Public sector pensions should be switched to Defined Contribution

Brendan Burgess

Founder
Messages
54,774
Extract from my pre-Budget submission

Dear Minister, this is what the taxpayer wants and deserves

The public service defined benefit scheme should be replaced by a generous defined contribution scheme – the state should match the employee’s contribution up to a maximum of 10%.


The gold plated Defined Benefit pension scheme for public servants should be replaced by a generous Defined Contribution scheme.

The state should be like any other generous employer - they should match the employee’s contribution up to a maximum of 10%.

This would have many advantages:

· It would increase mobility between the public and private sectors which would be good for both.

· It would make comparing private sector and public sector pay much easier and would make it much clearer whether public sector employees are paid more or less than private sector employees.

· We would have to face up to the true cost of public sector pay immediately instead of deferring the pension element to our children and grandchildren to pay.

Politicians, including you Minister, should have the same generous defined contribution scheme as proposed for public servants

It is crazy that you qualified for a ministerial pension after just two years in office. I don’t begrudge you a generous pension. But we should match what you contribute yourself, up to a maximum of 10%.
 
Last edited:
On the public sector pensions, can you flesh out your vision for how this would be implemented?
Would this be prospective for new entrants only?
Or prospective for everyone, with benefits accrued to X date preserved and a new DC scheme for all employees after that point?
Or something else (retrospective effect)?
 
Hi mandlebrot

Ideally...

New entrants

1) All new entrants would be on a defined contribution scheme.

Existing employees
2) The benefits accrued by existing workers would be given a present value and this would be added to their Defined Contribution pot
3) In future the state would match the employee's contribution up to 10%.

Existing retired members
1) Their benefits would be retained


The problem is that when the numbers were done for 2) the state would simply not be able to afford it.

So it should be treated like a Defined Benefit fund in deficit. There would be a notional value attributed to the fund, but they would face a hair cut if they transferred out.

Brendan
 
And how much would the Government increase public sector pay by, to compensate for this fundamental alteration of workers' T's & C's?
 
They wouldn't at all.

We have to face up to the fact that we are living well beyond our means and paying public servants way beyond what we can afford.

That is in the interest of public servants as well. You will get no pension if the country goes bust.

Brendan
 
Do you honestly believe it will get any consideration whatsoever? After all it's the opinion of one person and if everyone's opinion was to be considered where would be going?
 
noproblem said:
Do you honestly believe it will get any consideration whatsoever? After all it's the opinion of one person and if everyone's opinion was to be considered where would be going?
Click to expand...

I think it's only a matter of time. People are living longer and wages are a lot higher now than they used to be.
 

Brendan, as a household that stands to benefit from the current system I agree with your proposal.
 
Brendan

All State pensions are currently structured on a "pay as you go" basis. If we were to switch to a DC model that would have significant cash flow implications.

Put simply, where will the money come from?
 
Hi Sarenco

One of the big advantages of switching to a Defined Contribution system, is that the true cost of employing public servants would be clear and transparent. We should not be deferring these costs.

We would immediately recognise that we have a huge deficit in the public sector pension scheme. This would be good to recognise as it would show by just how much we are living beyond our means.

It would have a cash flow implication for future contributions. The existing ones would have a transfer value but it would be subject to a hair cut as we could not afford it.

Brendan
 
Even if a line was drawn under all public sector pensions as of today, we'd know that in 60 years or so, everybody including retirees would be on defined contributions and from now until that end date the defined benefit millstone would be decreasing.

This seems like a great idea. So it won't be done.
What incentive has a politician who only looks about 8 years in the future got to do this? Yes I know it benefits us all in the future and it benefits our kids but that's long term thinking. We're not good at that.
And the media would have a field day spinning it.
Your right, the public sector employees would benefit long term on this but would the unions care? Would they be harping about new members not having the same benefits as old members.

Although, I'd be quite impressed with any party that went with it.
 
Brendan Burgess said:
It would have a cash flow implication for future contributions. The existing ones would have a transfer value but it would be subject to a hair cut as we could not afford it.
Click to expand...

I'm fascinated by how blithely you can talk about imposing substantial and permanent austerity on one of the biggest cohorts of workers (and voters) in the country.

What, if any, difficulties would you envisage with implementing your new pension scheme? Do you perhaps foresee industrial action on an unprecedented scale, lasting for god knows how long.

The demographic of the public sector workforce is quite old, so you would be inflicting irreversible financial damage on them relatively late on in their careers "for their own good".

As a public servant with 30+ years left until I come to cash in my chips, who is (I think) also a realist, I doubt that I will get the pension that is currently promised to me. But my pay, and that of all of my public sector colleagues, has been collectively bargained based on the pension entitlements as they currently stand. There is simply no question, not a snowball's hope in hell, that the hundreds of thousands of workers in the public sector would accept that proposal. Particularly at a time when the country's economy is booming.

Do you actually honestly believe that your proposal is any way realistic as a one-off, point in time event? It might be to some extent realistic as an end point that could be reached incrementally over a good number of years (i.e. decades). Your proposal doesn't indicate that it should be a phased transition though, so maybe you think it'll just be grand to do all in one go?

Unless I misunderstand it, you're suggesting that the public servant who retired last month gets (and retains) their full 1.5x salary lump sum and 50% of salary pension, but the public servant due to retire in a few months gets told their pension is converting to a DC scheme and taking a haircut (any idea how much??). That type of inequity would be pretty sure to bring down a government, don't you think? You'd have 300k current public servants plus their spouses and families, a substantial chunk of their retired former colleagues who'd be anxious about the security of their entitlements once the first battle has ended. That's a pretty big bloc of people.
 
Torblednam,

You are absolutely correct. The country is run for the benefit of the public sector and that cannot change because the public sector has huge voting power. Just dont expect at the rest of us to be happy about that.

The "inequity" you refer to is just an abrupt withdrawal of an existing situation which inequitably favours public servants.
 
torblednam said:
I'm fascinated by how blithely you can talk about imposing substantial and permanent austerity on one of the biggest cohorts of workers (and voters) in the country.
Click to expand...

Brendan has put forward a proposal for an employer to match pension contributions of the employee up to 10% of their salary. How in God's name is that austerity ????
 
Delboy said:
Firefly, as a household that stands to benefit from the current system I disagree with your proposal!!!
Click to expand...

Don't get me wrong, we will be looking forward to that day if & when it comes but it's not good for the country.
 
Firefly said:
Brendan has put forward a proposal for an employer to match pension contributions of the employee up to 10% of their salary. How in God's name is that austerity ????
Click to expand...

That proposal is of diddly squat relevance to a person retiring imminently who is about to be given a haircut by barber Brendan...
 
torblednam said:
That proposal is of diddly squat relevance to a person retiring imminently who is about to be given a haircut by barber Brendan...
Click to expand...

How?

Existing employees
2) The benefits accrued by existing workers would be given a present value and this would be added to their Defined Contribution pot
 
You must log in or register to reply here.
Menu
Log in
Register