Suggestion: National Infrastructure Fund DB Pension

michaels

I am a civil servant and part of the alpha scheme.  As well as the standard pension contributions (5.45% of my income and 25% ish employer contribution to purchase 2.32% of my current salary index linked at SPA) I am able to purchase additional pension on similar terms except that I make all the contributions there is no further employer top up.

Would there be appetite for a government backed pension for private sector workers on the same terms as my additional pension that could create a pot of money to form a national infrastructure fund?

Basically giving private sector workers the option to have some or all of their pension in a DB scheme, the terms of which are not particularly more generous than a DC pension.  This could be for additional contributions and/or the current compulsory employee/employer contributions.

Albermarle

michaels said:

I am a civil servant and part of the alpha scheme.  As well as the standard pension contributions (5.45% of my income and 25% ish employer contribution to purchase 2.32% of my current salary index linked at SPA) I am able to purchase additional pension on similar terms except that I make all the contributions there is no further employer top up.

Would there be appetite for a government backed pension for private sector workers on the same terms as my additional pension that could create a pot of money to form a national infrastructure fund?

Basically giving private sector workers the option to have some or all of their pension in a DB scheme, the terms of which are not particularly more generous than a DC pension.  This could be for additional contributions and/or the current compulsory employee/employer contributions.

I think there would be an appetite for a more secure income, rather than relying on the financial markets to deliver. 
However one issue would be explaining the different options to the public, who are mainly woefully ignorant about such matters. 
Also knowing the huge liabilities that build up in DB schemes, the Treasury would probably be reluctant to add to current public sector/state pension future liabilities.

hyubh

michaels said:

I am a civil servant and part of the alpha scheme.  As well as the standard pension contributions (5.45% of my income and 25% ish employer contribution to purchase 2.32% of my current salary index linked at SPA) I am able to purchase additional pension on similar terms except that I make all the contributions there is no further employer top up.

Would there be appetite for a government backed pension for private sector workers on the same terms as my additional pension that could create a pot of money to form a national infrastructure fund?

Who pays for the pension promise when politicians fail to pick winners...?

michaels

hyubh said:

michaels said:

I am a civil servant and part of the alpha scheme.  As well as the standard pension contributions (5.45% of my income and 25% ish employer contribution to purchase 2.32% of my current salary index linked at SPA) I am able to purchase additional pension on similar terms except that I make all the contributions there is no further employer top up.

Would there be appetite for a government backed pension for private sector workers on the same terms as my additional pension that could create a pot of money to form a national infrastructure fund?

Who pays for the pension promise when politicians fail to pick winners...?

Sadly that is a real risk - in theory there are long term infrastructure investment in regulated sectors (such as water) which are in theory due to the low risk nature of the investment capped to fixed inflation adjustment return on capital - exactly the sort of assets that would match the pension liabilities.  But we all know if you give politicians a pot of money then they will instead invest it to 'back winners' in 'favoured' sectors

JoeCrystal

michaels said:

Would there be appetite for a government backed pension for private sector workers on the same terms as my additional pension that could create a pot of money to form a national infrastructure fund?

No. If the government at the time were willing to change terms and conditions for their members of parliament and staff working in the public sector, they would be even less likely to honour commitments to workers in the private sector.

Private sector workers already have the option to "buy" the DB pension if they start work in a job that comes with the DB pension scheme and if the employer allows it (aka transfer in their pension schemes). Indeed, that is my plan in a decade or two, provided it is still around!

michaels

JoeCrystal said:

michaels said:

Would there be appetite for a government backed pension for private sector workers on the same terms as my additional pension that could create a pot of money to form a national infrastructure fund?

No. If the government at the time were willing to change terms and conditions for their members of parliament and staff working in the public sector, they would be even less likely to honour commitments to workers in the private sector.

Private sector workers already have the option to "buy" the DB pension if they start work in a job that comes with the DB pension scheme and if the employer allows it (aka transfer in their pension schemes). Indeed, that is my plan in a decade or two, provided it is still around!

Don't think the gov have retrospectively devalued contributions already made, merely changed the T&C for future contributions (although as it is linked to the SPA you could see that as a retrospective change)

hugheskevi

michaels said:

JoeCrystal said:

michaels said:

Would there be appetite for a government backed pension for private sector workers on the same terms as my additional pension that could create a pot of money to form a national infrastructure fund?

No. If the government at the time were willing to change terms and conditions for their members of parliament and staff working in the public sector, they would be even less likely to honour commitments to workers in the private sector.

Private sector workers already have the option to "buy" the DB pension if they start work in a job that comes with the DB pension scheme and if the employer allows it (aka transfer in their pension schemes). Indeed, that is my plan in a decade or two, provided it is still around!

Don't think the gov have retrospectively devalued contributions already made, merely changed the T&C for future contributions (although as it is linked to the SPA you could see that as a retrospective change)

RPI-CPI was a huge retrospective change, albeit argued successfully in law that the entitlement was of an inflation-linked pension, not indexation by a particular index.

