[Stu Littlefair]

Anyway on the nominal 35 year old teacher, I've just entered the following details into the pension estimator (http://www.teacherspensions.co.uk/calculator/calculator.html ), all figures in todays money.

- Current salary £32,000
- End salary £58,000 (assuming 2% growth above inflation)
- Started as teacher at age 25 so 10 years service in old scheme.

Firstly it was a primary school teacher. Their main salary scale rises incrementally from £21,102 to £30,842 so your current salary is too high. With a pay freeze/slow growth for several years and inflation at 5% I think your salary growth rate would raise a wry smile from the teacher in question. That should account for a lot of the difference.

The average public sector pension came from this bbc report (http://www.bbc.co.uk/news/business-15925017), which seems to be based on data from the National Association of Pension funds, though it's not totally clear.

[Stu Littlefair]

So there's no pot, but the state's cash commitment to public sector pensions is falling and this fall equals, outweighs or already factors in future increases in life expectancy? Where's this from, as it doesn't seem to be what the government is saying (not that that means much)?

This is from the Hutton report. It's been described by Hutton himself as "a bit of a guess", as well it might be, since it requires assumptions about economic growth, public sector employment levels and renumeration levels as well as changes in life expectancy. Nevertheless, the IFS and OBR agree, all predicting falling or flat contributions, as a fraction of GDP.

This fall factors in future increases in life expectancy (based on actuarial calculations made in 2009). It includes the assumption that the index linking of pensions moves to CPI. It also includes assumptions about economic growth that now look very optimistic, but the assumptions about employment levels and pay deals in the public sector also failed to take into account Osborne's fabulous generosity, so it probably balances out in the wash...

[slackline]

From what I can see...

Economics (noun) A bit of a guess.

[john horscroft]

So in summary, are we saying

- its true that the public sector pension scheme is sustainable, in the sense that there's enough money in the scheme as it stands.

- the Hutton report predicts that the pensions burden on the state will actually decline in the future

- public sector workers took a significant cut in their pensions already, under labour

- they're now being asked to pay more into their schemes, work longer AND receive less when they retire

- this in the context of a wage freeze when living costs are rising rapidly.

And, based on these facts people argue that they shouldn't strike? I find that pretty gobsmacking. OK, public sector pensions are the envy of many in the private sector, but surely the answer to this is to improve the private sector pensions?

This does just look like a raid on public sector workers, because it's more politically advantageous than tax rises for all. I'm surprised so many people seem to agree with the government line

Good summary Stu.  Add to that the news from those well known left wing rabble rousers the Institute for Fiscal Studies that the net effect of the Chancellors recent rearrangement of the deck chairs on the Titanic is to take money from the poor and give it to the rich  http://www.politics.co.uk/news/2011/12/01/autumn-statement-will-hit-the-poor-to-help-the-rich-experts  and those of you who feel that strikes are pointless may get the chance to revisit this argument very soon....

[Stu Littlefair]

And all I can say with regard to what the government is saying is that Mark Serwotka directly accused Francis Maude of telling lies about pensions Newsnight last night. Despite being given several chances to do so (including a direct invitation from Paxo), Mr Maude made no attempt to deny it.

see http://www.bbc.co.uk/news/uk-politics-15984068 from 5:00

I think that tells you all you need to know about this government's approach to spin. Meet the new boss, same as the old boss...

[slackline]

Slack----line - Yes I know that, but it doesn't stop politicians and the media routinely trotting out the notion that life expectancy will just keep going up and up. e.g. http://news.bbc.co.uk/1/hi/health/1977733.stm

The scientist whose work they are citing is also quoted in the BBC article as saying...

I think there is a ceiling, but we don't know where it is. We haven't got there yet.

(And you can easily increase the number of centenarians by having greater variation around the mean).

Personally I hate the way science and statistics is given spin.

[IanP]

Firstly it was a primary school teacher. Their main salary scale rises incrementally from £21,102 to £30,842 so your current salary is too high. With a pay freeze/slow growth for several years and inflation at 5% I think your salary growth rate would raise a wry smile from the teacher in question. That should account for a lot of the difference.

The average public sector pension came from this bbc report (http://www.bbc.co.uk/news/business-15925017), which seems to be based on data from the National Association of Pension funds, though it's not totally clear.

Readjusting the figures for starting salary for 27k, end salary of 32k (very small increase in real salary) gives a pension of 18.5k which looks even better as a percentage of final salary (though that salary may not look very attractive by that point!).

All very strange and probably just reinforces my view that this whole subject needs less hot air and more considered information and analysis from both sides.

[Ru]

This is from the Hutton report. It's been described by Hutton himself as "a bit of a guess",

Ah ok. So it was a guess in the first place and since then things have got significantly worse. I wouldn't be putting any money on the pensions being sustainable. I ought to read the report really.

[Stu Littlefair]

You probably won't want to read the report - it's a few hundred pages long

I'm not sure that things have got "significantly worse" from the point of view of pension affordability, as a fraction of GDP. Sure the economy won't grow as predicted but then neither will public sector wages, and there'll be fewer people employed in the public sector as well.

