10 public sector pension myths busted by the Hutton review

Gold-plated pensions ARE the norm.

If you work for five years in the private sector you do not expect to get a pension pot (tax-free lump sum plus inflation-proofed pension) worth more than two years final salary.

Saying "Oh many of them don't get that much because they only worked a few years or part-time" is a disingenuous smoke-screen as that is "we shall pretend that the £5,000 pension that they got for five years' part-time work is all that they have to live on and ignore the £20k (or more) that they got for working full-time for the previous 35 years"

The point is that senior civil servants and quangocrats are being subsidised by the working poor.

If the average pension paid is £7,800 a year that would still take a pension pot of at least £225,000 + for a 65 yr old male and 60 yr old spouse with 50% spouses pension and RPI increases.

That would take some considerable funding for many in the private sector.

RE: Point 1) I am 27 years old and work hard every day, I have taken responsibility for my own pension provision and yet my projected pension fund will currently provide nowhere near £7,800 p.a. with index-linking so I would consider this a very good deal.

RE: Point 6) How are they are 'fundamentally unfair' for rewarding high-flyers, surely if someone believes you do a good enough job while you work they correspondingly believe you deserve a decent pension. Why do we insist on attacking everyone who works hard and earns a reasonable wage yet we do virtually nothing to those claiming benefits and scrounging off the rest of us?

I get fed up with hearing how badly paid the public sector is and yet I see no sign of this; unless you are comparing those 'high flyers' of public vs. private sector (but then many in the private sector take the risks and get the rewards).

Unless I am mistaken many public sector workers retire before age 65 for men in which case the pension pot needed for a £7,800 a year pension will require an much larger pension pot to provide.

Why did he even bother to say the average pension paid is only £7,800 a year?

It would seem he is trying to justify how little this is, but there is little doubt we cannot afford to fund these generous pensions in years to come so what does he propose to solve the problem?

Hopefully he will come up with something that those in the public sector will accept, however if he does not give a valid reason that they can understand there is really little hope of them accepting any change.

Public sector employees need to know what it costs each year to fund their pension if it were a "private sector" pension, then they can value their total pay packet and compare it to the private sector.

Lord Hutton? Lord Ha Ha more like! Surely doesn't take a genius to work out that in a final salary scheme, the longer your service and the higher your earnings - the bigger your pension! Has also conveniently forgotten the 3x pension PCLS and add-ons such as full enhancement to NRA in ill-health retirement cases, 3 x salary Death-in-Service lump sum benefits (4 x in some cases), additional spouse pension for dependents (up to 50%). Thank God my wife is a civil servant - at least one of us will have something to live on in our dotage!

Most public sector employees pay 6% x salary for their pensions. The true cost is in the 35% region bevause of the nature of the benefits. So, who pays the difference, the tax payer of course.

The problem is that pension policy is determined by politicians, who get very generous publicly funded pensions and implemented by civil servants who also benefit from public funding.

For years they haven't seen the bigger picture problem because they haven't got one themselves.They haven't valued what they've got and thus don't know the true cost of provision, hence the inane comments regarding low values by Hutton now and Yvette Cooper previously.

The point Michael makes about revealing the true costs is the key one.

Trying to be fair to those in the Public Sector for once, I really don't think they understand the whole cost to the taxpayer of ther pensions. If this was shown in a clear and simple way (on Panorama perhaps...) then everyone, Public and Private sectors would have a better understanding of the issues.

I can't see the Unions being happy with this, but at least the real picture would then be in the public domain.

Duncan 35% of earnings as the total cost? More info please. With ER contributions, total cost can be in 15 - 20 per cent range but where does the 35 per cent come from?

George - cancerIFA

@George

Most Employers are paying in range of 15-20% and most schemes are massively in deficit - look at BA for example. This includes many public sector schemes - the exception being the Civil Service which is unfunded

The proposed 1.5% increase will hardly dent the surface especially with longevity increasing and fully index linked benefits

Perhaps we should change the system to ensure all public sector pensions are funded in the future. Then, when the contributions are properly paid by the employer there will be substantially fewer members to cough up for, 'cos they will have been let go to be able to afford the contributions. It will be a self-fulfilling prophecy and ensure the massive cost of these pensions is not hidden.

When great swathes of public sector workers start getting sacked so the employers can afford to pay their pension contributions, maybe then they will appreciate quite what a good deal they have with these things.

@ Duncan & George

While we have negative real interest rates on gilt-edged the standard sums don't work, but I suspect someone could invent 35% on the basis that the price of an annuity for a married man or a single woman retiring at 60 on half-pay is over 15 times final salary, so more than 35% of total lifetime salary if he/she had merely maintained real earnings over his/her working lifetime. That is, of course, ignoring the tax-free lump sum of 1.5 times final salary.

Negative real interest rates are unsustainable long-term and the impact of returns on investment should more than offset the effects of increases in real earnings, so 15-20% should be more than adequate for most companies - the deficit in BA and other schemes is due to the jump in the deemed cost of annuities when QE cut real yields on gilts to less than zero. However since the majority of government employees are female, the large majority (both male and female) are (i) granted real increases in pay semi-automatically throughout their career and (ii) are middle-aged or older so there is less time to earn a return on contributions, the cost of local or central government schemes must be higher than a private sector scheme that had the same rules.

Just cancel the public sector pensions and auto-enrol them all in NEST........

I tend to agree with NeilG's nuclear option. The sooner private and public sector employees and the self-employed are on a level playing field the better.

Improve state pensions for all at the agreed state retirment age, funded out of taxes and national insurance, so everyone has a safety net, and the better off pay more.

After that it's NEST or similar for everyone.

It will take some time for DB benefits to work through the system but at least there would be a cap on future liabilities and basic state pension plus DC for all gives equality of opportunity for every citizen.