Someone whose own personal history of pension planning is dreadful should not opine on pensions oermuch.
So I won’t.
Compulsory enrollment (or even an opt out system) in pensions twenty years ago would have done me the world of good, I suspect.
So I understand why public sector workers are keen to protect their pensions, and why others have little sympathy with their fears. At the risk of sounding wet and weedy, I’m going to let those who know whereof they speak lead on this one.
(Oh, and on a positive note, the export data for January was really good*. We may be getting a manufacturing led exports boom. That’s great, and much to be hailed. Only problems? Manufacturing’s share of UK economy is not that great, retail figures are poor and business investment is still low. Still, the good news is we’ve got a window of sterling driven competitiveness and high export profits. We need to use that short term advantage and turn it into something sustainable.)
*only one month figures blah blah blah choppy recovery blah blah still, signs of a trend blah blah.
I am not hugely bothered either way about the size of the pension or when it is taken – although I do think that in a society with longer lifespans (in general) something has to give way.
Either higher contributions or later retirement. Whatever.
However, I am really irked by the fact that while a private company is compelled by law to fund future pensions from today’s income, such a requirement does not apply to HM Government.
Yes, I know there is the argument that a private company can go bust, and governments cant. But they can! Sovereign debt defaults are not unheard of after all.
As a consumer buying goods, I am required to fund that company’s pension plan out of today’s spending habits, because in part it is wrong to expect the next generation to fund the pensions of the person who designed a clock radio built 30 years earlier.
I wonder why such thinking does not apply to public sector pensions?
Some public sector pensions are “funded” ie they have money collected from contributions which are saved to pay future pensions. These schemes are similar to ones in the private sector – employee contributes x% of salary, employer contributes y% into a fund which, everyone hopes, will be large enough to generate sufficient income to pay future pensions.
Others are “unfunded” and in that respect are similar to the state pension scheme. So employee still contributes x% of salary, employer contributes y% but the cash is used immediately to pay pensions to people who’ve already retired.
Most of the latter, and indeed the state scheme itself, have come about through benevolent governments in the old days wanting to solve immediate problems. So they started paying pensions to people who had never contributed anything (other than their blood, sweat and tears).
To turn these unfunded schemes into funded ones would involve finding an enormous amount of money from somewhere now to start the fund that would already have been built up had the schemes been funded from the start. Or going back in time to prevent them being started on this basis. (But that would have irked the Liberals* and have meant reverting to the previous system, which some might want to see reintroduced today perhaps, of allowing old people to starve and thereby ceasing to be burdens.)
* as with most things in life, “it’s” all the Liberals’ fault! Lloyd George, like Cleggy, promised voters something for nothing….
Thats all a bag of hairy bollocks .The Employer is the tax payer and the ‘funding’ entirely notional.The pensions are not subject to the performance of a fund such as in the private sector they are guaranteed by future tax payers and are not even funded by the state being vaguely left out of the National debt for reasons I cannot fathom
Services have been delivered – Moneys are due – Thats the walking talking definition of debt which is not all the liabilities but a goodly proportion. I dare say this is the sort lie we will be listening to whereby parasite baby boomers seek to justify their ill gotten cruises.
The funding consists of our children getting nothing and taxed into penury . I somehow doubt this will concern Hughes , just a hunch.
PS – a couple of examples might help.
The Local Government Pension Scheme is a funded scheme , the Teachers’ Pension Scheme is an unfunded one.
Go to their web sites for more details or, for real excitement, go and watch some paint dry…
PPS picking up Newmania’s point and with apologies to Hopi for another comment – all pension arrangements involve an element of stealing from the next generation. Either in the form of taxation or, for funded schemes, investment returns which need dividends that are generated by the blood, sweat and tears of people still at work.
But the previous generation similarly stole from us. My father, for example, was credited with several years of notional NI contributions (because he’d been at work for several years before the scheme started) and so gets a full state pension. The recipients in 1908 of Lloyd George’s pensions similarly benefited without having had to pay for a previous generation’s old age.
It’s a sort of extension of the idea expressed so eloquently by Philip Larkin in This Be The Verse
Brian
I think your point about whether a scheme is funded or unfunded is potentially misleading. In practice, a funded scheme leaves the risk of funding the pension payments with the employer. If all the x+y% s, together with the investment growth, do not add up to c20x the pension, then the employer, state or private needs to pick up the tab. If the x+y% is not large, then the scheme may in practice be unfunded. In corporate land, this is picked up by the rating agencies and the share market within the Enterprise Value and ability to borrow. For a public sector body, I’m not aware of any such calculation being made.
