Today is a day of national strikes by public sector employees over their pension rights.
The average public sector pensioner gets a pension of £5,600 (median).
The average pension of a woman who worked for local authority is £2,600 pa
Basic old age pension is £102 a week or £5,300.
Pension poverty is defined as having less than £178 a week. £9,256 pa.
So in most cases those retiring on only a state pension from the private sector who have paid nothing get almost £4,000 a year in pension credits and other benefits from the state for which they have not paid a penny in contributuion.
But state employees have to pay all their lives for on average something little better.
And you call that a gold plated deal?
How?
The reality is that public sector employees are paying in very many cases for what they could egt anyway without a pension scheme. Those complaining, please note. The subsidy is to the private sector here - paid for by state sector employees.
That's the reality of what is happening.
All data from http://www.pcs.org.uk/download.cfm?docid=31F34882-8A2E-4BAB-9CF42FA92DFB02CF
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Sorry Richard, while I agree with the thrust of your argument I do have a question. What are my National Insurance contributions? As they are a hefty chunk of the taxes I pay (and am happy to pay, I think paying your tax is the sign of a civilised person) I thought they were related to my state pension?
So surely that constitutes a penny (or a few more in contribution?).
I’m hoping this month I’ll have enough discretionary spending to buy your book, I’ve been looking forward to it. I doubt it though.
But state sector employees pay them too – albeit at reduced rate as they are also paying a pension, I agree
But your NI does nothing to make up the difference they are paying for, on average, on top of their own NI
This is a confused argument. Your quarrel (intentional or not) is actually with pension credits not the pension system. If I retire on a private personal pension of £5,600 then exactly the same argument can be made of why should people who haven’t paid a penny get any pension credits.
The £5,600 (always trotted out) includes people with only a few years’ service, and it includes those who have taken a career break.
It is “gold-plated” for two reasons – there is virtually no chance of the government defaulting on payment, and a private sector employee on similar contributions would need a pension pot of £600,000 to accrue the same annual pension.
No it is not a confused argument
It is a statement of facts
But you are not sting a fact
£5,600 od pension can be bought, gold latex, now for less than £100,000. why are you mis-stating fact?
“gold latex”?
Visions of Dick Emery saying “I do like your software”.
£5,600 with inflation adjustment will cost between £130,000 and £150,000. Without inflation, around £100,000.
OK, let’s go with the £5,600 pension for £100k.
On a final salary basis (because we must assume that those in retirement now, to whom the £5,600 applies, were on final salary schemes – and I entirely understand that the number will be lower in future because so many schemes are moving to career average) that means a final salary of £8,400. You’re ignoring length of service.. so I will too.. our worker has got 40 years service, OK?
If we assume 2.5% annual salary increase, and a steady 5% return on money paid in, then a private sector worker wanting to get the same pension needs to pay in 18% of salary (gross, ee + er) in each and every one of those 40 years.
To get an index linked pension, which we both know is what we should be looking at, the contribution needs to be more like 27% (or we could bump up our annual return on investments to 7% to do the job).
I’m not trying to make a point here, as such, just let’s see what the figures are.. insomuch as we’re able in such broad terms. Let us understand what the private sector worker is being asked to do… and the scale of task that the public sector worker is, to a great extent, being shielded from.
As for ‘gold plated’.. well you know yourself how unsuitable the current private pension industry is for it’s task… and how so much is down to the vagaries of the stock and annuity markets. Even if our private sector worker (with his/her employer) puts away that 25% every year.. the value of the pension can fall well short if the market does not deliver 5%, or annuity rates fall. A pension insulated from that is, to that extent at least, ‘gold-plated’.. that’s what it means. Gold-plating doesn’t make something valuable, it makes it protected. If public sector pensions are not gold-plated it’s to the extent that the government can come and change the rules.. but it can do that for anything!
But as ever, all you’re showing is that the market is unable to do what the state can and will deliver – not just for this person but actually for almost everyone – because the pension credit guarantees it
You’re not saying these pensions are gold plated
What you’re saying is that existing private sector pension arrangements through the market are utterly inappropriate
I agree
So let’s move on and stop wasting money on them
I’m blogging on the issue today
Well yes.. because the state has the privelage of being able to raise taxes to cover any shortfall.. not to mention a vast scale and the benefits that brings. So even an efficient and well-configured private pension structure (which we clearly don’t have) wouldn’t be able to match that.
