Unsustainable public sector pensions
Discussion
paulrockliffe said:
The confusing bit is the use of the phrase, "in today's money", the figures quoted assume a 4% pay rise every year for 40 years, but that's not possible unless inflationary rises are included is it? If you include inflation, then the final salary and resulting pension aren't in today's money at all.
On the same pay band, ignoring inflation, the nurse would have hit the maximum salary for the band after maybe as little as 5-8 years? So there wouldn't be any 4% after that, just inflation being added to the max for the band.
£30k in 40 years time is likely to be worth about what you'd expect the pension to be, around the £10k mark perhaps in today's money, maybe less.
Actually you've identified an important point, but have misunderstood the figures.On the same pay band, ignoring inflation, the nurse would have hit the maximum salary for the band after maybe as little as 5-8 years? So there wouldn't be any 4% after that, just inflation being added to the max for the band.
£30k in 40 years time is likely to be worth about what you'd expect the pension to be, around the £10k mark perhaps in today's money, maybe less.
At 4% growth, the £21,692 salary becomes just over £100k at age 65. A 2/3rds pension, increasing with inflation would therefore be circa £66.5k p.a.
Assuming a 2% inflation rate over the period (salary growth = inflation plus 2% is not that unreasonable), then the real value (i.e. in today's terms) of the pension is £30,700 per annum.
Hence the required fund value would be the £2.2m fund value quoted in the original article which seemed incorrect, but which (when explained above!) now makes sense! £2.2m is case to £1m in today's terms (based on 2% inflation) which ties back to the numbers i quoted previously.
So the article is correct after all...!
alfie2244 said:
FiF said:
Just a quick visit back, let's ignore the issue of only band 8c today, note, today, the original premise in the article was as follows.
"Using the NHS pension scheme from 2015 as an example, a fully qualified nurse aged 25, earning £21,692 and joining the pension scheme today, will typically contribute 7.1pc of salary each year to fund their retirement. If they work for 40 years, stay in the same band of earnings throughout and attain 4pc annual increases in pay, they could retire on an annual salary of £45,500 in today’s money.
When they stop working, they will have amassed a pension worth £30,700 a year in today’s money, equating to more than two thirds of their final salary. "
So in summary, band 8 only has sod all to do with this, it's bottom of band 5 today, and still band 5, but in 40 years time, with 4% year on year increases.
And it still doesn't alter the basics that regardless of when, now, future, band this, band that, the mechanics and relativities are still the same based on contributions, years of contributions etc etc.
What will £45.5 / 30.7K actually buy in 40 yrs time? I was once told that, historically money halved in value every 7 yrs."Using the NHS pension scheme from 2015 as an example, a fully qualified nurse aged 25, earning £21,692 and joining the pension scheme today, will typically contribute 7.1pc of salary each year to fund their retirement. If they work for 40 years, stay in the same band of earnings throughout and attain 4pc annual increases in pay, they could retire on an annual salary of £45,500 in today’s money.
When they stop working, they will have amassed a pension worth £30,700 a year in today’s money, equating to more than two thirds of their final salary. "
So in summary, band 8 only has sod all to do with this, it's bottom of band 5 today, and still band 5, but in 40 years time, with 4% year on year increases.
And it still doesn't alter the basics that regardless of when, now, future, band this, band that, the mechanics and relativities are still the same based on contributions, years of contributions etc etc.
You could buy a detached house for around £17k in the 70's now £300ish I would guess.
Edited by alfie2244 on Wednesday 30th March 19:22
Roughly: £21,692 * (1.04^40) = approximately £105k in 2056 terms.
Discount it back to today using say 2% (CPI target) = £105k / (1.02^40) = £47k in 2016 terms.
Money doubling every 7 years would mean an inflation rate of 10.3% compounded annually, which is a fairly high generally but not unheard of in certain circumstances like the housing market and wage inflation in the 1970s. You can use the rule of 72 to work it out = annual increase % * number of years = 72 so for a given % or number of years you can work out the other number easily.
Edited by ninja-lewis on Wednesday 30th March 20:20
alfie2244 said:
FiF said:
...an annual salary of £45,500 in today’s money.
...a pension worth £30,700 a year in today’s money...
