Disparity between public and private sector pensions

[scotview]

I think the issue is whether or not Public Sector pensions are sustainable.

That's either a yes or a no.

[Lootman]

I think the issue is whether or not Public Sector pensions are sustainable.

That's either a yes or a no.

Sustainable as long as the voters do not revolt against ever higher taxes for this purpose.

[XFool]

Everything I have read indicates that UK public sector pensions are OKish, nothing like as generous as many countries in Europe have.
The real problem is that UK private sector pensions are uniformly terrible and it will need legislation to change that so we don't have millions of pensioners almost entirely dependent on the state.

...and so paid for by we hard pressed "taxpayers"!

But this is, as they say, is an entirely different matter. Or is it?

[Alaric]

If the average tenure is around 10 years, then for someone who worked 30 years, then yes they will get a multiple, its simple arithmetic.

Isn't it likely a bit of a mixture? Some making a lifetime career and clocking up thirty years or more, whilst others just work in the public sector for a handful of years. It 's the comaprison between those working a lifetime in the public sector and those putting in a similar length of service in the private sector that's needed. Alternatively drill down and look at what a couple of years will get you decades later from similar jobs in people's twenties and thirties,

[Alaric]

The real problem is that UK private sector pensions are uniformly terrible and it will need legislation to change that so we don't have millions of pensioners almost entirely dependent on the state.

Alternatively promote the accumulation of private wealth outside of formal pension schemes. ISA's and owner occupation of housing live on but other forms of wealth accumulation are being increasingly subject to taxation.

The other question is to what extent people in receipt of State Pension have other sources of income and wealth. You might think HMRC would know from taxation records, but not entirely obvious that they do, given the amounts accumulated in ISAs.

[ayshfm1]

But how many people choose one job over another based on pension?

Very few I would suggest, she was a rather unique creature, very smart and in a pretty well paid job, however her husband was stay at home which is even in this day and age unusual. She knew the score any sort of nice retirement was going to be down to her. I was blunt she couldn't afford the amounts needed.

I think the UK SIPP/private pension system is OK as long as you can fund it properly and that is the real problem very few can. In your standard family with both working and assuming the couple actually make the sacrifices necessary then it can be great. However that is a vanishing small number. In contrast the public sector will see you right with minimal contributions that are obligatory.

[thebarns]

Lanark,

I would have thought it perfectly clear that I was not questioning the actual figures released by the National Audit Office.

It is the use of those figures and the way they will have been manipulated, by civil servants not doubt wishing to downplay public sector pensions.

And not is is not a simple multiple to assume that someone working 30 years as opposed to 10 will be on a multiple of 3 times those quoted pension figures - you are still nowhere near what my in laws receive (d) as a teacher’s pension.

Those national audit office figures will be muddied and misleading caused by those working for a few years only when they were younger.

As has been said before, the real comparison is those teachers/civil servants who have worked for 30/35years and compare their pensions to the same person in the private sector working on a similar salary throughout their own 30/35 years working lives and the pensions they have amassed, or not. There will be very significant pension differences for your Joe average family person, who in our time, has been on a salary of £20k-£60k throughout those 30/35 years, compared to the civil servant/teacher on a similar salary path over those last 30/35 years.

[Lootman]

But how many people choose one job over another based on pension?

Very few I would suggest, she was a rather unique creature, very smart and in a pretty well paid job, however her husband was stay at home which is even in this day and age unusual. She knew the score any sort of nice retirement was going to be down to her. I was blunt she couldn't afford the amounts needed.

I think the UK SIPP/private pension system is OK as long as you can fund it properly and that is the real problem very few can. In your standard family with both working and assuming the couple actually make the sacrifices necessary then it can be great. However that is a vanishing small number. In contrast the public sector will see you right with minimal contributions that are obligatory.

I do not object to a public pension being generous if the employee was contributing an amount similar to what private sector workers pay. But that is not the case or even close to it. So those private employees are paying both for their own pensions and for the public pensions. And that is the source of a lot of the anger, especially when those same public workers are demanding 10% or 15% pay increases versus the 5% that private employees are getting.

At some point there will be a day of reckoning for this state of affairs.

[hiriskpaul]

Lanark,

I would have thought it perfectly clear that I was not questioning the actual figures released by the National Audit Office.

It is the use of those figures and the way they will have been manipulated, by civil servants not doubt wishing to downplay public sector pensions.

And not is is not a simple multiple to assume that someone working 30 years as opposed to 10 will be on a multiple of 3 times those quoted pension figures - you are still nowhere near what my in laws receive (d) as a teacher’s pension.

Those national audit office figures will be muddied and misleading caused by those working for a few years only when they were younger.