Key point is that a money purchase scheme, where most of the private sector now is, leaves the risk of market growth with the future pensioner. I think there is potentially a huge issue here as, per Hopi’s comments, most people widely underestimate how much they need to save…
My brother is a teacher ( and some time New Labour voter …the traitor ) .He will be crossing any picket lines . As he said the Unions were supposed to be protecting workers not assisting in an ongoing exploitation by privileged and noticeably idle minority of working people and their children,.
Take exhibit A – Baby boomer hippy-ish woman to be found doing an anti cut thing in our Town- She has a final salary pension worth about £750,000 a house bought for a bag of lentils in the 70s now worth about the same . She has done apart time job (badly) for years ( only ten teachers debarred in the last decade ) enjoyed total job security , endless holidays and yet this waste of air, is a millionaire . En route , no child care costs social hours and lots and lots of time for bitching about the selfishness of everyone else. The selfish ‘everyone else’ has no pension .
That is why this country does not work in every sense. I hope there is a strike .I will happily have a free and frank discussion with any demonstrator
So it seems that your brother doesn’t regard protecting his pension arrangement (which is part of his “benefits package”) as any part of a teaching union’s business. How odd, would he expect the unions to be upset by a proposal to cut his pay by, say 15%? Can he not see that the two things may be equivalent? Is the future of our children safe in his hands?
Would you like to hear my anecdote about the idle waster employed in the private sector who gets given shares in the company each year and can purchase its products at a reduced rate (as parts of his benefits package)? Non? Pourquoi?
The other man’s grass is always greener
The sun shines brighter on the other side
The other man’s grass is always greener
Some are lucky, some are not
Just be thankful for what you’ve got
The argument that pensions are actually deferred earnings not perks , did not help anyone in the private sector when your big mate Gordon stole ours . Reason. No guaranteed job for life and under downward pressure “much later” money is the first to go because you don`t need it to live now . Why should the people we pay for live in a fantasy world ?
The fact that only ten teachers have been dumped out of 24,000 deemed failing is not an anecdote , nor are the holidays or the above average pay rises or the job held open , the absence of child care costs or the abysmal performance of the sector .
You think teachers don`t know this ? How do you think the few decent ones feel about being surrounded by time serving layabouts waiting for their pension . There are some teachers who regard dragging a herd of zombies around under National agreements as a source of frustration.Of course you know where all the dross end up . Hackney and the like .
Life must be a great pleasure for you Brian , glass of sherry defend the indefensible then fuck off to Waitrose to buy snacks.
(…..actually that does sound rather fun~)
Different model in Canada/Aus – hence the reason why Canadian pension funds own UK infrastructure (eg Ontario Teachers Pension Plan, Ontario Municpal Employees Retirement Scheme CPP) etc as they look for steady yields to fund their pension liabilities.
GOod point on the Guardian about final salary schemes disproportionately benefiting senior management and not the rank and file. I’m sure there are many cases of staff being promoted shortly before retirement to boost their pension…
If you want a quick and dirty idea of what it would cost to buy a final salary plan, take the amount a pensioner would get and divide by the current annuity rate (say 5%). Therefore if you want a 15k pension per annum (hardly the lap of luxury) you would need a pension pot of c300k. That’s a lot of money to build up
Doesn’t compulsory enrollment sounds like the Nanny State gorn mad?
I can’t fathom these Tories at all!
Good informative comments on this page from Brian Hughes.
To be honest, I don’t know a lot about pensions, except my husband, a retired firefighter, has a very good one! However, on the minus side, my husband’s job as a firefighter has completely wrecked his physical health.
So how long he lives to enjoy his hard-earned pension remains to be seen.
That’s life I guess, swings and roundabouts.
I am totally disgusted and frankly outraged that a card carrying Labour party member is attacking my pension rights and pay and also that the party leadership say nothing in return.
I heard on the news just now that Ed Miliband may be worried about ‘getting into a conflict with Hutton because he is a fellow Labour party member’!?
Words fail me. It is a disgrace.
I fail to see why I should pay party subs when a fellow party member is allowed to help the Tories destroy my future and my terms.
Perhaps someone could explain the total failure of the party leadership to condemn the Hutton attack on our pensions and also why the party ignores its own rules and allows this man to help the Tory government.
