Rhetoric media on state gold plated pensions

AlanP_2

NedS said:

AlanP_2 said:

zagfles said:

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)

From the standpoint that the public sector work for the taxpayer then 5% employer contribution seems broadly on a par with private sector to me.

The other 95% is also paid for by tax payers, by way of employer and employee contributions whereby the employer is the state and the employee is employed by the state (tax payer). 5% is the percentage of the current liability that is currently unfunded (unmatched by current contributions).
 

As the discussion was about unfunded schemes e. g. Civil service then there are no real employer contributions.

The exact opposite of funded schemes like the LGPS. 

NedS

hyubh said:

NedS said:

Pensions_matter_2 said:

I agree the unfairness of the 20x rule for LTA assessment purposes mentioned by Arnoldy in relation to defined benefit schemes. It really cannot be justified. Its incredible it has lasted this long without change, perhaps down to lack of understanding by the population generally of how pension rules work and also lack of knowledge on the part of those with only defined contribution pensions (those with defined benefit will be keeping quiet!). 

I'm a basic rate tax payer. I've never been a high earner. I'm lucky enough to have a couple of DB pension schemes, and am hoping to retire early in my mid to late 50's. If I carried on working until 67 and inflation remains high (which it may well do given where we currently are), I would almost certainly hit the LTA. Increasing the multiple for DB pensions would only exacerbate the issue.

Unless they unfreeze the LTA and raise it with inflation, many more low to mid earners like myself will hit the LTA and that was clearly never the intent? I'm not some Whitehall Mandarin earning £80k per year, but a shop floor worker earning less than the national average wage, and moving backwards all the time due to lower than average pay rises.

Could you clarify? The LTA is just under £1.1m, the multiplier for DB is x20. Are you expecting your income in retirement from your DB pensions to be more than double your pay while working...?

For DB pensions, I've modeled for 5% p/a inflation (and 2.5% for those that are capped) between their value now and age 65 or 67 when I can take them unreduced (crystallisation event - currently 10-12 years away)

For my SIPP, I've modeled for annual UFPLS draw downs of income plus a final crystallisation event at 75 as this is how I intend to use my SIPP. I've assumed no investment growth whatsoever, and no growth in dividend income so have almost certainly underestimated the contribution my SIPP may make.

Using the above, I have a predicted LTA value of £1.1M. Obviously this assumes a prolonged period of 5% inflation and that the LTA remains frozen. Unlikely, maybe, but not beyond the realms of possibility - but it does highlight what high inflation can do.

If the DB factor were to increase from x20 to x25, my predicted LTA value rises to £1.25M. Increase it to x30 and I'm at £1.4M. At current values (modeled with 0% inflation, or if the LTA increases with CPI) I'm currently at £0.65M, so well under.

Moonwolf

Silvertabby said:

Pensions_matter_2 said:

I agree the unfairness of the 20x rule for LTA assessment purposes mentioned by Arnoldy in relation to defined benefit schemes. It really cannot be justified. Its incredible it has lasted this long without change, perhaps down to lack of understanding by the population generally of how pension rules work and also lack of knowledge on the part of those with only defined contribution pensions (those with defined benefit will be keeping quiet!). 

The 20 X rule was set back when typical annuity rates were over 10% and, for whatever reason, were never changed when annuity rates plummeted.

Now that annuity rates are creeping up again, the difference may not be quite so marked.

I’m also not convinced it is like for like. I have both DB and DC schemes. In terms of income my DB are worth a lot more, particularly the two that pay out at 60. However, if I want to leave tax free money in my will, my DC scheme wins.  My DB scheme has no cash value. My nephews and nieces ( or children if I had them ) get nothing. I can’t use my DB scheme to hide savings from my estate to avoid inheritance tax. How many people draw down from a £750k pot and still expect to leave it all tax free, you can’t do that with a £37,500 DB pension.

hyubh

NedS said:

hyubh said:

NedS said:

Pensions_matter_2 said:

I agree the unfairness of the 20x rule for LTA assessment purposes mentioned by Arnoldy in relation to defined benefit schemes. It really cannot be justified. Its incredible it has lasted this long without change, perhaps down to lack of understanding by the population generally of how pension rules work and also lack of knowledge on the part of those with only defined contribution pensions (those with defined benefit will be keeping quiet!). 

I'm a basic rate tax payer. I've never been a high earner. I'm lucky enough to have a couple of DB pension schemes, and am hoping to retire early in my mid to late 50's. If I carried on working until 67 and inflation remains high (which it may well do given where we currently are), I would almost certainly hit the LTA. Increasing the multiple for DB pensions would only exacerbate the issue.

Unless they unfreeze the LTA and raise it with inflation, many more low to mid earners like myself will hit the LTA and that was clearly never the intent? I'm not some Whitehall Mandarin earning £80k per year, but a shop floor worker earning less than the national average wage, and moving backwards all the time due to lower than average pay rises.

Could you clarify? The LTA is just under £1.1m, the multiplier for DB is x20. Are you expecting your income in retirement from your DB pensions to be more than double your pay while working...?

For DB pensions, I've modeled for 5% p/a inflation (and 2.5% for those that are capped) between their value now and age 65 or 67 when I can take them unreduced (crystallisation event - currently 10-12 years away)

For my SIPP, I've modeled for annual UFPLS draw downs of income plus a final crystallisation event at 75 as this is how I intend to use my SIPP. I've assumed no investment growth whatsoever, and no growth in dividend income so have almost certainly underestimated the contribution my SIPP may make.

