less than 0.2% of GDP... 0.2%. That seems relatively sustainable and far, far less significant than say losing 4% of GDP due to EU exit. 

Personally I think there are far more important things for the UK to gnash its teeth on than the inconsequential cost of post-retirement benefit to those that spent much of their life serving their country.

That seems to be based on the effect on the "current account", ie what's going in compared to what's going out. Which is useful for some purposes but not for understanding the cost of the liabilties being buit up. The £49.7 billion beig paid out is paying for historical liabilities (to existing public service pensioners) and the £47.2 billion being collected from existing public service employees and employers is creating future liabilities. The difference between the two is meaningless in terms of liabilities being created and settled, unless you treat it as a Ponzi scheme!

Is it 'meaningless'? That's the net cost of the scheme today (as well as the 4 year forecasts in the OBR brief)

Of course it's a Ponzi game, that's how the economics of these pensions work. It's exactly the same as the State pension. Should we treat that similarly?

NedS

Altior said:

NedS said:

Altior said:

From April next year, stop all public sector pension accrual dead, and make it the auto enrolment rate going forward. The difference in implied benefit gets added to gross salary (they keep any accrued DB entitlement). Employees can then make their own arrangements, in addition to the 3% as they see fit. Let's see what their salaries would be then. 

Well, a 30% plus pay rise would certainly be more palatable than the 2% on offer. How do I vote for you

That's the point isn't it, it would never happen in reality as public sector db pensions are effectual stealth salaries. It would however expose the monumental unfunded liability being built up on the heads of future taxpayers.

Excuse my naivety, but who pays for the current unfunded public sector DB liabilities? Where do the vast amounts of money I and my employer pay each month in pension contributions go and where is the burden on the tax payer?

german_keeper

And that isn't even considering the other numerous additional advantages of working in the public sector. 

Is that the round of applause?

CorseyEdge

Altior said:

That's the point isn't it, it would never happen in reality as public sector db pensions are effectual stealth salaries. It would however expose the monumental unfunded liability being built up on the heads of future taxpayers.

Where is this future liability being 'built up'? Do you have a figure for 'monumental'? 

Current liability is £49.7billion less £47.2 billion of contributions (net £2.5 bn or 0.1% of GDP) i.e. it pays for itself

Altior

german_keeper said:

And that isn't even considering the other numerous additional advantages of working in the public sector. 

Is that the round of applause?

Pots and pans.

Altior

CorseyEdge said:

Altior said:

That's the point isn't it, it would never happen in reality as public sector db pensions are effectual stealth salaries. It would however expose the monumental unfunded liability being built up on the heads of future taxpayers.

Where is this future liability being 'built up'? Do you have a figure for 'monumental'? 

Current liability is £49.7billion less £47.2 billion of contributions (net £2.5 bn or 0.1% of GDP) i.e. it pays for itself

A quick google gives this.

Public sector pension liabilities break £2tn with 16% surge

By Alex Janiaud | June 6, 2022

On the go: Changes to mortality assumptions have played their part in pushing the net public sector pension liability up by 15.6 per cent between the 2018-19 and 2019-20 periods, reaching almost £2.2tn.

The net public sector pension represents 44 per cent of the government’s total liabilities and is the largest liability in the government’s accounts, which were released on June 6. It does not include the state pension.

The liability increased by £295.6bn in 2019-20 from £1.89tn. This was driven by a £220.6bn net revaluation loss, £66.6bn in current service costs, and £53.9bn in net interest payments.

hyubh

zagfles said:

hyubh said:

It has been far too slow, but changes have been made to state pension ages and gender alignment, which of course will inevitably be pushed further out.

Public sector pension schemes, in general, didn't discriminate by sex in the first place - so Barber equalisation in the 90s wasn't a thing for them.

All contracted out pension schemes discriminated by gender pre 1997. It was the law, they had to! GMP is calculated differently for men and women due to the previous different state pension ages (60 for women and 65 for men), schemes had to use the calculation prescribed by law, and that calculation differed by gender!

The scheme total benefits may not have discriminated, most private sector scheme didn't, but as the GMP element was calculated differently this led to different outcomes for men and women depending on circumstances. In particular, with a deferred pension, the GMP revalues at a different rate, so a man and women with identical age, service etc who leave on the same date will initially have the same total pension, but the GMP element would be different, and due to the GMP having different revaluation rules the pension would revalue differently between leaving and the pension being taken. Also once in payment the indexation would be different.

It's a legacy of the numpty Labour govt of the 1970's. First they pass the sex discrimination law in 1975 telling employers "thou shalt not discriminate", but didn't apply it to themselves, ie to state benefits like the the state pension. They maintained unequal state pension ages with no plans to change them. On it's own this was hypocrisy, but didn't cause a problem for occupational pensions. Employers musn't discriminate, but the state can. Do as I say not as I do. Fine.