As has been said before, the real comparison is those teachers/civil servants who have worked for 30/35years and compare their pensions to the same person in the private sector working on a similar salary throughout their own 30/35 years working lives and the pensions they have amassed, or not. There will be very significant pension differences for your Joe average family person, who in our time, has been on a salary of £20k-£60k throughout those 30/35 years, compared to the civil servant/teacher on a similar salary path over those last 30/35 years.

Everyone has different experiences, but my own and those of friends and relatives would indicate substantially better pay in the private sector compared to public sector. A long time ago, before privatisation, I worked for the CEGB for a few years. I left primarily because I could see no future for nuclear in the UK for a job that tripled my pay. I have friends who went from the MOD to private with similar experiences. The increased pay easily compensates for the loss of a DB pension. In addition, increased pay in the early years means you can get a bigger mortgage and more expensive property. The tax free PRR is not to be sniffed at.

[thebarns]

Hiriskpaul,

I don’t disagree that for the better paid in the private sector, say the 5-10% on the decent and above salaries that what you said can be done.

I did it myself, but solely worked in the private sector.

However, and I’m only discussing this broadly, there is a great swathe/majority of private sector individuals in that career £20-£60k 30/35 year duration bracket. And many public sector jobs that pay a similar decent salary.

Incidentally and for fairness, I am also aware of a good number of those in my wider circle who worked for either a Scottish bank, say the Royal or Bank of Scotland, or one of the large Scottish insurance type companies, say Standard Life or Scottish Widows that benefited from extraordinary voluntary redundancy terms - 2 year final salary pay offs - plus very well heeled final salary defined benefit pensions.

The Royal Bank being a particularly ridiculous waste of funds, given its bailout.

I was not one of those individuals, being mostly self employed and providing for my own pension via my own business.

[EverybodyKnows]

Hiriskpaul,

The Royal Bank being a particularly ridiculous waste of funds, given its bailout.

Indeed they had the ultimate public sector pension.

https://www.theguardian.com/business/20 ... in-pension

[GrahamPlatt]

In all the debates about pay for public sector workers I don't think enough consideration is made of their generous pension entitlements. The cost to the taxpayer of these must be insane.... indeed NHS pension liabilities have increased from 390 billion in 2016, to 870 billion last year

I've just been looking at my sister's NHS pension....

- She is retiring this year on a full average salary pension aged 55 (thanks to working in mental health)
- The NHS pension increases by CPI inflation PLUS 1.5% every year
- She can continue working flexibly for the NHS after 55 and get both her pension benefits and salary

Meanwhile to get an annuity in the private sector you'd need one million in pension savings to get about 35k a year (and you certainly wouldn't get CPI plus 1.5%)... accepting that annuities aren't the best idea for many but its the closest thing to the certainty of a defined benefit pension.

It does make the LTA tax seem unfair given the benefits people are getting from their DC schemes are nowhere near as valuable as those on defined benefit schemes.

AIUI that +1.5% is only whilst paying in. On drawing the pension, it’s just cpi.

[DrFfybes]

I've been thinking a bit more about this, being on both sides of the fence.

Firstly, whilst I knew the DB schemes were good, I have only really realised how generous they are quite recently. In the early days it never concerned or occurred to me, only when we were outsourced from the Local Authority and offered Private Sector T&Cs did I realise the outsourcer was paying 20% into LGPS on top of my 6%, and the more generous holidays and shorter working week meant I'd need a 30% payrise to keep the same hourly rate.

But as I reach a time to cash these things in, I realise how well some DB schemes have done in a time of low inflation, with portions guaranteed to grow at 5% or 7%, lumps sums, and CPI linking. I look at what my years at Zeneca are now worth, and what they buy me compared to 4 years in Academia directly before it. The 4 years DC pot from Zeneca is worth circa 32x the DB pension I'd get from the previous 3.5 years in academia, so in terms of income pretty similar. The difference is I was hitting a ceiling in Academia and at Zeneca I took a 20% pay rise and doubled it again over 4 years, and paid extra into the pension.

And here's the rub, people only see the greener grass over the fence. Those on £30k in the NHS don't see the money going into their pension, there is no notional investment pot for them to see growing, so it doesn't exist. All they see is the Plumber or brickie on £10k pa more and having a nicer car, better holidays, or a bigger house. And by the time the plumber realises how little they have to live on in retirement, it is largely too late to stick that lifestyle back into a pension.

Paul

[88V8]

I realise how well some DB schemes have done in a time of low inflation, with portions guaranteed to grow at 5% or 7%...

My DB pension from 23 years with a major insce broker, non-contributory, the latest annual increase was 3%.
Fortunately we don't depend on our pensions.

Don't expect a taxpayer revolt over public sector pensions, not even MP's pensions, too abstruse for the average rabble rouser.