What will £45.5 / 30.7K actually buy in 40 yrs time? I was once told that, historically money halved in value every 7 yrs....a pension worth £30,700 a year in today’s money...
The value of money halves in 7 years when general inflation is over 10%
Sheepshanks said:
The actual numbers in 40yrs will be much higher - for some reason they've revalued back to "today's money". That's why the pension pot figure of over £2M mentioned previously seems so high.
But the pension of £30k in today's money is actually £66k per annum in actual money, which once again emphasises the generosity of these pensions and how it will be impossible for private individuals to approach the level of benefits received by the public sector. And even if they could afford the 40%+ contribution rates that would be necessary, the latest government changes to the 'lifetime' limit (which harshly penalise the private sector relative to the public sector) would then impose massive extra taxes!!
sidicks said:
Sheepshanks said:
The actual numbers in 40yrs will be much higher - for some reason they've revalued back to "today's money". That's why the pension pot figure of over £2M mentioned previously seems so high.
But the pension of £30k in today's money is actually £66k per annum in actual money, With the scheme being CARE going forwards the pension wouldn't be a straight 2/3 final salary either.
Of course there's always the issue that a lot of people don't think the NHS itself will still exist in 40yrs time.
Sheepshanks said:
Yes - it's just a bit odd that they re-valued the salary and pension figures to today, but not the pension pot.
Yes, bit confusing, certainly.Sheepshanks said:
With the scheme being CARE going forwards the pension wouldn't be a straight 2/3 final salary either.
No it would be a 50% pension plus a 3/80ths lump sum which is of broadly similar value to the final salary scheme (as explained previously). Sheepshanks said:
Of course there's always the issue that a lot of people don't think the NHS itself will still exist in 40yrs time.
Irrelevant, as if the NHS doesn't exist then no contributions will be being paid either, but accrued benefits will be protected!Sheepshanks said:
Yes - it's just a bit odd that they re-valued the salary and pension figures to today, but not the pension pot.
Not really. In finance, future cashflows are invariably discounted to 'todays money' to make any kind of value judgement. So long as everyone is clear which cash flows are future value and which present and what discount rate is used it's quite simple. Presumably the future value of the 'pension pot' is relevant given the new lifetime limits.fblm said:
Not really. In finance, future cashflows are invariably discounted to 'todays money' to make any kind of value judgement. So long as everyone is clear which cash flows are future value and which present and what discount rate is used it's quite simple. Presumably the future value of the 'pension pot' is relevant given the new lifetime limits.
Yes more than 2 x the lifetime limit...!!mph1977 said:
Rovinghawk said:
mph1977 said:
chicken little
Why TF do you keep using that expression?" Fear mongering — whether justified or not — can sometimes elicit a societal response called Chicken Little syndrome, described as "inferring catastrophic conclusions possibly resulting in paralysis".[21] It has also been defined as "a sense of despair or passivity which blocks the audience from actions".[22] The term began appearing in the 1950s[23] and the phenomenon has been noted in many different societal contexts."
https://en.wikipedia.org/wiki/Henny_Penny
BTW- Could you please show where Sidicks says what you claim he said? This would prove you right & him wrong. If you can't do so then it would be polite to retract your claim.
Rovinghawk said:
didn't ask the origin of the expression. I asked why TF you seem incapable of any other form of articulation.
BTW- Could you please show where Sidicks says what you claim he said? This would prove you right & him wrong. If you can't do so then it would be polite to retract your claim.
3 separate claims in fact, all still unsubstantiated!BTW- Could you please show where Sidicks says what you claim he said? This would prove you right & him wrong. If you can't do so then it would be polite to retract your claim.
I doubt he's man enough to admit he was wrong and apologise though...
sidicks said:
paulrockliffe said:
The confusing bit is the use of the phrase, "in today's money", the figures quoted assume a 4% pay rise every year for 40 years, but that's not possible unless inflationary rises are included is it? If you include inflation, then the final salary and resulting pension aren't in today's money at all.
On the same pay band, ignoring inflation, the nurse would have hit the maximum salary for the band after maybe as little as 5-8 years? So there wouldn't be any 4% after that, just inflation being added to the max for the band.
£30k in 40 years time is likely to be worth about what you'd expect the pension to be, around the £10k mark perhaps in today's money, maybe less.
