Comments on: Public sector pensions – burden or fair reward?

By: Nigel Turner

Nigel Turner — Thu, 11 Dec 2008 11:00:18 +0000

Having been further advised regarding the tax free lump sum (ie it is 1Â½ times final salary), my projections above would have resulted in an annual pension of Â£4,134, which is still significantly below the Â£15k from Mr Welsh’s example.

By: Orlando Furioso

Orlando Furioso — Tue, 09 Dec 2008 17:03:10 +0000

The lady above on a pension of Â£700 pcm (is this gross or net by the way?) after 18 years’ service should therefore have been on a final salary of Â£37,333 per annum (assuming a gross pension figure & working back on the usual factors), i.e. almost a higher rate taxpayer – definitely so if that pension is a net after tax figure. So she would have been one of the better paid and with nothing much to gripe about one would have thought.
But, by the tenor of her letter, that is just what she is doing. One might ask just what did she expect for her essentially unfunded pension? The taxpayer has paid her salary all her working life, whether, in the great scheme of things, what she did was relevant or not, and now she sounds rather sniffy about not having as much as she hoped for (whatever that was).
If she is dissatisfied, perhaps she should have taken an interest in her eventual retirement during her working lifetime and saved a bit more from her quite generous income.
Perhaps she can take heart from the fact that, should she live to a ripe old age in her mid-80′s, and her pension in payment continues to be indexed in line with norms, then she will receive almost as much pension plus tax free payment as she received salary during her working career. So the taxpayer will have paid twice over for her. I hope she was worth it.
By the way, it seems that tax free lump sums on retirement are changing. They used to be a maximum of 11/2 years’ worth of salary tax free, after 40 years of service; now they have suddenly come closer to 2 1/2 years’ worth – unnanounced to the public but quietly costing us all still more again.

Finally, had she been in employment where she had to make her own DC pension contributions over those 18 years of service, at 6% return after charges over Â£8,000 a year would have had to be contributed to give her that pension – and around double that if she had the misfortune to retire now when investment fund values have halved! Be grateful that your are not in the mess that 5/6 of the working population are in following Gordon Brown’s wrecking of the UK’s once proud DB pension system.

By: Simon Mazzei

Simon Mazzei — Tue, 09 Dec 2008 14:54:58 +0000

Re – Paul Welsh : To my mind, the teacherâ€™s pension isnâ€™t that superb.

If you both truly believe this, why haven’t you opted out of the scheme?

I’ve only had a quick look at your figures but you appear to have compared current value of your teachers scheme against future values of a personal pension. For example, the current value of your wife’s lump sum, Â£45,000 (1.5x salary not 3x salary I believe) inflated at 5% for 40 years (your figures) is over Â£316k.

You have also chosen to ignore the other benefits that the scheme may include such as life assurance, dependents pensions, income protection.

By: Nigel Turner

Nigel Turner — Tue, 09 Dec 2008 14:44:49 +0000

Unfortunately, Paul Walsh’s calculations fail to take account of his wife’s pay increases in the intervening years, ie should his wife be on Â£30k pa today, then assuming 2.5% pay inflation pa then she would have commenced on Â£11,452 pa 40 years ago [please note that this would exclude any promotional increases during this time, ie this would further reduce the defined contributions pension pot, viz. her starting salary would have been significantly less than Â£11k].

Assuming his assumptions for contribution rate (6.4%) and investment return (5%; contribution received annually in arrears), her defined contributions pension pot would be Â£127,677. Taking out a lump sum of three times her final salary (Â£90k) would therefore leave a pensions pot of only Â£37,677. Assuming a constant annuity at, say, 5%, this would only leave a static pension of only Â£1,884 pa.

The public sector pension looks particularly good to me. Where can I sign up???

By: Paul Welsh

Paul Welsh — Tue, 09 Dec 2008 13:09:51 +0000

My wife is a teacher and therefore will get an index linked final salary pension of 1/80th her final salary for every year of service, plus a lump sum of 3 x salary. This means that to get half her final salary she’d need to work for 40 years (difficult if you take time off to have kids). Given the pay of teachers isn’t exactly high, I don’t regard this as exactly brilliant. She has to contribute 6.4% of her salary.

Leaving the lump sum aside, if you invested 6.4% of Â£30k = Â£1,920 per year in a personal pension for 40 years at 5% interest per year you’d end up with over Â£230k as a lump sum. 5% of it is Â£11.5k which is 40% of Â£30k. To get Â£15k pa you’d need to invest an addtional Â£630 pa, ie, Â£2,500 pa.

To my mind, the teacher’s pension isn’t that superb.

So too, if you invested that Â£2,500 pa in a cash ISA you’d get the interest on the lump sum tax free and would be able to pass on that Â£300k to your heirs. On the other hand, if you’ve been teaching in an inner city State secondary school for 40 years your life expectancy is probably not that great so the pension may not be worth much to you!

Yes, I know I’ve simplified all this greatly and, of course, a teacher’s pension is index linked which would make a big difference if you had a long life, but I still reckon many of these state pensions aren’t all they are cracked up to be.

My wife would quit if they abolished it.

By: jane wood

jane wood — Tue, 09 Dec 2008 12:34:10 +0000

Fine to look at ‘top jobs’ and golden hand shakes in the public sector – after 18 yrs service in the NHS and Local govt -I have a wonderful pension of Â£700 pcm – not many city boys or those in provate companies would think that something to look forward to
jlw