jeremy,s new pickle

[DominicJ]

M

"I don't get what you and 2807 (on at least 3 occasions) have against staff whose deductions aren't then invested"

I dont have anything "against" them.
I'm simply stating the facts, the pensions liability the government owes cannot be paid.
That is a fact.
The government can no more pay public sector pensions than it can colonise Andromeda.

That money was deducted from your pay packet is neither here nor there.
You may have been promised something, but what you have been promised isnt possible, you have been robbed.

The whole point of paying into a long term pension policy is to obtain compound interest which to a large extent regulates the fluctuations of the stock market over a long period of time

Compound interest AT BEST matches inflation.
£10,000 invested at 5% in 1990 is worth £30k today.  That bought a house, now, its a deposit.
LAs do have pots, but they are massivly underfunded, but national employees, which include teachers and police, dont even have underfunded pots.

Dhaslam

There  is nothing wrong with  the government  paying pensions from current funds provided they account for the future liability in some way

But they havent, and thats a massive problem.

[biff]

hi again good folks,
           please do not get upset or annoyed any further. i note with admiration the different angles of the debate and i know there is real anger and frustration but somehow i think you would be better not to flog these issues any further.
    take my own country,ireland ,for example. we are in a state of shock at the moment.something has happened to us that we do not even want to go out the door to protest.i think we have given up or maybe we think we should wait a little longer for something more stupid to come down from the goverment before we kickback,
 meanwhile the department of taoisiag adsvisers have all got raises to their saleries,mr kenny personally interfered and insisted mr conlon get his raise of 35thousand euros a year,,kenny has 5 advisers and came on the telly to explain to us how broke the country was and how we have to cut back on everything,could this be tipping point.?
                                                             biff

[billt]

There is no intrinsic reason why pensions funded by actual cash in investments somewhere are better than pensions funded by current workers. The risks are different.

In the fund case the risk is that the investing institution takes too much of the profits, or goes bust, or the investments underperform.

In the no-fund case the risk is that there aren't enough workers coming after you to keep the payments up.

In both cases the rules might need to be changed retrospecively if the original schemes prove to be unsustainable.

It's not clear to me that the fund method is intrinsically better. It produces a lot more profit for financial institutions in managing all that money, and it can be used to get other things done which may or may not be good things, depending on what sort of investments you liked.

I do quite agree that due to life-expecancy changes all pensions need changes to reflect the fact that they have to either run for many more years or start later.

There is a considerable difference between funded final salary schemes (pensions that bulid up investments) and unfunded schemes - nearly all the public sector schemes.

There are rules to try and ensure that funded schemes have a large enough investment to ensure that it is large enough to pay the pension liabilities. Obviously you can't guarantee that but responsible schemes used to make a very good effort at it. The necessary contributions should be frequently assessed and adjusted as required. Historical factors resulted in most employers contributions being reduced, and they didn't seem keen to increase them again, which is shy there are virtually no private sector final salary schemes open to new members now. They've been replaced by money purchase schemes where all the risk has been transferred to the employee.

Unfunded schemes are just a pyramid scam. Instead of building up a fund that's big enough to pay all future liabilities, the contributions are used either for pensions currently in payment, or used as part of general tax income. You can get away with this when there are many more contriubutors than there are people taking pensions, but that is not going to be the case for much longer. When the ratios reverse there is no money to pay the promised pensions and the system falls apart. Of course, this has been known and understood since the advent of the first state pension at the beginning of the last century, but politicians being politicians the issue has been ignored and left to someone else to deal with. It's now starting to come home to roost.

[Contadino]

Unfunded schemes are just a pyramid scam. Instead of building up a fund that's big enough to pay all future liabilities, the contributions are used either for pensions currently in payment, or used as part of general tax income. You can get away with this when there are many more contriubutors than there are people taking pensions, but that is not going to be the case for much longer. When the ratios reverse there is no money to pay the promised pensions and the system falls apart. Of course, this has been known and understood since the advent of the first state pension at the beginning of the last century, but politicians being politicians the issue has been ignored and left to someone else to deal with. It's now starting to come home to roost.

Isn't that precisely what Bernie Madoff did, and ended up in jail for? Was his crime that he misadvertised his 'product', whereas the governments have a monopoly (in that in all but a very few instances, contributions are mandatory, often taken straight from your wage packet.) Is the difference that governments have no need to truthfully advertise their 'products.'

It's a serious question.

[langstroth3]

LAs do have pots, but they are massivly underfunded, but national employees, which include teachers and police, dont even have underfunded pots.

...and thus all tax payers are picking up the bill, which might be considered fine - except when this also applies to public sector employees on very good wages - lets say over 60K (i.e many in central gov departments, school heads, LA heads of department etc etc). Why should the majority not in these schemes struggle to fund their own pensions and be paying tax to support pension schemes for those on good salaries that should be fully capable of saving into their own pension pots?

The whole public vs private debate isn't really that helpful; but it needs to be recognized that for many many roles public sector wages are not the poor relation of the private sector - which has already had several years of zero wage growth.

[2807]

Hello renewablejohn

OK – let’s go & do some basic maths again – you really do not get this do you??

£2,400 plus £5,300 = £7,700

For simplicities sake, lets say that the contributions have remained the same your wife’s entire working life.