But I do agree that existing private arrangements are no good, and also that decent living pension is something that we should, as a society, be clubbing together on.
However, if we were to have a national earning-related pension scheme, I’d rather it were completely independent of government, and with the clear aim of pensions in payment being entirely funded by contributions and return.. NOT taxation. I do not want my pension money being handed to politicians who are more interested in buying votes for a few years than poriving pensions far into the future. The scheme can lend to the government (at a market rate) and can invest in infastructure (for a fair return).. but I’m damned if I’m letting even more of my money disappear into general taxation (much like the public sector workers angry at what’s to happen to their additional contributions under the current proposals).
That may be where we differ on this 🙂
But the evidence is clear – independent funds are trashed by the City to pay bonuses
Where do you think they come from?
And state funds are trashed by politicianss to pay for wars and bribes.
So we need a fresh approach. I do not think we should just had all the money to ‘the city’ and let them go wild. The money should be managed and invested according to what is in the best long-term interests of the pensioners. That means decisions taken by people with that mandate… and neither politicians nor ‘the city’ would qualify.
I guess I’m looking for something akin to the old company defined benefit schemes.. but on a national scale (and with more affordable benefits… career average pensions, and an absolute cap around (say) average earnings). We want diverse and elected trustees, with democratic member consultation and complete transparency over what is in the pot, how it is being used, and how well set we are to pay all the future liabilities.
I am but one man.. but if you told me my pension savings were to be placed in the hands of politicians, I’d move them offshore in an instant. No mess, no fuss, no doubt.
But these funds would not be in the hands of politicians per se
They’d be in the hands of trustees – they’d be mutual – they’d be accountable and the money would be ring fenced
Please read what I have written and not jumpt to wrong conclusions
I’m sure annuities are higher than 1pc. Even now!
bloody hell, i hope you dont need a pot of £600k to get annal income of £5,600 ! my pension fund is looking very low if thats the case !
Maybe Osborne will target pension credits next. If he is so emboldened, and let’s face it this is possible because the LibDems have signed up for a 5 year term, Osborne will ‘go for broke’. He is more concerned about the politics of his role than the addressing the real economic issues confronting us. There is so much twaddle (from the right) being discussed on TV at the moment about public sector pensions that to have a rational debate on this subject is almost impossible. Labour should be making the point that in a country with an ageing population everyone should have a decent pension otherwise domestic demand will collapse. Politics is about choices, for example I disagree with so much money being spent on defence (sorry I mean attack) and it is interesting to note that high flyers in the military pay little or nothing into their public sector pensions.
Richard,
You need some more coffee or something for the typos! “Gold latex” indeed!
Weird – I can’t see that on my version – it looks like this is a case of WordPress posting a draft as sometimes really irritatingly happens
Sorry!
I know I’m bad, but not usually that bad
But we all receive state pensions where the National Insurance has been paid in. So for retiring people their income is the OAP plus the work pension. If we are then in one or other public sector pensions scheme this pension is additional, for which we and our employers pay contributions. Some are funded with money going into investment schemes, some unfunded and depending on payments in from those still working in the relevant jobs. When the work pension is enough it can take you into the income tax bracket. The trouble is that there are very many schemes which operate in various ways so there are no simple answers. What has happened is that this crisis has been coming a long while with at the same time schemes being far removed from their original structures in political and wage deals. It was forseeable but everyone ran away from it and now the price has to be paid.
How many MP’s and especially members of the present cabinet are able to live on these amounts for just one month a year.
It is hypocritical to ask the public to sacrifice and the governing classes not. If there is austerity then let each member of Parliament and cabinet spend at least one month surviving on these amounts. How about it who will take the challenge on
Remember older people are facing more health problems plus the employment market is not there for them to earn more (youth unemployment is high)
@ Harish
Indeed many pensioners need every penny they can find to avoid the choice between starvation and/or hypothermia. Some may argue that they should have made adequate independent provision for their old age, rather than just relying on the State to keep them….
But for those who have diligently saved all their lives the hassle is not over as they become targets for commission driven thieves who seek out the vulnerable claiming to be “professional” financial advisors but who are in fact are unqualified charlatans
Beware the Isle of Man which provides sanctuary to those who pay these con artists.