Using the above, I have a predicted LTA value of £1.1M. Obviously this assumes a prolonged period of 5% inflation and that the LTA remains frozen. Unlikely, maybe, but not beyond the realms of possibility - but it does highlight what high inflation can do.

If the DB factor were to increase from x20 to x25, my predicted LTA value rises to £1.25M. Increase it to x30 and I'm at £1.4M. At current values (modeled with 0% inflation, or if the LTA increases with CPI) I'm currently at £0.65M, so well under.

I'll be honest, I'm still a bit confused at what you are trying to argue, particularly now you've mentioned part of your concern is in fact your SIPP. You said before,

I'm a basic rate tax payer. I've never been a high earner. I'm lucky enough to have a couple of DB pension schemes, and am hoping to retire early in my mid to late 50's. If I carried on working until 67 and inflation remains high (which it may well do given where we currently are), I would almost certainly hit the LTA. Increasing the multiple for DB pensions would only exacerbate the issue.

It's quite an heroic assumption to think the LTA won't increase for 10-12 years rather than just the 4 which is current government policy. But if we assume it anyway: this static LTA applies to DC as well as DB. So how does that justify not making the DB multiple fairer when comparing DB to DC...? If a static LTA is somehow unfair for DB, it's even more unfair for DC.

Also: you contrasted your own position to a 'Whitehall Mandarin earning £80k per year'. But such a person will unlikely have an LTA problem in 2022! It's NHS doctors and consultants earning six figures that have that. Your claim only works if we assume a current CSPS member accrues Alpha pension against a 80K salary across their career. In reality, most current CSPS members on 80K will have a mixture of final salary (on a lower accrual rate) and CARE. And younger members who (at the present point in time) will accrue all on Alpha CARE terms will not start on 80K, it will take many years for them to get to that.

NedS

hyubh said:

I'll be honest, I'm still a bit confused at what you are trying to argue, particularly now you've mentioned part of your concern is in fact your SIPP. You said before,

I was simply pointing out that one doesn't need to be highly paid or have a huge pension to potentially be affected by the LTA, and any move to increase the factor used to value DB pensions only worsens the situation. I accept and agree that hopefully the freeze will end as planned and the LTA will then hopefully rise with inflation, but the government have changed the rules before and will no doubt change them again.

The issue is not the x20 valuation factor, but the fact the LTA is frozen. The value of uncapped DB pensions in deferment are currently increasing by high rates inflation whilst the LTA in frozen, and that is rapidly removing any headroom that may have existed for people like myself. As a relatively low earner, I should never be anywhere near hitting the LTA, but as I pointed out if the LTA remains frozen and inflation remains high, that headroom quickly evaporates for those with uncapped DB pensions increasing at 10% plus per year. What if inflation is 10% this year and 18-22% as some are predicting next year, reducing back to 10% the year after? That's a compounded increase of 45% in 3 years whist the LTA remains frozen. You see how anyone in their 50's with a decent amount of deferred DB pension 10 years from crystallisation might start to get concerned?

hyubh

NedS said:

hyubh said:

I'll be honest, I'm still a bit confused at what you are trying to argue, particularly now you've mentioned part of your concern is in fact your SIPP. You said before,

I was simply pointing out that one doesn't need to be highly paid or have a huge pension to potentially be affected by the LTA, and any move to increase the factor used to value DB pensions only worsens the situation.

That's simply not true. Your 80K 'mandarin' is very well paid with excellent DB provision... yet still is unaffected by the LTA, unless they had climbed the greasy pole very, very quickly. Making the LTA multiple fairer for those with DC provision won't worsen the situation for the vast majority of basic rate tax paying DB members in the slightest, the maths just isn't there.

I accept and agree that hopefully the freeze will end as planned and the LTA will then hopefully rise with inflation, but the government have changed the rules before and will no doubt change them again. The issue is not the x20 valuation factor, but the fact the LTA is frozen.

Exactly! Your real concern is the LTA threshold going forward, not the the LTA multiple for DB...

The value of uncapped DB pensions in deferment are currently increasing by high rates inflation whilst the LTA in frozen, and that is rapidly removing any headroom that may have existed for people like myself. As a relatively low earner, I should never be anywhere near hitting the LTA, but as I pointed out if the LTA remains frozen and inflation remains high, that headroom quickly evaporates for those with uncapped DB pensions increasing at 10% plus per year.

April this year, public sector PI was 3.1%. Next April's will indeed be 10% or something like that. Bit OTT to look at this and then scream blue murder about the DB multiple potentially being tightened, on the assumption the LTA threshold will never be increased. The LTA threshold not being increased would impact far, far more less-than-high earners with pure DC pensions than those lucky to have public sector, or public sector aligned, DB pensions.

What if inflation is 10% this year and 18-22% as some are predicting next year, reducing back to 10% the year after? That's a compounded increase of 45% in 3 years whist the LTA remains frozen. You see how anyone in their 50's with a decent amount of deferred DB pension 10 years from crystallisation might start to get concerned?

The diligent basic rate taxpayer who has only ever known DC pensions should objectively be more concerned about the LTA getting frozen indefinitely.