All this shows that we now have three parties singing from the same neo-liberal right wing hymn sheet and that Ed Milibands hype of being a ‘new generation for change’ is just that.. hype. ‘Labour’ party ? I think not.
@ Chris – I completely agree with your comments. Many years ago someone once said to me, “They are all the same” I didn’t believe that person at the time. But now I do. They may have different ideologies, but the outcome on important things such as pensions, pay and conditions, Wars even is always the same, whatever party is in power. Democracy in this country is just an illusion. Just how long the people of this country will stand for it remains to be seen. Someone on another blog site said,”where’s Oliver Cromwell when we need him” and I don’t think that person was joking. Bring on the revolution!
As a civil servant with a non-contributory pension I have always recognised it’s huge value as part of my terms & conditions, many of my colleagues do not understand how much it would cost to buy the same benefits in the private sector. I wonder what they would happen if they were offered an extra £1000 or more £ a year instead of their pension rights?
Changing to a career average salary scheme rather than final salary would benefit junior staff if not used just as a cost cutting measure. High flyers or those promoted in later years get more benefits per £ earned than the average admin staff who work hard to support their families.
I’m not convinced of the merits (for the taxpayer) of increasing the retirement age to 66. As we get older most people will slow down and efficiency at work will reduce. The reduction in productivity will cost more than the pension savings. Also, workforce numbers fluctuate over the economic cycle (like now) what will happen is that when reductions are needed, less efficient staff who are 60+ will be awarded early retirement or redundancy at a greater cost than if they had all retired at 60yrs anyway.
And just finally, civil servants who have nil contribution pensions pay different national insurance contributions and therefore do not accrue the same state pension as private sector employees. So the figure widely quoted today about different pension levels in public & private sector are misleading. A 40 yr civil servant will possibly have their employee pension only. A private sector employee will have the private pension they have paid towards PLUS the state pension.
There is some confusion in this discussion between
1. defined benefit vs defined contribution schemes
2. contributory vs non-contributory schemes
3. funded vs non-funded schemes
Unfunded schemes are a feature of the public sector but as BH says, it’s a bit late now to go back and ding the first generation of public pensioners for their contributions, because they are dead. Defined benefit schemes do exist in the private sector – I am in one – though they are generally being shut, as ours has, to new entrants.
Transitions towards contributory and defined-contribution rather than defined-benefit pensions in the public sector are needed to move towards solvency, but natural justice counsels against instantly shifting everyone from one scheme into another. Whether or not we think that current pension arrangements are indefinitely unsustainable (I agree they are not), it is clearly a breach of trust suddenly to snatch away a defined benefit scheme from public sector employees close to retirement by which time it is too late for them to save to make up the difference.
AB the first generation were dead within a year or two of connecting the pension if indeed they got it at all . This is just another silly Hughes Red Herring designed make simple things complicated and collect a fee ( no prizes for guessing his occupation) . The problem is not the year or two Lloyd George`s acquaintances got free but the forty years that baby boomers now expect to swan about doing nothing .
None of the Public Sector schemes are funded in reality in that the funds cannot begin to think of paying their upcoming Liabilities . Simples.
When they switch to a “funded ” model ” they are only changing the name .
Teachers , for example , get a final salary related pension that is defined benefit ( ie an unknowable and limitless amount ) and wait for it ….index linked !
God knows what it would cost to “fund” such a model . £750,000 for a teacher on £35,000 .( ie most) with 40 years . I `m not sure what proportion of the average private sector salary that would cost but I `d say “more than all of it”, at a glance
Can you not see the fantastic unfairness of this ? By the way I want to complain in general about the misrepresentation of the generosity of these schemes . The Public Sector has more than usual amounts of people in it for short periods of time .
This allows claims like “The average pension is £7/8 k ) or (the average teacher gets £10k)
Actually a teacher finishing on £35k above after forty years gets over £20k with the bells and whistles and thats index linked rock solid today`s money cash.
I think it should be made quite clear that when we discuss the level of theft being perpetrated on the private sector we ensure that childish lies disseminated by New Labour`s pay masters are nailed right form the start.
I doooo hope there is a coordinated strike a National discussion of the whole thing will bring this out in a deliciously embarrassing way .
( If you are still confused ..the “fund” is a note somewhere of the tax payers increased liabilities which are excluded from the National debt anyway.( For no reasons I can think of )
You tell me AB , services rendered , payment due. Is that or is it not debt ?