[…] Tax Research on public sector pensions […]
Well said! All the press coverage of this is very anti public sector workers, very little support, very sad to see!
Good to see you here!
Done that exam yet?
If not – good luck!
Had my first yesterday but the Strategic Politics one is next Thursday, thanks for your help, oh and In-sourcing is the angle I am going for!!
Look, the simple fact is we are living longer. That means we are all going to have to work longer, contribute more and receive less. Why should private sector workers go on paying taxes to fund the pensions of public sector workers who retired 5-10 years before them on far better pensions?
And excepting people such as firefighters, army officers etc (who incidentally make up a very small percentage of the public sector workforce) why on earth shouldn’t people retire at the state pension age? The idea that you should be able to retire at 60 and retire with 2/3 of your final salary with no mortgage and no kids for the next 25 years is ridiculous.
Public sector pensions are far more generous than virtually anything available in the private sector, so to hear the unions describe the offer as not very generous is risible.
And pension credits are a complete red herring here.
We live longer
It does not mean we can work longer
Far from it: we just have more years of infirmity
That’s the reality of this
What you’re saying is you want people to live longer and in poverty
I deplore that
We need to shift resources to those in old age
And where does it come from? Out of profit that needs to be taxed more. And from tax cheats.
Greg, please remember the last Government and unions took action to address the longevity issue. They sat down (eventually!) in 2005 and thrashed out a deal that both parties felt was fair and achieved sustainability for the future.
The main changes were: the end to final salary schemes for new starters, increased contributions, and pension age linked to the state retirement age. Yes, it protected existing workers by recognising the impact of career decisions made by long serving workers, but it worked.
The NAO examined the impact of this deal in 2010 and concluded it had been successful in stabilising the costs of the schemes. In addition, the cap and share arrangements introduced meant that if life expectancy was actually higher than anticipated, the risks are transferred to scheme members and away from the treasury and taxpayers. The NAO’s main concern was that the overall renumeration package for these employees may not be sufficient for the government to recruit and retain staff.
I was on strike today, and the main issues for me were:
1. The Government has refused to negotiate on any of the details that matter to us. It said right from the outset that future retirement age, contribution rate, and accrual rate were not up for discussion. Plus they announced the RPI to CPI changes without any warning or discussion. That alone wiped 15% of our pensions.
2. They repeatedly use this gold plated argument when even Lord Hutton categorically rejects it.
3. They keep saying the costs are unaffordable when all the analysis, even from the OBR and Hutton, says costs are set to fall by 25% of GDP over the long term.
4. The extra contributions they are demanding (on top of year on year real term pay cuts and masses of job losses) are not going to pensions, they are just being used to plug the deficit. therefore they are just a tax on public sector workers.
It is appalling how private sector employees have been robbed of their pensions as boardroom execs continue to enjoy massive pensions and pay rises, and we are campaigning hard for fair pensions for everyone, not just public sector workers.
Well said
Thanks
Greg
Please remember that we are all in this together or so we were told and army officers , despite their low numbers, should be making a contribution to their pensions. Some public sector pension schemes are funded and others are not and I know that in the 90s many schemes used creative accounting (sorry Richard I am not criticising accountants here) to reduce the monies which companies and public sector schemes paid in contributions. Using your argument, why should I, during my working life when I paid tax, have contributed to the cost of education when I never had children? Tax receipts are pooled and spent according to the political priorities of the Government. We can probably identify which aspects of tax funded expenditure we do not like, but unfortunately on an individual basis we have no real levers to alter it except at election time by casting our vote.
Hi Richard,
Someone really ought to make a quick online tool for public sector workers to calculate how much more they will be paying in contributions under the proposed new arrangements. Would be very useful and interesting…
I get a little tired of hearing the “demographic time bomb” argument because I am not convinced it is much more than an excuse to dismantle one aspect of civilised society. The figure that matters is not the proportion of old people in the country: it is the proportion of “dependents”. That is never really discussed in this debate but we have more women in the work place and we have fewer children: we have a lot of people unemployed, and if they were in work the proportions would also shift. The focus on us living longer may well be relevant: but the argument is meaningless as currently conducted, so far as I can see. Where are the numbers which matter and what is the base year which makes sense?
http://thosebigwords.forumcommunity.net/?t=45641796&p=318210087