I don't know what you mean by "I wouldn't be putting any money on the pensions being sustainable". There's no better forecast than those produced by Hutton, IFS and OBR. Sure forecasts are unreliable, but since when have governments based policy on anything other than the forecasts available? As I argue above, there's no reason that future economic shocks will make them less affordable, since the government is tightly controlling public sector employment...

Sure, it's a bit of a guess, but as slack line says, so is all economics. This doesn't strike me as any more of a guess than anything else.

[Ru]

I'm being cynical based on the fact that most forecasts made in the last 2-3 years have been too optimistic.

[Pantontino]

Good work Stu - it's quite a tonic to hear some sensible fact-based discussion. I despair at the way this government is driving wedges between everybody: divide and rule I suppose.

I work in the private sector but support the strike (and I don't even have a pension - but ultimately that is my choice).

Yesterday my wife went to work (she works for a homeless charity) while I spent the day hanging out with our kids. I suppose I could bitch about the enforced loss of income, but I had a great time, even ended up at the climbing wall in the afternoon with my son.

It did strike me that there must be lots of households with a mix of public/private sector workers. or failing that, people (like me) who have/had parents who worked in the public sector. Sympathy is bound to cut across a broad range of families and people.

[mrjonathanr]

Anyway on the nominal 35 year old teacher, I've just entered the following details into the pension estimator (http://www.teacherspensions.co.uk/calculator/calculator.html ), all figures in todays money.

- Current salary £32,000
- End salary £58,000 (assuming 2% growth above inflation)
- Started as teacher at age 25 so 10 years service in old scheme.

This gives retirement at age 66, retirement income of £30,400, lump sump £28.800, so in excess of 50% of final salary.  So I'm still not sure where this 33% drop in salary comes from unless I'm looking up the wrong calculators.

Total, utter, tosh. £58,000 for a mainscale teacher?? Currently salary increase is 0% not 4.9+2 = ~7% annually.
The union guidance on why and where the calculator is unreliable is far too lengthy to want to reproduce here but in essence - it's unreliable. Ignore it.

Where does the average pension of public sectors works of 7k come from - is this for people who've worked full time in the public sector for 30+ years?  If not it's a bit of a meaningless figure.

It is a useful figure for a spokesman to refer to - in other words, misleading. The average includes part-timers, late arrivals, those who only worked in the public sector for a few years. A statistical mean - which is statistically speaking, meaningless.

What isn't meaningless is the cash grab by the Tories on those who provide essential services in many cases for an embarassingly low wage. It needs fending off because revenue is not being sought from those who are equipped to pay in a similar and equitable share.

The dire state of private pensions is a national embarassment. In my view we should have a centrally funded pension scheme where all can pay in, private as well as public, and adjustments are spread across society as a whole. It wouldn't stop politicians being thieves, but it would be provide liquidity for the government and therefore incentivise its maintenance.

I'd pay tax for that. But this is just a redistribution from those at the bottom towards those at the top which does nothing to help the embattled private sector worker with a miserly pension.

[IanP]

Total, utter, tosh. £58,000 for a mainscale teacher?? Currently salary increase is 0% not 4.9+2 = ~7% annually.
The union guidance on why and where the calculator is unreliable is far too lengthy to want to reproduce here but in essence - it's unreliable. Ignore it.

Not utter tosh, just a number plucked out of the air assuming some real terms income increase over the next 30 years.  See my later answer based on low real terms increase over 30 years from 27k to 32k - the end result still gives an pension in excess of 50% of final salary.  As to whether the calculator is correct I can't say - but this highlights the need for real information and understanding.  I spoke to someone down the wall who was all against the robbing government but didn't understand that the proposals impact future pension only not already earned entitlement.

[dave]

For a teacher to end up on 58k they would have to be something like assistant/deputy head level.

[IanP]

For a teacher to end up on 58k they would have to be something like assistant/deputy head level.

What was a teachers salary in 1982?  As I said above the number was based on a nominal real terms increase of 2% a year over 30 years , I'm more than happy to accept that that was generous and we can all expect less significant (if any) real terms increase in the next 30 years - the calculations and the point made (that the end pension is in excess of 50% of final salary) are same based on this assumption instead.

[slackline]

It is a useful figure for a spokesman to refer to - in other words, misleading. The average includes part-timers, late arrivals, those who only worked in the public sector for a few years. A statistical mean - which is statistically speaking, meaningless.

Means are only meaningless when you don't know the variance (or its square route, the standard deviation).  Although when distributions are skewed the median and inter-quartile range are more appropriate.

[john horscroft]

Good work Stu - it's quite a tonic to hear some sensible fact-based discussion. I despair at the way this government is driving wedges between everybody: divide and rule I suppose.

I work in the private sector but support the strike (and I don't even have a pension - but ultimately that is my choice).

