Unsustainable public sector pensions

Unsustainable public sector pensions

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mph1977

12,467 posts

167 months

Sunday 29th November 2015
quotequote all
Ali G said:
'Employer' contributions are irrelevant if the scheme(s) is/are unfunded.
so irrelevant that the exchequer recieves over a billion GBP 'back' each year from the NHS scheme alone ...

odd how people are so quiet about this aspect of things ...

sidicks

25,218 posts

220 months

Sunday 29th November 2015
quotequote all
mph1977 said:
also disregards the employer contributions
The employer is the taxpayer, as everyone (apart from you) is fully aware of.

sidicks

25,218 posts

220 months

Sunday 29th November 2015
quotequote all
mph1977 said:
so irrelevant that the exchequer recieves over a billion GBP 'back' each year from the NHS scheme alone ...
Irrelevant for the calculation he is showing you which outlines the massive taxpayer subsidy required for these pensions.

mph1977 said:
odd how people are so quiet about this aspect of things ...
Odd how you're not so quiet about things that you are entirely ignorant about,

Ali G

3,526 posts

281 months

Monday 30th November 2015
quotequote all
sidicks said:
I know you've tried to simplify things for the hard if thinking on here, but you've made a few important mistakes:

1) contributions are based on actual salary, which will be much lower at the start of the period, so a much lower fund.

2) It's also not fair to ignore investment return - for a fair comparison you'd need to allow for a guaranteed return consistent with the risk free nature of the public scheme.

3) the expected future lifetime at age 65 is on the pessimistic side and you've ignored the value of the spouse's pension.
Aye,

(1) Provides a lower contribution
(2) 'Risk Free' - UK Gilts providing low returns currently (assuming a funded scheme)
(3) Increased pensionable obligation

=> Increased shortfall.

Also not factoring in future index-linked pension obligation.

All of which has led DB pension schemes to have been albeit abandonned in the private sector apart from....

sidicks

25,218 posts

220 months

Monday 30th November 2015
quotequote all
Ali G said:
Aye,

(1) Provides a lower contribution
(2) 'Risk Free' - UK Gilts providing low returns currently (assuming a funded scheme)
(3) Increased pensionable obligation

=> Increased shortfall.

Also not factoring in future index-linked pension obligation.

All of which has led DB pension schemes to have been albeit abandonned in the private sector apart from....
Indeed - it seems the hospital nurse thinks he knows better though...

///ajd

8,964 posts

205 months

Monday 30th November 2015
quotequote all
sidicks said:
///ajd said:
In the nurse example today, the nurse pays 9% contribution from salary, and the govt contributes a virtual 14%. This makes the scheme a 23% contribution in total at this salary point.

http://www.nhsemployers.org/your-workforce/pay-and...

So what is the specific issue with this; it already appears to match your criteria?
For the 4 millionth time, the true total cost of the scheme is not 23% - it's more like double that. The 14% employer contribution is just an indicative number that doesn't represent the true economic conditions.

If the government could offer public style DB schemes to the private sector for a 23% contribution rate, those who understand the true value of these schemes would bite their hands off!

//adj said:
You seem hung up on the "money has to come from somewhere". Yes it does, the taxpayer. The 23% contribution is clearly set out and comes from the taxpayer but just never gets put in a fund.

So what is the problem? Are we talking at cross purposes about it being unfunded
The taxpayer's total contribution is NOT capped at 14%, it is whatever is required to meet the benefits promised. Based on current economics, it's more like 30% for some schemes and 40% or more for others.

Do the maths - set up a spreadsheet and work out the implicit investment return to provide guaranteed future pension payments for life, based on the contributions paid pre-retirement!!!!
you said 25-30% was fair
i showed you it is 23% now
this is not far off
then you raise bar to 40% - why?

one of the benefits and advantages of the govt scheme is the 'fund' is virtual, based on future gdp/tax, and there are no expensive middle men involved in running funds with non risk free investments and skimming off % for themselves. pension fund managers make money - this has to come from somewhere but the govt is free from this charge. this can account for the delta between a public 23% scheme and a more risky profit driven private scheme. i'm not sure you are taking this into account, plus the govt can take the risk on the lack of cap - it is big enough to absorb this and it can do as gdp and tax take grows. i've also shown the growth is actually quite modest as a % of gdp at 0.5%. don't get me wrong 0.5% of gdp is a shed load of cash, but manageable with tweaks to contributions and conditions such as retirement age.

PS UK tax revenue is around 40% of gdp - and has been stable between 35-40% since 1950, including through recessions where it typically dips slightly.


Edited by ///ajd on Monday 30th November 00:17

sidicks

25,218 posts

220 months

Monday 30th November 2015
quotequote all
///ajd said:
you said 25-30% was fair
i showed you it is 23% now
this is not far off
then you raise bar to 40% - why?
You showed no such thing. You just don't understand DB schemes.