Actually you've identified an important point, but have misunderstood the figures.On the same pay band, ignoring inflation, the nurse would have hit the maximum salary for the band after maybe as little as 5-8 years? So there wouldn't be any 4% after that, just inflation being added to the max for the band.
£30k in 40 years time is likely to be worth about what you'd expect the pension to be, around the £10k mark perhaps in today's money, maybe less.
At 4% growth, the £21,692 salary becomes just over £100k at age 65. A 2/3rds pension, increasing with inflation would therefore be circa £66.5k p.a.
Assuming a 2% inflation rate over the period (salary growth = inflation plus 2% is not that unreasonable), then the real value (i.e. in today's terms) of the pension is £30,700 per annum.
Hence the required fund value would be the £2.2m fund value quoted in the original article which seemed incorrect, but which (when explained above!) now makes sense! £2.2m is case to £1m in today's terms (based on 2% inflation) which ties back to the numbers i quoted previously.
So the article is correct after all...!
where the 2015 CARE scheme while based on 54th accrual and wapparently without limit has a normal pension age tied the state pension age ... so 'early' retirement on a full value pension will not be the option it currently is
Edited by mph1977 on Wednesday 30th March 21:33
mph1977 said:
you keep quoting a 2/3rds pension , the NHS FS scheme (1995 or 2008) is an 80th scheme, with 1:1 accrual and a 45 year limit , although for most people currently working for the NHS the normal pension age is 60 and for increasing numbers of people 40 years service , nevermind 45 takes to to or beyond 65 ...
I'm commenting on the numbers in the article you idiot!You're wrong again!! The 1995 scheme is an 1/80ths scheme (plus lump sum) with NRA 60, the 2008 scheme is a 1/60ths scheme with NRA 65.
And the 1/80ths scheme comes wth a lump sum in addition, which has significant value. But this has been explained numerous times already so you ignoring it yet again must be deliberate...
And the new 2015 scheme has a 1/54ths accrual so only 36 years' service would be required for a 2/3rds pension. Plus with salary revalued at inflation plus 1.5%, this could easily exceed 2/3rds of final salary for some individuals with low annual pay rises...
Edited by sidicks on Wednesday 30th March 21:48
sidicks said:
And the new 2015 scheme has a 1/54ths accrual so only 36 years' service would be required for a 2/3rds pension. Plus with salary revalued at inflation plus 1.5%, this could easily exceed 2/3rds of final salary for some individuals with low annual pay rises...
Hmmm.....different to what you said earlier. And no lump sum now.Edited by sidicks on Wednesday 30th March 21:48
Sheepshanks said:
Hmmm.....different to what you said earlier. And no lump sum now.
Yes, I referred to the 1995 scheme in my previous response (in error):sidicks said:
Sheepshanks said:
With the scheme being CARE going forwards the pension wouldn't be a straight 2/3 final salary either.
No it would be a 50% pension plus a 3/80ths lump sum which is of broadly similar value to the final salary scheme (as explained previously). Edited by sidicks on Wednesday 30th March 22:26
sidicks said:
fblm said:
Not really. In finance, future cashflows are invariably discounted to 'todays money' to make any kind of value judgement. So long as everyone is clear which cash flows are future value and which present and what discount rate is used it's quite simple. Presumably the future value of the 'pension pot' is relevant given the new lifetime limits.
Yes more than 2 x the lifetime limit...!!Which isn't this limit of £41,667 ie £1,250,000/£33,000 (33k buying £1k annuity with partner and inflation linked) so a low salary and mops up so many individuals to pay what 95% marginal tax rate on that pension grrr
Sheepshanks said:
superlightr said:
sidicks said:
superlightr said:
so if she/eor paid in £10 a month for 15 years then its a fekking amazing gold plated with flashing lights pension. Can you not see that?
She's paid less than that, apparently!So it seems fair that you should continue to keep her - is she supposed to live on £250/mth?
Sheepshanks said:
You paid her salary, expenses and bonus too. Thanks!
So it seems fair that you should continue to keep her - is she supposed to live on £250/mth?
The £250 a month is on top of her normal state pension, my wife's pension is exactly the same amount after working in the NHS this was I think a good deal even though she had to contribute to it.So it seems fair that you should continue to keep her - is she supposed to live on £250/mth?
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