V8

[DrFfybes]

I realise how well some DB schemes have done in a time of low inflation, with portions guaranteed to grow at 5% or 7%...

My DB pension from 23 years with a major insce broker, non-contributory, the latest annual increase was 3%.
Fortunately we don't depend on our pensions.

V8

I should have pointed out that this growth is only whilst deferred, so ones I left in the 1990s had a small portion (probably something to to with opting out of SERPS or a minimum guarantee) that grows at a fixed percentage, whilst the bulk grew by RPI/CPI capped at 5%. So eg my accrued benefits at leaving date would be (say) £100/annum growing at 5%, and £400/annum growing at CPI.What has happened is that the smaller portion growing at a fixed 7% is now quite large, and in another decade will probably be the major component.

Paul

[XFool]

My DB pension from 23 years with a major insce broker, non-contributory, the latest annual increase was 3%.

Why?

Bluntly, without a whole lot more details, such a comment by itself is, IMO, pretty meaningless.

(So well in line with typical debates about pensions. )

[XFool]

Just to add to the confusion, my State Pension is indexed.

My new SP for 2023/24 was increased over last year's by 15.4%.

[airbus330]

Interesting thread as I have had to educate myself on both the NHS and Teachers Pension Scheme quickly as my wife decided to retire this year at 60. She, like many, has NO interest in pensions and had no clue what she was entitled to. It turned out that she had a small pension from TPS and another two, of which she was unaware, in 2 jobs with the NHS. Both pensions are of a similar amount. The 1st NHS one was for 6 yr full time service in a junior admin role. The 2nd NHS one she wasn't even aware that the work was pensionable as she thought she was casual. The 3rd,TPS, scheme was as a Part time Uni Lecturer for 8 years.
I had the following thoughts on her pensions.
Working part time, as many women do, has a seriously detrimental effect on your pension.
Both Pensions Schemes had been seriously degraded over the years by changes to t&p's. New staff have a lot less generosity.
Early retirement will be less affordable for the next generation.
People often talk about the super generous public sector pensions. The reality is that the vast majority of staff are on paypoints so low that they will not generate a pension that will afford a decent retirement even with the State Pension added. The 43% of female staff are likely to suffer further degradation of benefits on taking time out for childcare.
Doctors Pensions (all the info for who gets what on which scheme is published by the schemes admin) are incredibly generous.
I wonder how many ppl work for government early in life and then forget to check/claim their entitlement.
These pensions are very complicated to understand, especially TPS.
NHS Pension Service are incredibly helpful and have accurate records going back to the 1980's at their fingertips.
The Death-in-Service benefits are exceptionally generous.

Overall, I was quite glad of my DC scheme, easy to understand and quite flexible. But not so good for those who'd find Lemon Fools boring!

[Lootman]

People often talk about the super generous public sector pensions. The reality is that the vast majority of staff are on paypoints so low that they will not generate a pension that will afford a decent retirement even with the State Pension added.

Surely when people describe a pension plan as generous, they are referring to the amount of the pension received relative to their pay whilst working?

So if someone only makes 20K a year and then their pension is 15K a year, then that is "generous" even though the actual amount is low?

The other way a pension can be generous is in terms of the employee lifetime contributions made. Any non-contributory scheme is generous almost by definition.

NHS Pension Service are incredibly helpful and have accurate records going back to the 1980's at their fingertips.

Maybe I should check with them then, based on my 15 months working in a hospital in 1975/76!

[BullDog]

I realise how well some DB schemes have done in a time of low inflation, with portions guaranteed to grow at 5% or 7%...

My DB pension from 23 years with a major insce broker, non-contributory, the latest annual increase was 3%.
Fortunately we don't depend on our pensions.

V8

I should have pointed out that this growth is only whilst deferred, so ones I left in the 1990s had a small portion (probably something to to with opting out of SERPS or a minimum guarantee) that grows at a fixed percentage, whilst the bulk grew by RPI/CPI capped at 5%. So eg my accrued benefits at leaving date would be (say) £100/annum growing at 5%, and £400/annum growing at CPI.What has happened is that the smaller portion growing at a fixed 7% is now quite large, and in another decade will probably be the major component.

Paul

Take a close look at the deferred pension terms. If part of the deferred pension is called GMP pension, once you reach state retirement age the terms might change. I took benefits from a deferred pension at 60 which was the normal age for that scheme. Once reaching state pension age the GMP part of the pension no longer gets an annual increase. Unfortunately, the pension I'm talking about which was deferred since 1992, most of it is classed as GMP. The annual increase on the pension in payment was <1% this year despite CPI being in double figures. I was quite surprised at the terms it's a deferred DB pension from a (deep) blue chip company. I hope your scheme is better than mine, it's worth a check. HTH.