Yes but high pension were given because teachers nurses doctors , police firemen ambulance people were all on shocking wages, we all remember I suspect a teacher getting the same wage as the local bin men who are still on shockingly low wages. It was a perk for having low wages, well Blair fixed that but he did not alter the pensions to account for the higher wages of teacher Doctor police firemen.
So sort it out, so that teacher pay more, and the bin man pays less
This isn’t an issue. Contributions are determined by a fraction of salary (eg 7%) so people who earn more pay more.
Newmania is still missing the point that AB and I are making. Because their scheme is “unfunded”, the pensions being paid, for example, to retired teachers today depend on the contributions now being made by and on behalf of teachers still at work.
Retired teachers will have made similar contributions throughout their working lives but these didn’t go into a fund to pay for their own pensions. They were used instead to pay pensions for the previous generation of teachers.
Assuming it wants to go on paying retired teachers the pensions they’ve paid for, it’s pretty well impossible for the government to change the system. It can’t insist that current contributions be switched into a funded scheme because then it would have to find the money to pay retired teachers’ pensions from another source. And there is no other source.
Even if it were considered desirable to move everyone onto the same sort of scheme, and there’s a sound argument to do this especially as it would make life easier for people who change jobs and it would make comparisons between different jobs’ total remuneration packages easier to make, it’s simply not possible to do.
This unfortunate situation has come about because of decisions made decades ago when public sector pensions first started to be paid.
All a government can do is to change the rules so that future contributions produce a different sort of pension for people in work today. But even that will take decades to work through the system. And it still won’t build up a fund.
NB I’ve used teachers in the above only as an example, the same issue applies to every public employee who is part of an unfunded scheme.
PS Newmania seems to be confused about the differences between public sector unfunded and funded pension schemes. The funded schemes (such as the local government one) hold investments in a similar way to private sector schemes. They own shares, bonds and all the other usual sorts of investments. In these cases the fund is not merely “a note somewhere of the tax payers increased liabilities”.
Being in government is well tricky…
Arrgh ..when did the cretin convention show up in Town. The only difference between a “funded ” and “unfunded” pension model for people whose entire salary and contributions all come from the tax payer is dumping this or that notional Liability on future tax payers . I don`t have the time to go into it but it has indeed been entirely possible to change from one to the other ( see boastful leaflets issued by unions as if they had actually done something )
The “Fund” , non fund , income flow or any of the rest of it , cannot, and will not meet its liabilities . The taxpayer will ,and this entire stupid nit pickery has only a rhetorical purpose which is to obscure who is paying
Its the tax payer, stupid .
It would be entirely possible to argue that this is deferred public sector pay and necessary to attract top people ( mmmmph…), or something , in the marketplace . Sadly there is no market the lot of them are rightly terrified of their ‘skills’ ….being subject to competition . This is a political battle between parasite and host from which the bloodsucking etiolated slugs in obscurity and irrelevance. If we told the lot of them they had no pension at all what would they do ? Strike yes ..but who would employ them and this after leaping pay rises have been justified on the basis of competition . What A crock.
In the private sector these schemes were wound up overnight and I `ll tell you something else . There will be no strike ! They know bloody well they are getting away with murder and the last thing they need is publicity . I only wish it were otherwise
I would love it as Keegan once almost said
PS
Another point I have to make is that this really has nothing to do with the deficit it has been a looming problem for years . New Labour`s inactivity is yet another reminder of what a truly appalling administration it became.
Oh dear. There are none so deaf as those who will not hear.
Hardly any private sector defined benefit schemes have been “wound up overnight”. A lot have now been closed to new members and some also to existing members. But they will continue to pay pensions to their members for many decades to come.
Most have been replaced by defined contribution schemes into which employers continue to contribute large amounts of money, in some cases more than they were paying into the old schemes. But the risk of poor investment returns has been transferred from employer to employees.
A few private sector schemes have gone bust – often because the directors of the companies that set them up preferred to pay themselves bonuses rather than adequately fund their employees’ pension scheme. This has happened to one of my former employer’s schemes and that bit of my pension is now in the hands of the pension recovery arrangements that Labour set up.
The majority of schemes in the UK are now judged by auditors to have adequate or near adequate funds to meet future liabilities and this is also true of the funded schemes in the public sector.
