My DB pension: the promise, the reality, and the influence of wage suppression

hugheskevi

2nd_time_buyer said:

Is the USS the only non-public sector DB pension still accepting new members? 

Based on Purple Book 2022 figures, there are over 500 private sector DB schemes still open to new members. These cover 628,500 active members.

2nd_time_buyer

hugheskevi said:

2nd_time_buyer said:

Is the USS the only non-public sector DB pension still accepting new members? 

Based on Purple Book 2022 figures, there are over 500 private sector DB schemes still open to new members. These cover 628,500 active members.

More than I was expecting. Apparently USS has 223,229 active members which is a significant chunk.

aldershot

JoeCrystal said:

Quite a few. The Railway Pension Scheme is good, but it depends on which sections you are in. The SWR section is still a final salary pension scheme (1/60) with a generous tax-free lump sum (1/40) and a normal pension age of 62. The generosity of the Railway Pension Scheme causes no end of headaches for their employers, especially since they found it very difficult to change the conditions and terms of the scheme.

Now I know why fares are so high and I've never seen an advert for train drivers!

ewaste

The Railways pension scheme is nowhere near as 'generous' as people assume, the devil is in the detail. It's a funded DB scheme on a shared costs basis, 40EE/60ER therefore contribution rates are often high. It is of course still far better than a Defined Contribution scheme.

Annual pay increases are subject to the Pensionable Pay Cap, pay increases as a result of promotion are often only pensionable for future service only. For example for the 2022 5% 'pay rise' only around 1.1%-1.6% is pensionable for the vast majority.

Benefits are calculated on the cap eroded pensionable pay minus 1.5x the, triple locked, basic state pension i.e. currently £12183.60. Some sections no longer have an automatic lump sum and all that do have it capped at 12x the basic state pension. 

Therefore in 2022 a 1.1%-1.6% increase in pensionable pay but a 10.1% in the basic state pension. Declining section pay which devalues previous as well as future accrual, no wonder the scheme is still open. 

The primary headache for employers is that due to Privatisation employees who started under British Rail have protected terms and conditions. Ironic that anyone in the Rail Industry can thank the Tories for something. 

However many employers are now Defined Contribution and even at Network Rail around a third of the employees are DC. 

I considered a job with ScotRail a while ago but done my homework as pension provision was a major consideration. Alas as per usual the media narrative doesn't live up to the reality. 

2nd_time_buyer

ewaste said:

The Railways pension scheme is nowhere near as 'generous' as people assume, the devil is in the detail. It's a funded DB scheme on a shared costs basis, 40EE/60ER therefore contribution rates are often high. It is of course still far better than a Defined Contribution scheme.

Annual pay increases are subject to the Pensionable Pay Cap, pay increases as a result of promotion are often only pensionable for future service only. For example for the 2022 5% 'pay rise' only around 1.1%-1.6% is pensionable for the vast majority.

Benefits are calculated on the cap eroded pensionable pay minus 1.5x the, triple locked, basic state pension i.e. currently £12183.60. Some sections no longer have an automatic lump sum and all that do have it capped at 12x the basic state pension. 

Therefore in 2022 a 1.1%-1.6% increase in pensionable pay but a 10.1% in the basic state pension. Declining section pay which devalues previous as well as future accrual, no wonder the scheme is still open. 

The primary headache for employers is that due to Privatisation employees who started under British Rail have protected terms and conditions. Ironic that anyone in the Rail Industry can thank the Tories for something. 

However many employers are now Defined Contribution and even at Network Rail around a third of the employees are DC. 

I considered a job with ScotRail a while ago but done my homework as pension provision was a major consideration. Alas as per usual the media narrative doesn't live up to the reality. 

Thanks. Lots of info. Always good to learn. 

ussdave

Universidad said:

I have been thinking recently about what I thought my pension would end up looking like when I started working for a University, as well as what it did look like by the time I decided to leave, and what it would have looked like if my salary had kept up with inflation over time.

Decided to post that here, as a point of reference for folks to see what has changed, as well as how wage suppression has masked it.

When I joined USS, I aspired and expected to reach spinal point 43 on the national pay scale before the end of my career, because of what that grade would be at my University, and that is pretty much exactly what I reached by the time I left the sector, after 15 years in USS. (We’ll ignore whether another 20 years might have seen further unexpected promotions).

When I joined, USS was a final salary scheme. So what I expected to get in retirement was 1/80th of my final salary, multiplied by the number of years accrued. (Plus a 3/80 lump sum). In the end, I accrued approximately 15 years of contributions.

Spinal point 43 has the following salaries:

• 41,545 in 2008.
• 51,805 in 2022.
• 59,670 inflation adjusted (CPI) from 2008 to 2022.

(Note that at the point at which I joined, the UK tended to adjust for inflation by RPI rather than CPI, but we’ll totally ignore that further insult to injury).