But in 1978 they introduced SERPS for the many people who didn't have an occupational pension. But as a lot of employers already had an occupation pension, they allowed these employers to "contract out" of SERPS, basically replicate as a minimum the benefits of SERPS in their scheme. As they were replicating a discriminatory state benefit, employers didn't see this as them discriminating, they were replicating a state benefit which discriminated! They HAD TO discriminate, they didn't have a choice.

So employers were caught between the legislation for calculating GMPs, which forced them to calculate it differently for men and women, and the sex discrimination act, which said all elements of pay should be equal! It was impossible for them to obey both laws! And now they (or their pension schemes) are stuck with the legacy of all this and making ridiculously complicated "GMP equalisation" calculations.

I stand by my original claim (small number of edge cases aside). In most (if not all) private sector schemes, the GMP/excess split is taken at exit, with the different elements revaluing separately to GPD. In public sector schemes, in contrast, the GMP/excess split is only taken at GPD - until then the whole basic pension increases as one. After that, a GMP component to the scheme pension only limits total increases when the member is receiving the 'missing' bit of PI through their state pension. If they are not (for whatever reason), then the scheme must pay full PI on the GMP (this rule was in place from the off in 1978). This works because, (a) public sector schemes must use S148 GMP revaluation (b) public sector increases on basic pension are the same (not contingently so, are explicitly the same) as increases on SERPS in payment.

So, say Mr M and Ms F were both born on 6/4/52, both joining the LGPS in 1978 and leaving it in 1997, on identical salaries and service histories. You're right, the GMP at exit will nevertheless be different. That said, thanks to the 85 year rule, both retire age 60 in 2012. As such, Ms F is retiring when her GMP is 'due'. But wait! She's not yet receiving her state pension. So, on retirement, both her and Mr M get an identical pension (viz., the increased total basic pension at leaving) that continues to increase the same way too. Of course, age 62-and-a-bit, Ms F does reach SPA, ahead of Mr M. She takes her state pension at that point; this then causes her LGPS pension to be increased adjusting for her GMP. However, the 'missing' increase is paid with her state pension - so she is not actually worse off.

zagfles

CorseyEdge said:

zagfles said:

The cost to the taxpayer of the unfunded public service pensions is less than 0.2% of GDP... 0.2%. That seems relatively sustainable and far, far less significant than say losing 4% of GDP due to EU exit. 

Personally I think there are far more important things for the UK to gnash its teeth on than the inconsequential cost of post-retirement benefit to those that spent much of their life serving their country.

That seems to be based on the effect on the "current account", ie what's going in compared to what's going out. Which is useful for some purposes but not for understanding the cost of the liabilties being buit up. The £49.7 billion beig paid out is paying for historical liabilities (to existing public service pensioners) and the £47.2 billion being collected from existing public service employees and employers is creating future liabilities. The difference between the two is meaningless in terms of liabilities being created and settled, unless you treat it as a Ponzi scheme!

Is it 'meaningless'? That's the net cost of the scheme today (as well as the 4 year forecasts in the OBR brief)

Of course it's a Ponzi game, that's how the economics of these pensions work. It's exactly the same as the State pension. Should we treat that similarly?

It's not a problem being a Ponzi scheme as long as you can keep it going with the same inflows and outflows. With the state pension that can be achieved easily enough by adjusting NI rates and state pension age, which the govt have. The state pension age has been increased, and NI rates have been increased over the last few decades.

Similarly, if public sector pension costs start exceeding contributions, then contribution rates will have to be increased, the NPA would have to be increased, or both. Or, as is the case now, the taxpayer has to make up the difference.

But existing/future public sector employees may feel that it's unfair that their contributions have to rise to pay historic liabilities. Or taxpayers may feel it's unfair that they need to make up the difference.

The real problem would come if the number of employees in the public sector fell significantly, as it did due to computerisation etc. Then you'll have less active employees paying for more pensioners. Should their pension contributions be higher to pay historic liabilities for previous public sector employees? If you want to treat public sector pensions as a ponzi scheme, then the answer must be yes.

zagfles

CorseyEdge said:

Altior said:

That's the point isn't it, it would never happen in reality as public sector db pensions are effectual stealth salaries. It would however expose the monumental unfunded liability being built up on the heads of future taxpayers.

Where is this future liability being 'built up'? Do you have a figure for 'monumental'? 

Current liability is £49.7billion less £47.2 billion of contributions (net £2.5 bn or 0.1% of GDP) i.e. it pays for itself

Don't understand the relevance of a GDP %, it's about 5% of the cost of these unfunded schemes being directly paid by taxpayers. Plus the indirect costs (basically all public sector costs are ultimately paid by the taxpayer)