The government’s only ongoing liability for these funded public sector defined benefit schemes is as guarantor. If the auditors are right this will cost taxpayers nothing although an increase in inflation could change the picture.
Unfunded schemes are more of a worry. The current recommendations are in effect an attempt to close the existing schemes to new and existing members and to replace them with less generous ones…
BH is right on the analysis I am afraid NM – and I speak as a private sector employee with a contributory pension who agrees with Hutton that serious reform is needed (and indeed I would go further towards DC rather than DB in the public sector than Hutton’s remit apparently allowed).
The reason public pension liabilities aren’t counted as part of the national debt is that they aren’t part of the national debt, any more than my future grocery bills are part of my household debt, even though everyone agrees I will need to eat to live. The public sector net debt is actual present liabilities minus actual present assets. You can of course do calculations of what future net liabilities are *likely to be* worth, and people do (http://www.amazon.com/Coming-Generational-Storm-Americas-Economic/dp/0262112868) but such numbers are a) subject to great uncertainty depending on your assumptions about discount rates, longevity, elasticity of tax revenue to growth and a bunch of other things and b) a different concept to the actual public debt.
Finally, if all you do is suddenly cut public sector pensions, you will shovel a whole load of people on to state income support in retirement rather than saving money, unless you are willing to bring back the workhouse.
Oh alright then ..yawn… final salary schemes were shut down overnight .Obviously they go on having past liabilities (like mine ) . This is a by way of contrast to defined benefits in the state sector being ring fenced until 2015 and then going onto average earnings . Why ?
No- Hughes has entirely misunderstood. Auditors do not think Public Sector ‘funded ‘ ..erm funds will remotely cover their ongoing liabilities as they stand , none of them will and they only exist in fiction anyway .They simply schedule more imaginary tax payer money going in, in the future.
But hey ..what do I know lets go with the Hughes theory. Lets cut them off and let them get on with it without increasing tax payer contributions either to past funds of future ones which is the old /new trick .Great cheerio , see ya . No problem ( as fucking if )-
Now on the subject of debt cocked hat , meet AB point
The reason public pension liabilities aren’t counted as part of the national debt is that they aren’t part of the national debt, any more than my future grocery bills are part of my household debt, even though everyone agrees I will need to eat to live.
What, AB, if you have eaten your monstrous bourgeois concoction of drizzled chocolate on a foam of offal but you have arranged to pay for it next week .
That is called debt no?
Have teachers not taught ? Have Firemen not done their sleeping ? Are civil servants not busy doing nothing ?
I think they are and I think by doing so they earn pensions and I think we may therefore say this is debt debt DEBT !!!
“What, AB, if you have eaten your monstrous bourgeois concoction of drizzled chocolate on a foam of offal but you have arranged to pay for it next week .”
If I have taken out a binding legal debt contract such as a personal loan to do so, yes. Future pension liabilities, since they can be changed at the stroke of a ministerial pen, or a parliamentary pen, are not current debt contracts. No government I can think of accounts all future pension liabilities as current debt, for exactly this reason. Of course they should be accounted for in discussions of long-term public solvency, but this doesn’t have to involve claiming they have a legal status that they do not in fact have.
Interesting approach to generate debate Hopi, but this is an issue that Labour will need to take a view on and not just criticise whatever solution the other side comes up with (even if it is from an ex-Labour Minister).
It seems to me that the bottom line here is that an employer (HMG in its various guises) has been offering a remuneration package which it has realised it can no longer afford for a combination of reasons which includes not only people living longer but also factors like the stagnant stock market and the absence of too many other obvious homes where annuity funds can deliver a fantastic rate of return. (Although it’s worth noting that private sector funds are increasingly investing in infrastructure as a place to garner relatively secure returns – and it’s clear that UK plc will not remain competitive without significant infrastructure investment, so maybe there’s a win-win solution here)
What I would expect an enlightened employer to do, is to give the problem back to the workforce and ask the unions to come together to generate a fair solution. Unfortunately in this case, I think this is exactly what Labour tried to do towards the end of the Blair era, and the unions refused to play ball. Perhaps with the threat of a far worse, Coalition-imposed solution on its way they might be more willing to engage seriously with Labour now its in Opposition. If Ed could come up with a workable way forward here, rather than taking the easy option and playing ya boo sucks politics, he could really demonstrate some leadership and establish himself as a credible future PM.
“UK plc ” ..
Was there ever a more revolting phrase…?