///adj said:
one of the benefits and advantages of the govt scheme is the 'fund' is virtual, based on future gdp/tax, and there are no expensive middle men involved in running funds with non risk free investments and skimming off % for themselves. pension fund managers make money - this has to come from somewhere but the govt is free from this charge. [b]this can account for the delta between a public 23% scheme and a more risky profit driven private scheme.
No it can't - do the maths and you'll see.

///adj said:
i'm not sure you are taking this into account, plus the govt can take the risk on the lack of cap - it is big enough to absorb this and it can do as gdp and tax take grows. i've also shown the growth is actually quite modest as a % of gdp at 0.5%. don't get me wrong 0.5% of gdp is a shed load of cash, but manageable with tweaks to contributions and conditions such as retirement age.
Except you don't understand, for the reasons laid out previously.

And you still haven't explained why the taxpayer should subsidise ALL public sector workers to such a massive extent.

///ajd

8,964 posts

205 months

Monday 30th November 2015
quotequote all
i'm starting to think you can't think outside of your private model of pensions and understand the public model.

in what way did i not show the nurse scheme was 23%?

sidicks

25,218 posts

220 months

Monday 30th November 2015
quotequote all
///ajd said:
i'm starting to think you can't think outside of your private model of pensions and understand the public model.

in what way did i not show the nurse scheme was 23%?
You simply showed that the 'notional' employer contribution is 14%.

The fact that you think that this represents the true fixed cost to the taxpayer says all we need to know.

You still haven't explained what the implicit investment assumption is for 14% to be the correct number.
biggrin

You also haven't explained why private sector schemes (whose benefit structure is typically less generous than the public sector schemes) would not still be offering there schemes if they only cost 23% in aggregate...


Ali G

3,526 posts

281 months

Monday 30th November 2015
quotequote all
What is the difference between a 'private' pension scheme and a 'public' scheme?

I understand the difference between a 'Defined Benefit' scheme and a 'Defined Contribution Scheme'.

sidicks

25,218 posts

220 months

Monday 30th November 2015
quotequote all
Ali G said:
What is the difference between a 'private' pension scheme and a 'public' scheme?

I understand the difference between a 'Defined Benefit' scheme and a 'Defined Contribution Scheme'.
Apparently only the private scheme has to recognise the laws of mathematics and economics whereas the public sector scheme can create money from nothing....

mph1977

12,467 posts

167 months

Monday 30th November 2015
quotequote all
Ali G said:
What is the difference between a 'private' pension scheme and a 'public' scheme?

I understand the difference between a 'Defined Benefit' scheme and a 'Defined Contribution Scheme'.
the difference between schemes is more between 'Pay as you go' ( as the state pension and S2P are) as seen with he NHS scheme and 'funded'

in PAYG the surplus contributions are returned to the exchequer to be respent that year or the next year , the trade off there beign the exchequer underwrites the scheme , where a funded scheme builds it;s fund from these surpluses

Defined benefit - offers a defined pension usually based on final / career revalued average salary and years of WTE service when contributing to the pension

Defined contribution - is much the same as 'personal' / 'autoenrolement' / D.C. workplace pensions where a fund is built up from contributions ( individual, employer 9if relevant) , the tax treatment) which is then subsequently used to purchase a pension product at the point of retirement.

Ali G

3,526 posts

281 months

Monday 30th November 2015
quotequote all
mph1977 said:
the difference between schemes is more between 'Pay as you go' ( as the state pension and S2P are) as seen with he NHS scheme and 'funded'

in PAYG the surplus contributions are returned to the exchequer to be respent that year or the next year , the trade off there beign the exchequer underwrites the scheme , where a funded scheme builds it;s fund from these surpluses

Defined benefit - offers a defined pension usually based on final / career revalued average salary and years of WTE service when contributing to the pension

Defined contribution - is much the same as 'personal' / 'autoenrolement' / D.C. workplace pensions where a fund is built up from contributions ( individual, employer 9if relevant) , the tax treatment) which is then subsequently used to purchase a pension product at the point of retirement.
OK,

I am making a fairly large assumption here, that the highlighted above is the difference between that 'contributed' by employees and that 'paid out' in pensions.

Would that be your understanding?

mph1977

12,467 posts

167 months

Monday 30th November 2015
quotequote all
Ali G said:
OK,

I am making a fairly large assumption here, that the highlighted above is the difference between that 'contributed' by employees and that 'paid out' in pensions.

Would that be your understanding?
that would be in the case of the NHS scheme the figures provided by the NHSBSA who are the administrators of the scheme ... this includes all contributions as the sums of money are as 'real' as any sum of money moving around between corporate organisations is ...

