NAPF calls for career average public sector pensions

soor i dont agree , everybody is on the band wagon to drive public sector pensions into the ground i,m a firefighter paying 11 percent shortly to rise to 14 over the next 3 years also cpi instead of rpi , im afraid people will stop paying in to scheme,s and new entrants will give pensions a wide berth . its funny how public sector was never mentioned when all the ivestors were putting a pound in on moday and getting two on friday . barr humbug

At last some sense in the field of public sector pensions. If members don't like it then they can always opt out - the marginal cost of their pensions as paid for by the taxpayer would be reduced even further.

The current inequitable situation whereby non public sector workers cannot afford to pay for their own pension provision because taxes are so high to pay for public sector pensions just cannot be allowed to continue.

as long as there is a distinction between public sector & KEY public sector workers it makes sense.

what you have to remember most scemes in the public sector are pay in , payout and are not invested , true you say less of a burden on the state well your wrong once i draw my pension i will have to be self sufficient until im 66 when i get a state pension , i will get £10,000 a year before tax and pay tax on it ,i cannot claim a penny from the state , unlike the person who has never worked or contributed a penny to the state or pension .im no big time charlie on 10 grand a year , next it will be why is his house and car bigger than mine ,get over it and join the fireservice and join us multi millionaires its great

We really make it very hard for ourselves, don't we?

More uselsss meddling!

In my opinion, the simplest solution is to insist that everyone invests 10% of everything that they earn from their very first job.

That is the most basic of financial advice anyway.

But first of all - Anthony Poole: you (and your colleagues) do an amazing job and thoroughly deserve the best this ungrateful country can give you. I fully support the excellent emergency services that we have - as opposed to the numpties that we appear to have in the civil service, including the government!

But let's not forget that all of this (pension) rubbish started when it became no longer compulsory to join your employer's pension scheme.

Does anyone else remember the government adverts of around 25 years ago? With a bolt of lightning smashing a pair of handcuffs, stating that it was no longer compulsory to join (be handcuffed by) your employer's pension scheme?

That signalled "open season" for the unscrupulous chancers in our industry to "opt everyone out" and in the worst cases transfer away the accrued benefits (without any suitable analyses). Or am I wrong?

The net result was the pensions review, the FSAVC review, G60 etc etc. Because of pensions "mis-selling".

And I still believe that there must eventually be a further review into the "contracting out" (i.e. of SERPS) that was generally seen as something everyone should do.

In my opinion, most of the above problems were caused by insufficient training and weak supervisory management, which was vastly overshadowed by the "fast buck".

How many people were advising around 1988 when "contracting out" via the super new Personal Pensions became available? Lots.

How many of these who were churning and transferring benefits without suitable analysis are still advising? My guess, not a lot thanks to the pensions review etc and the need to actually pass exams with joined up writing e.g. G60 etc (FPC was a joke, in my opinion and of little value -if any)

So in summary, maybe I'm a cynic but I reckon that everyone should be forced into saving 10% per year of whatever they earn gross - not necesarily via pensions alone.

It may take a generation or so to turn the savings gap around, but in principle this is surely the correct approach?

Or am I just a misinformed cynic who has got it wrong again?

dave i agree mostly with what you say i have always been of the opinion that your pension should be based on qualification of becoming a polce officer ,firefighter nurse etc in the public sector this would give a more stable pension for both sides then if you went for promotion it would be up to them to top up there pension outside of their public sector pension after all why should a cheif who joined as a firefighter get promoted to £200,000 a year and be entitled to a £400,000 lump and £100,000 a year pension this is the real problem not those at the bottom it needs that to be reformed

Dave, I believe you are wrong about opting out, certainly as far as in-force members were concerned. I worked in final salary administration when the opting-out legislation came in in 1988. Whilst many former members with paid-up benefits transferred out to the new personal pensions, I could count on the fingers of one hand the number of members of final salary schemes I looked after who opted out - and I looked after about 20,000.

I think you are right about compulsary savings of 10% gross salary, but sadly this would have to be introduced into an already complex structure.

Anthony - I don't blame you for this, but your pension is in the firing line. Many millions of other people in the UK have had their pensions reduced due to the financial meltdown and increasing costs of those pensions; I can understand it will be difficult, as it was for me, but the fact is, the pensions cannot be afforded.

Believe me if the inequitable situation continues and the private sector continues to have to pay massively for gold plated public sector pensions I am sure your overtime claim as the country burns in riots will more than make up for it.

Excuse the last comment - tongue in cheek, but you get the idea.

GM: re contracting out.

Thanks for your comments. My point on contracting out is quite simple.

As soon as individual contracting out was allowed (with a carry back of 1 year initially available) into Personal Pensions only, almost anyone who could sign their name was approached for a "free pension".

In saying this, I appreciate that the SERPS scheme was changed several times.

However the initial principle was that there were only 20 years of benefit. Hence the general advice was to "contract out" early on and contract back in later to ensure that the full 20 years was credited. This also allowed the initial rebates to be invested for longer, in the hope of better growth - which would be given in addition to the maximum SERPS benefit. Now THAT would be a FREE pension!

A further principle was that only people earning avove a certain amount would benefit. I can't remember the exact amount, but it was around £12,000 to ensure that the rebated contribution could withstand the effect of the charges.

I am absolutely sure that many who were "contracted out" into a "free" Personal Pension did not fit the profile from outset and were probably not serviced properly i.e. they probably could have been better off by not "contracting out" or at least contracting back in at some stage.

People were contracted out into personal pensions in droves when first allowed - some rightly, some wrongly.