Yesterday my wife went to work (she works for a homeless charity) while I spent the day hanging out with our kids. I suppose I could bitch about the enforced loss of income, but I had a great time, even ended up at the climbing wall in the afternoon with my son.

It did strike me that there must be lots of households with a mix of public/private sector workers. or failing that, people (like me) who have/had parents who worked in the public sector. Sympathy is bound to cut across a broad range of families and people.

   

[tomtom]

It is a useful figure for a spokesman to refer to - in other words, misleading. The average includes part-timers, late arrivals, those who only worked in the public sector for a few years. A statistical mean - which is statistically speaking, meaningless.

Means are only meaningless when you don't know the variance (or its square route, the standard deviation).  Although when distributions are skewed the median and inter-quartile range are more appropriate.

I've always preferred being called Mr Median rather than Mr Average


Been some good debate on here... good effort.

[Offwidth]

Seems to me there are several misconceptions and gaps in this thread.

Technical one first...the TPS pension calculator inflation adjusts your salary, so your final salary you enter is the same as your current (unless you get promoted or are not at the top of the internal pay scale for the grade). Its not explained very well.

Economic one now: Hutton factored in likely longevity increases and everything else. Pensions were then renegotiated to deal with the changes required. There is no long term affordability issue. There are guestimates, sure but these are unlikely to be massive issues as the whole idea of regular negotiations with actuaries is to fine tune as required. Growth got worse but wages got worse faster. Yes this does mean Francis Maude is lying: the government is on an idealogical drive not an actuarial one.

Next point no one seems to have mentioned is that typical public sector salary levels have dropped 10% wrt inflation in the last two years and likely to drop 5-10% in the next two. (If you really want to depress yourself you can add in the amount the pound has devalued compared to the western world average currency bag). Like the private sector the highest paid in the public sector often managed to wangle a pretty decent pay rise.

Longevity... when you make people work harder and longer they die earlier. Those who retired a decade ago got an amazingly good deal and also on average probably lived healtheir lives than the young are currently living (smoking aside). I think costs may well drop after the changes.

Private sector having a go at the public sector: because someone got mugged we should deal with the muggers not suggest everyone else gets mugged too. Private sector pensions for the low to middling paid are a national scandal and this will bite all taxpayers eventually.

Strikes: as a moderate Trade Unionist I'm often depressed with the keeness some of my comrades display towards this form of industrial action. Sometimes though you have to go on strike: this one is necessary as I just dont see how you can have such a major dispute without it. I could be on stike for 2 whole years before I lose out (if I win). Most other forms of action short of a strike (except working to rule) will cause a full days pay deduction in any case.

[mrjonathanr]

Private sector having a go at the public sector: because someone got mugged we should deal with the muggers not suggest everyone else gets mugged too.

Well said.

[lagerstarfish]

I had a minor revelation this morning.

Demotivating public sector workers will reduce their performance - this will cause a slight drop in quality of life for the population, which in turn should reduce the average life expectancy by a small amount. This will make pensions slightly cheaper and allow the retirement age of public sector workers to be lowered again. The population will have learned their lesson and public sector workers will just work shorter French style weeks so that life expectancy doesn't creep back up. Result.

Adam Smith's Invisible Hand saves the day again. Although some politician or other will claim credit for the result.

[Andy B]

...Yes this does mean Francis Maude is lying: the government is on an idealogical drive not an actuarial one.

Absolutely. I'm surprised that this point isn't brought up more often.

[chris j]

Economic one now: Hutton factored in likely longevity increases and everything else. Pensions were then renegotiated to deal with the changes required. There is no long term affordability issue.

But then Hutton now says that the economy has tanked since he made his projections in a long term never going to recover lost ground kind of way so further change is  necessary. Tricky one.

http://www.bbc.co.uk/news/uk-16021345

[BB]

I'm interested in this idea that public sector pensions are affordable as they are. How can this be with an aging population and an expanding public sector? Can someone summarise?

That aside, there's a more serious problem with the economy in general when the public sector (net tax consumers) starts reach the size of the private sector (net tax producers). This is clearly unsustainable and there are only 3 solutions:

1. Grow the private sector
2. Shrink the public sector
3. Kill everyone in the whole world and drown Middlesex in a vat of wine

sorry 4 solutions....

4. Pink Anasazi

[Offwidth]

But then Hutton now says that the economy has tanked since he made his projections in a long term never going to recover lost ground kind of way so further change is  necessary.

http://www.bbc.co.uk/news/uk-16021345

By Hutton I meant the careful, detailed report produced by a team that he chaired. I'm rather perplexed what has recently happened to the man: he seems to be making odd and inconsistent contributions that are easily challenged. He did it a few weeks back and backed down. This time he questioned the GDP assumptions (this will increase costs by a few percent) but failed to mention the recent (and projected) drops in pay cf CPI (this will reduce costs more than the GDP increases: currently nearly 10% and likely to reach at least 16%). He also failed to pick up the increasing liklihood of wider public sector job losses (also reducing costs) cf the report.

Its obvious the situation needs reviewing but base this on facts, not fear and ideology.