///ajd

8,964 posts

205 months

Monday 30th November 2015
quotequote all
sidicks said:
///ajd said:
i'm starting to think you can't think outside of your private model of pensions and understand the public model.

in what way did i not show the nurse scheme was 23%?
You simply showed that the 'notional' employer contribution is 14%.

The fact that you think that this represents the true fixed cost to the taxpayer says all we need to know.

You still haven't explained what the implicit investment assumption is for 14% to be the correct number.
biggrin

You also haven't explained why private sector schemes (whose benefit structure is typically less generous than the public sector schemes) would not still be offering there schemes if they only cost 23% in aggregate...
I never said it was the true cost.

The delta is
a - partly offset by the lack of risk/profit margins (that you seem unable to recognise don't apply to the govt)
b - manageable as a risk the govt can absorb

you seem to expect the govt to set aside more % to pay for fund mgt costs etc. they just don't apply.

Ali G

3,526 posts

281 months

Monday 30th November 2015
quotequote all
///ajd said:
I never said it was the true cost.

The delta is
a - partly offset by the lack of risk/profit margins (that you seem unable to recognise don't apply to the govt)
b - manageable as a risk the govt can absorb

you seem to expect the govt to set aside more % to pay for fund mgt costs etc. they just don't apply.
I am not replying on behalf of sidicks - he can do so by him/herself.

Firstly, the UK Government is funded by you, me and every other UK taxpayer - fundamentaly and in any other way.

All other financing has to be provided by UK 'borrowing' on the markets (largely financed by multi-nationals who seek UK Govt Treasury Bonds)

The 'UK' by now is largely 'financed' by multi-nationals, pension funds, other soverign lands and UK taxpayers fund the interest payments.

A moot point is whether or not the 'risk' associated with UK debt could give rise to an increased rate of interest which would make the cost unaffordable to UK taxpayers - at which point UK may become a bit Greek.

This is an interesting economic conundrum!

anonymous-user

53 months

Monday 30th November 2015
quotequote all
mph1977 said:
so irrelevant that the exchequer recieves over a billion GBP 'back' each year from the NHS scheme alone ...

odd how people are so quiet about this aspect of things ...
At the scale of NHS pension liabilities a billion IS completely irrelevant! Its 600 quid per employee FFS. This 'pay as you go' nonsense you keep banging on about (paying liabilities from new 'investors' aka ponzi scheme) only works if the number of those contributing continues to increase at the same rate as those in retirement. You don't even need a maths GCSE, let alone an actuarial degree to figure out this goes badly wrong sooner rather than later!

Ali G

3,526 posts

281 months

Monday 30th November 2015
quotequote all
fblm said:
mph1977 said:
so irrelevant that the exchequer recieves over a billion GBP 'back' each year from the NHS scheme alone ...

odd how people are so quiet about this aspect of things ...
At the scale of NHS pension liabilities a billion IS completely irrelevant! Its 600 quid per employee FFS. This 'pay as you go' nonsense you keep banging on about (paying liabilities from new 'investors' aka ponzi scheme) only works if the number of those contributing continues to increase at the same rate as those in retirement. You don't even need a maths GCSE, let alone an actuarial degree to figure out this goes badly wrong sooner rather than later!
In defence of mph1977, I should enquire as to which enterprise HM Govt should have investd funds in order to provide for future liabilities?

A simple question, but not one with a simple answer!

headache

'Things go wrong' for UK Gov when the UK economy does not grow....

sidicks

25,218 posts

220 months

Monday 30th November 2015
quotequote all
///ajd said:
I never said it was the true cost.
The true cost is what matters, not some meaningless number shown in the scheme's literature.


///adj said:
The delta is
a - partly offset by the lack of risk/profit margins (that you seem unable to recognise don't apply to the govt)
b - manageable as a risk the govt can absorb

you seem to expect the govt to set aside more % to pay for fund mgt costs etc. they just don't apply.
Absolute rubbish! You're just making up things that you can't substantiate!! As I've said before - do the maths and then you'll see how wrong you are!

As far as a) is concerned, private sector schemes can easily invest in risk-free assets (government bonds) for minimal costs.

And for b), the government can't ignore the reality of maths / economics, despite what you claim (else, why doesn't the government offer the same DB scheme to private sector firms and charge them 23%...)?!

dave123456

1,846 posts

146 months

Monday 30th November 2015
quotequote all
I don't think some people on here understand the cost of defined benefit pension schemes. This surplus repaid to the treasury nonsense is a load of rubbish... Have they thought of the age demographic of the scheme participants. What is being suggested here is the public sector move to a defined contribution scheme... And the benefits they receive on retirement are not guaranteed. This means they have the same deal as private sector workers.

What is wrong with this suggestion?