Naturally this has absolutely nothing to do with Final Salary schemes, as indivividuals could only "contract out" into Personal Pensions, as opposed to a Final Salary scheme where all members were effectively contracted out as the whole scheme was.

And your Final Salary members were already contracted out, hence PR and non PR transfer values. It would only be after leaving the scheme that they could contract out individually into a new personal pension for future rebates.

And in saying that, the first to contract out of the new super-duper SERPS scheme was the government - like rats leaving the proverbial sinking ship. However, I believe the rats usually let the ship float for a while before leaving it!!!

So my point is unbelievably simple. In my opinion, many who contracted out indivdually into a personal pension will have been disadvantaged.

However I am also of the opinion that this has been totally overlooked by the so-called regulators, and is likely to be a problem in waiting.

I hope that this explains my thinking sufficiently.

Dave - clearly a misunderstanding. I define opting out differently to contracting out - i.e. opting out is when you leave or not join a final salary scheme when you could, and contracting out which is solely associated with not paying for nor benefitting from the additional component of the state scheme, whether that be SERPs or S2P.

As to contracting out - meh - I personally am still contracted out as I would rather have control over the funds than leave it in the hands of a thieving government, but that is just me and my decision and one I am happy with. Whether that leaves with me or less at the end of the day, only time will tell.

Happy New Year to all

GM: Thank you for your reply.

Firstly, Happy New Year to you too.

I appreciate the confusion that "opting out" and "contracting out" can bring. My understanding was that the Pensions Review took in the "opting out" side of it as you described - although the Review was most concerned with those who received a recommendation to "opt out" in favour of a personal penion.

At that time, illustrations were shown at 8% and 13% growth projections - which were obviously reasonably competitive at the higher rate. But obviously that was IF and only IF the host provider achieved that. Most at that time were doing well on past performances, which have proven to be unsustainable.

Also, the quotes tended to show the resultant pension in a standard level format. Clearly the final salary scheme had an element of indexation of pensions in payment. At that time a fully indexed pension would have cost approximately 100% extra (in terms of the fund size). This was rarely referred to, in my experience. Hence the Pensions Review and "opting out".

My opinion on "contracting out" now?

For individuals it should be done on an annual decision, provided that the correct information is available in order to logically take that decision. In the "good old days", pension providers would show on the quotation the amount of State Pension foregone by "contracting out" for that one year, based on the client's salary/NIC.

Naturally this would create a lot of work and extra reviews for the adviser.

Of course, the long term view is we have absolutely no idea what will (still?) be available when each individual retires and takes the benefits. And that is just as vague as any growth projections.

So, GM, you are absolutely correct in that "only time will tell" whether you will be better or worse off.

And just to add some cynicism as usual, why didn't any of the reviews include a provision for any final redress adjustment dependent on the actual maturity value of the investment that was being reviewed???

I'll answer that myself.

Let's assume someone took (was mis-sold???) a with profits endowment mortgage, and at the date of the review it was apparently £1,000 behind target and that £1,000 was paid and the mortgage was converted to a repayment.

But the endowment was for some reason kept and matured at a value of greater than the borrowing?

Then should the borrower repay that excess to the adviser?

As an illustration, some years ago I met someone who had been (mis-sold?) a with profits endowment for a council house purchase, with a tartget of only around £18,000. It had apparently never been subjected to the Endowment Review, but did actually mature at over £50,000. Did they complain that they were mis-sold?

How many of these investments were effectively churned because of some ill thought out "mis-selling review"???

At the risk of going off-topic, I suspect we all have our mis-selling review horror stories. My worst case that I recall is where a final salary deferred pensioner had transferred to a personal pension scheme and then died. This put him in the high priority category for review.

The personal pension scheme paid out a lump sum of £30k (the original non protected rights TV + some investment return) + a protected rights spouses pension of £80.00 per annum non escalating.

The final salary scheme would have paid out no lump sum and 50% spouses GMP pension payable for life amounting to about £250 per annum non escalating.

However because he had transferred from a final salary scheme to a personal pension scheme the transfer was deemed to be bad advice. The spouse got the higher benefits and received compensation for the bad advice.

The world was quite mad for a while and I am not sure the madness has stopped yet.

GM: You are absolutely correct in what you say.

Many pension schemes have faults in one area or another. I am not convinced that the so-called "Reviews" have ever been properly thought out for the ultimate benefit of the policyholder.

I have completed a lot of pension transfers over the years. Whilst the death benefit is often an area where the final salary scheme is poorer than a personal pension, the pension transfer has still to stack up in its own right in my opinion in terms of critical yield and all of the other items on a compliant check list includng the fact find and attitude to investment risk etc.

And to continue your theme of going slightly off topic, where there could justifiably have been "mis-selling" (I hate that term - emotive journalistic gutter press, trash terminology, in my opinion) could (and should?) include much simpler stuff e.g.

Repayment mortgages (should be with daily interest lenders with overpayments or simply weekly payments).

Mortgage providers of so-called "flexible" mortgages without weekly payment facilities (what is flexible with monthly payments only?)

Lenders charging excessive arrangement fees/ set up fees or whatever they call their extortions.

"Contracting out" without any regard to eventually "contracting back in".

Lenders churning mortgage ISA's with scant (if any) regard of pound cost averaging

Life policies not written under correct trusts where applicable.

Pensions not written under correct trusts where applicable.

I'm sure we can all think of plenty of other simple areas where full and accurate advice might not have been given - a great list with which to attack the banks/bancassurers?

And looking at all of that (to my simplistic mind) it reinforces the fact that you are all better than you think you are, better than your clients think you are and far better than the so-called regulator thinks you are.

So be proud of what you do! And have a great New Year!