Therefore, I would have expected my 15 years to earn me:

• 7,790 per year, plus 23,369 lump sum in 2008 money.
• 9,713 per year, plus 29,140 lump sum according to actual salary increases up to 2022
• 11,188 per year, plus 33,564 lump sum in 2022 money, (adjusted for CPI inflation from 2008)

All three figures above assume that the FS scheme had remained in place. 

What I actually earned, due to early closure of FS scheme and introduction of CARE scheme, as well as due to wage suppression over time:

• 8000 per year, plus 24,000 lump sump (in 2022 money)
  

In other words, the needle didn’t move forwards for me more than an inch from 2008, while prices increased by nearly 50%.

The figures make for stark reading

I'm a fair bit younger than many that have been through this (42) so my time in the final salary section was fairly limited.  That said, I'm sure the impact was significant as I'm now two grades higher than I was.  That's not even looking at the wage suppression aspect.

I'm normally the sort of person that would be happy with a fairly middling level of income (and therefore career) but the wage suppression and detrimental pension changes have made me feel I need to push myself into levels of seniority and responsibility that I might otherwise no havet done, just to try and maintain a reasonable (subjective, I know) standard of living and a hope for a decent retirement.  The net result is more stress and worse physical/mental health.  

Of course, the recent inflation levels have put even more pressure on all of the above.  Looking at the next level up though, the work/life balance is so much worse that I dread the idea of it.

JoeCrystal

ewaste said:

The Railways pension scheme is nowhere near as 'generous' as people assume, the devil is in the detail. It's a funded DB scheme on a shared costs basis, 40EE/60ER therefore contribution rates are often high. It is of course still far better than a Defined Contribution scheme.

Annual pay increases are subject to the Pensionable Pay Cap, pay increases as a result of promotion are often only pensionable for future service only. For example for the 2022 5% 'pay rise' only around 1.1%-1.6% is pensionable for the vast majority.

Benefits are calculated on the cap eroded pensionable pay minus 1.5x the, triple locked, basic state pension i.e. currently £12183.60. Some sections no longer have an automatic lump sum and all that do have it capped at 12x the basic state pension. 

Therefore in 2022 a 1.1%-1.6% increase in pensionable pay but a 10.1% in the basic state pension. Declining section pay which devalues previous as well as future accrual, no wonder the scheme is still open. 

The primary headache for employers is that due to Privatisation employees who started under British Rail have protected terms and conditions. Ironic that anyone in the Rail Industry can thank the Tories for something. 

However many employers are now Defined Contribution and even at Network Rail around a third of the employees are DC. 

I considered a job with ScotRail a while ago but done my homework as pension provision was a major consideration. Alas as per usual the media narrative doesn't live up to the reality. 

That is an very interesting read! Thanks for going into greater details about the RPS.

Universidad

SouthCoastBoy said:

Still not bad for 15 years service when compared to a dc scheme.

Quite hard to say I think. I've often wondered, but there are too many variables to consider - including that I would have not chosen that career if the pension wasn't up to snuff - and if you doubt me on this, consider that I eventually left it for that reason, despite the "incumbent" advantage.   There was always a vaunted promise in the University sector which was "you'll never be rich, but you'll be comfortable in retirement".That promise has been broken. Admittedly I wasn't as tuned in back then, but it was still relevant.

Outside the sector I would have had a higher salary (indeed now that I'm outside it again, I do have a higher salary, despite working in the public sector.) 

I've seen some younger folks attempted analysis of the current USS scheme vs just sticking their 10% into a SIPP, and honestly it's a lot tighter than you'd expect - but of course, these are the early career years where the DC pot is invested for the longest.

leosayer said:

At least (unlike many) you understand the gap and have some time to fill it. 

I really feel for the people who don't see that gap. No employer wants to look unattractive so the effects of both wage supression and pension cuts have been downplayed to the point of dishonesty, and there are some nasty surprises awaiting the more credulous folks later in life I think.

There are two mains reasons I see the gap when in many cases more educated colleagues haven't - firstly I was a union member, so I had an alternative narrative, and the continual cuts to USS caused me to take a deeper and deeper look, and I reached the point where I didn't think I would be able to afford to retire. 

The second reason is this forum, so I've got to offer a deep and sincere thanks to everyone here.

SouthCoastBoy

I think generally dc pensions are going to make a big impact on retiring aspirations and reality, 12% per annum on a 40k salary isn't much even allowing for compounding. We are approaching a position of a three tier retirement, db pension, rpi/cpi protected vs db pension vs dc pension. Will be interesting to see how it develops 

QrizB

SouthCoastBoy said:

12% per annum on a 40k salary isn't much even allowing for compounding.

It's enough with 1% annual growth to give you a pot of just over £309k after 50 years, which (at 4% drawdown) would give you almost £23k pa in retirement if you include SP.

That's "comfortable" for a single person, per the Which? survey.

https://www.which.co.uk/money/pensions-and-retirement/planning-your-retirement/how-much-will-you-need-to-retire-aNmlv7V7sVe9

(2% growth would make £406k and give you another almost £4k pa.)