She started working as a teacher at age 21 after finishing university.  She decided to work until age 66 = 45 years of contributions = a pension fund of £346,500.

Now click on this link http://thisismoney.williamburrows.com/ratetables/atables.aspx & select £100,000 female, single life with RPI increases.

This will give you a pension of between £2,894 and £3,579 for £100k.  Multiply that by 3.5 (for the £346k “pot”) and the pension your wife could expect to receive if her “contributions” were ring fenced together with her employers “contributions” (bearing in mind no contributions were ever made) would be around £12,500 pa



If not, then I’m afraid I will have to leave this thread, I don’t think I can explain it in any simpler way.

2807

Quite frankly the sooner you leave the thread the better in my opinion as you have no grasp on pension funding arrangements otherwise you would not have used such simplistic figures.

The whole point of paying into a long term pension policy is to obtain compound interest which to a large extent regulates the fluctuations of the stock market over a long period of time. If my wifes pension pot over the 45 years had only achieved 3% then it would be worth £735361, 4% would give £969203 and 5% 1291175. Ignoring any additional interest accrued just a return of funds would provide in the worst case scenario of 3% above an income of 25k for 29 years and at 5% would be 25k for 51 years.

I was going to let it lie, but your mathematics is so far away from mine I thought I would have a go long hand.  If your wife is a maths teacher, she may be able to correct me………..

For simplicities sake again, lets agree your wife started work 45 years ago in 1966.

From http://tinyurl.com/d85ows2 the average female salary in 1966 was £629.   A teacher straight from university would probably not have earned the average salary, but lets be generous & agree that they did.

Say a (very generous) pension contribution of 10% was made = £63

45 years @ 5% compound on £63 would, according to my calculations give a final fund value of £566 for the 1966 pension contributions.

(Calculated using the formula £63 plus £3.15 interest the 1st year plus £3.31 interest on £66.15 in year 2, plus £3.47 interest on £69.46 in the 3rd year plus £3.65 interest in the 4th year plus £3.83 in year 5 £4.02 in year 6 etc, etc, etc, up to £28.30 interest in year 45.)

Say the following year she received a 10% pay rise to £692

44 years @ 5% compound on £69 using the same formula would give a final fund value of £590

And again another 10% rise each year for the next 10 years, the figures would result in salaries of £761, £837, £921, £1,013, £1,114, £1,226, £1,348, £1,483, £1,631 & £1,794 a 10% contribution compounded by 5% for 43, 42, 41 etc years results in final fund values of £619, £649, £680, £713, £746, £782, £820, £858, £900 & £942

Now, lets ad up the first 12 years fund value (which is more than 25% of it & see what we get = £13,284.

I could go on – but I hope you now agree that my £340k fund looks optimistic & your £3/4M?

As for annuity rates they have dropped by 50% thanks to our rip off pension providers.

Unfortunately, annuity rates have dropped by 50% thanks to advances in medical science.

Please let me know if you disagree with my figures

2807

p.s, if your wifes salary was indeed £629 in 1966 and had increased by 10% pa since then, it would now be £45,848

[M]

LAs do have pots, but they are massivly underfunded, but national employees, which include teachers and police, dont even have underfunded pots.

...and thus all tax payers are picking up the bill, which might be considered fine - except when this also applies to public sector employees on very good wages - lets say over 60K (i.e many in central gov departments, school heads, LA heads of department etc etc). Why should the majority not in these schemes struggle to fund their own pensions and be paying tax to support pension schemes for those on good salaries that should be fully capable of saving into their own pension pots?

The whole public vs private debate isn't really that helpful; but it needs to be recognized that for many many roles public sector wages are not the poor relation of the private sector - which has already had several years of zero wage growth.

Sorry to be picky, but £60k+ wouldn't be 'many in central government', it would actually be grade 5 and above, who are divisional heads with approx 50 to 300 staff. This would tie in with the other examples of school heads, LA heads of Dept that you gave. Most staff (approx 60/70%) would lie in the team support or Executive Officer (EO) roles at around £14k to £25k, then HEO (Higher EO) at around £30k before moving into senior management such as Branch, Division, and Department Heads.

Oh and once again, those staff are saving into their own pension pots, or at least they are having deductions made from their salaries, so they are trying their best.

Thanks.

Mart.

[renewablejohn]

2807

I suggest you use a compound interest converter then you might understand the errors in your calculations. My wife is a specialist english teacher so will not be checking the maths. Unfortunately I only do maths when companies pay me to do it.

[biff]

lads,,lads,
         there is no point in hammering this thing to death, there are valid points for,,,,,and there are valid points against,
   unfortunatly,,there are no winners,so best let it fade away and look for some hope that david cameron actually got a decent deal for britain.
                                              biff

[2807]

Hello renewablejohn

2807

I suggest you use a compound interest converter then you might understand the errors in your calculations. My wife is a specialist english teacher so will not be checking the maths. Unfortunately I only do maths when companies pay me to do it.

Let's forget about the inns & outs of any pension scheme, I still cannot see what is wrong with the method I used for calculating compound interest (using excel) - it just seems to me that the eventual total should be much larger than what the spreadsheet is telling me.

2807