Nonetheless, the change devalued contributions already made by very significant amounts - probably in the region of 40% for younger members.

Hoenir

michaels said:

hyubh said:

michaels said:

I am a civil servant and part of the alpha scheme.  As well as the standard pension contributions (5.45% of my income and 25% ish employer contribution to purchase 2.32% of my current salary index linked at SPA) I am able to purchase additional pension on similar terms except that I make all the contributions there is no further employer top up.

Would there be appetite for a government backed pension for private sector workers on the same terms as my additional pension that could create a pot of money to form a national infrastructure fund?

Who pays for the pension promise when politicians fail to pick winners...?

 in theory there are long term infrastructure investment in regulated sectors (such as water) which are in theory due to the low risk nature of the investment capped to fixed inflation adjustment return on capital 

Theory is fine. Running a business with the complexieties that go with it another. What have Politicians ever run these days?  They are in the main career academics with no high level industry experience. Words come cheap. Actions are another matter. 

Albermarle

michaels said:

hyubh said:

michaels said:

I am a civil servant and part of the alpha scheme.  As well as the standard pension contributions (5.45% of my income and 25% ish employer contribution to purchase 2.32% of my current salary index linked at SPA) I am able to purchase additional pension on similar terms except that I make all the contributions there is no further employer top up.

Would there be appetite for a government backed pension for private sector workers on the same terms as my additional pension that could create a pot of money to form a national infrastructure fund?

Who pays for the pension promise when politicians fail to pick winners...?

Sadly that is a real risk - in theory there are long term infrastructure investment in regulated sectors (such as water) which are in theory due to the low risk nature of the investment capped to fixed inflation adjustment return on capital - exactly the sort of assets that would match the pension liabilities.  But we all know if you give politicians a pot of money then they will instead invest it to 'back winners' in 'favoured' sectors

Infrastructure funds have done rather badly recently due to the increase in interest rates.

gm0

It was a terrible idea when Hunt floated it.  It's a terrible idea now.

There should be almost no appetite at all for a directly government run version.  Prostituted to their short term electoral priorities and fashionable ideas for directed investment - of other people's deferred salary i.e. pensions.

A lot of economic coverage of the nativist / "nationalist" investing trend more generally is deeply negative.  Falls into the category of "sounds good and politically convenient" but actually awful. But the people for whom it is awful don't get to find out until much later.  So still highly appealing to the idiots in power in the here and now (of whichever party rosette colour)

In terms of the outcomes for the people who are having their deferred salary redirected towards it.  Economist looked at international examples from Asia and elsewhere recently. Where this has been done before - bad, not good for pensioners.  Mixed results - as ever - on results of the capital investments made - global markets, trade and economic trends, waste and corruption all so see to that.  Some projects more successful than others.

!!!!!! on people's pensions to direct capital to short term preferred public sector goals without further raising the state borrowing ceiling is just a parlour trick. 

And an economically illiterate one viewed on international examples.

gm0

Any scheme needs to have the members goals at the heart of it.  And be arms length run.  And actually - it should not be DB at all.

Likely it should be defined ambition.  Smoothed. Death pooled.  With profits.  DC+.   Known inputs at the time of employment.  No open ended indexation promises. Some underpinning of "the pension you will get" And a variable portion linked to pooled investment returns. 

But inheritance of personal pots is also curtailed (to support death pooling).  Can't out live it like an annuity.  Liabilities known and capped - at the time the salary is paid.  More honest than unfunded DB PAYG. 
Unitised.  Bigger pot. Bigger pension. 

You can smooth for death pooling. (Like annuities).  You could smooth for sequence risk - age and cohort at retirement. But you quickly get into the "it's not fair to subsidise THEM from ME" zone quite fast.  And there are other progressive goals.  Get less for more units to subsidise those with few etc.  Arms length. Stable charter. No meddling.  All essential features.  

We don't seem to mind taxing our kids in an open ended fashion for the indexation on consultant medics DB and similar pensions.  So there is that.  But as a drawdown entirely unindexed DC pensioner my frame of reference is that UK pensions apartheid needs to end.  And that requires a better solution than individual DC drawdown. 
And that solution also involves the death of DB as we know it today.

All public sector DB not yet closed off from building future indexed unfunded tax liabilities need to be folded into it.  Some arm twisting of large private employers. So it's public and private and "apartheid" on pensions ends.  And then it will start to soak up most of the market. Displacing tpp and nest etc.  Big investment pool. Lowered cost.  A lot of retail FS product and advice around DC pensions - disappears.  The advice gap.  A problem with the current individual DC drawdown market for smaller pots - is solved.  You don't need to manage your own investments so you don't need advice on it.

Netherlands / Nordic / SA all provide examples of different elements that a national approach could provide

It's fiercely difficult to get there from here.  I am not sure the new government will even try that hard.  The last one did not.  It's an easier problem to admire from a distance than actually to engage with solving over a couple of decades plus.