Comments on: Pensions with a Cabinet office atttached

By: Lola

Lola — Tue, 04 Aug 2009 08:52:09 +0000

If it was me I’d also raise the retirement age for all the deferred members in the now closed FS schemes to 65. This would broadly halve the liabilities. I’d phase it in so that older deferred members weren’t discriminated against. The union’s would hate it. Tough.

By: Martyn

Martyn — Mon, 03 Aug 2009 22:45:52 +0000

With you on this! And I can see how it can be done, although I note your nervousness in para 2, which is my main point.

The other problem is that reform has an enormous time-lag to benefit (a point Finkelstein made recently).

I hope John is reading! (I suspect, however, that public-sector-pension liabilities are ‘flavour of the month’ — another awful and equally enormous gap will soon yawn!).

Best wishes,
Martyn

By: Jon

Jon — Sat, 01 Aug 2009 11:54:29 +0000

The move to defined contribution is a necessity especially as we move closer to an aged population in 10 years time. The sooner the better. It should have been done a long time ago, delaying it will only further increase the cost.

I think the Tory’s need to get this message out. There will be a backlash but the public need to be aware of the facts so that they can hold out of the may months of public sector strikes that will come.

The change will have high upfront costs but there will be huge investment into industry as a result.

By: Lola

Lola — Fri, 31 Jul 2009 22:00:24 +0000

You don’t unravel the FS schemes, funded or unfunded. You close them to new members and – possibly – existing members as well. And then open the new DC schemes. The liabilities of the existing schemes would then run off over time.

In theory you could make block transfers of CETVs to the DC schemes, or deferred annuities, but I really don’t think it is at all practical to go down that road for all sorts of reason not least the immediate costs of doing so.

All of this is about capping the liabilities. By implementing my suggestion is that they immediately stop getting worse, and over time will atrophy.

In passing I should say that I have been arguing this for years. It was transparent many years ago that the whole State Employees Pension ferrago was going to end in tears.

By: Stuart Fairney

Stuart Fairney — Fri, 31 Jul 2009 05:38:56 +0000

This is a very fair point. If you look at a teacher’s working hours* as well as their working year** and pro rata this up to a full-time job, they really don’t do too badly

* 30 hours a week despite all the hyperbole about marking, preparation and after school activity compared to everyone else with 40-60 hours

** say three half terms, Easter and Christmas and six weeks summer break various odd days, say 12 weeks in total compared to most people’s 4 weeks

By: Martyn

Martyn — Thu, 30 Jul 2009 13:12:30 +0000

Paul’s proposal to move from final salary to defined contribution is the obvious solution. At the end of career for, say, a teacher, their and their employers’ contributions would be given to them as a pot from which they would buy annuities. By the time a teacher retires this would be £4-500k. This sounds a lot but would currently only buy about £15k a year of inflation-proofed annuity. The problem is that each of these pots will cost real money upfront for the government. At present government funds teachers’ pensions through the contributions of existing members. My back of the envelope calculation suggests that year on year the government would have to fork out up to £40 billion just to convert teachers’ final-salary pensions into defined contribution pensions.

We can get all moral about the feather-bedded public sector but there is a huge fiscal problem that limits the scope for reform.

By: THE ESSEX BOYS

THE ESSEX BOYS — Thu, 30 Jul 2009 07:27:15 +0000

Thanks for this, the latest of an excellent ‘series’ which tackles the real nitty gritty of government administration.

Revealing the sheer weight of numbers and figures that make up Britain’s enormous overspending splurge is the way a management team would begin solving UK PCL’s problems – and what a change to this governments continuing ‘eye-catching initiative’ method! It certainly brings home the excesses.
We particularly approve of your way of spelling out the zeros instead of the normal billion/million shorthand, even if 1 trillion is a few zeros too far!
One of the dangers of the bank bail-out is that anything less than a few billion is seen as chicken feed…most particularly by the current crop of ministers!
Hopefully this analytical approach is being adopted by Mr Cameron’s team?

By: Martyn

Martyn — Thu, 30 Jul 2009 02:01:25 +0000

This is all very nice and I agree with your sentiments, but how do you unravel from unfunded to funded schemes?

Actually you can do it, but it requires an off-shore bank and some tough securitizing. Not quite flavour of the month!

Do tell us your proposal!
M.

By: Balance Sheet Accounting for the UK economy « Manicbeancounter’s Weblog

Wed, 29 Jul 2009 23:34:14 +0000

[...] The Final Salary Pension of public sector employees £1,000bn [...]

By: StevenL

StevenL — Wed, 29 Jul 2009 23:01:25 +0000

Yes, early retirement, followed by re-employment (though often on a part time basis) is not uncommon in the public sector.