Civil servants’ pension scheme under spotlight
Saturday 9th October 2010, 2:29PM BST.
FINAL salary pensions for States employees could be scrapped if the UK follows through with proposals to stop its own scheme.
Guernsey has an agreement in principle with local unions that the island will operate a similar public sector pension plan to that of the UK.
An initial recommendation from an independent UK commission led by Lord Hutton found that the final salary pension scheme was ‘inherently unfair’ and an alternative should be adopted – possibly a career average model.
Lord Hutton said the case for reforming the UK public sector pension set-up was clear.
States head of HR and development Simon Elliott (pictured), also chief officer of the Public Sector Remuneration Committee, agreed with the points outlined in Lord Hutton’s initial report – the final version is due out early next year.
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I don’t mind civ servs having final salary pension schemes. But I don’t want to top it up. Have one – yes, but fund it out of your own pocket please.
Please also knock the double pay grade jump two years before retirement as well. Well known BONUS for those that have played the game.
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Hear, hear Minger.
I’m one of those (self employed for much of working life, no private pension) who will have to make do with the meagre States pension in old age.
Good luck to those people who have made a private pension provision but I object to any more of my tax contribution going towards an unsustainable, unrealistic, overblown scheme for the benefit of pampered public employees and useless retired deputies. Now is the time to derail this gold plated gravy train that the rest of us are forced to subsidise. I think on balance I’d rather support the loafing chavs outside the Town Church!
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Don’t talk such nonsense, almost all civil servants who reach retirement have been at the top of their job’s pay scale for many many years before they retire so it is not possible to get any increments let alone a “double pay grade jump”.
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Oh and Martino, if you haven’t made proper provision for your old age with a private pension then that’s your own fault eh!
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Um the Truth? Wrong on all counts. wrong that senior civil servants haven’t had magical pay grade jumps a couple of years before retirement. You are probably a minion.
And wrong to laugh at the private sector pension provision. Smug eh?
There isn’t a private pension provision on the world, save for the odd African despot, where the beneficiary can call on the taxpayer for a top up.
Have your FSP but pay for it yourself, don’t come knocking on my door. Well I say knocking on the door, don’t I mean creeping in through the window???
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An ex-minion actually, who left for pastures new.
An ex-minion with his private pension plan that he sorted out himself, and his normal one which includes his employers contribution, just like civil servants. Why should they not receive an employers contribution because their employer is the state?
Smug? Nope, just happy my retirement is all sorted and I don’t have to moan about the inequality of it all on the internet where my moans will make no difference to anything.
Go on then, all knowing Minger, let us know who these senior civil servants were, put yer money where your keyboard is, or is it too easy to make accusations and then run and hide behind your sofa?
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Also for the record I dont think Deputies get the pension, they are also treated as self employed I believe as far as contributions go.
Tut tut – research before you vomit over these pages Martino.
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Isn’t the world supposed to end on 21/12/2012 ?
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Ray
Do you mean Bush/Blair are comeing back into power? oh dear!
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“Gold plated” blah blah pensions. It’s very easy to mouth off opinions in London taxi-driver fashion, isn’t it?
Try some hard facts: the average UK civil service pension is £5928. The average NHS pension is £6931. Given that HSSD salaries are roughly in line with the UK, we can expect a similar picture here.
Does that sound cushy and gold-plated to you? Fancy living on that amount for your retirement?
Hey, why not just cancel all public sector pensions. In fact, go the whole hog and privatise healthcare entirely, to stop all “state subsidies” to these pampered workers. That’d be much better, wouldn’t it? Just like… the USA, where people spend 2.4 times as much of their income on healthcare as in the UK, and millions are uninsured.
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James
I don’t think it’s the average pensions that people are against, it’s the very high pensions that go to senior civil servants, particularly when they are promoted within a few years of retirement, thereby bumping up their pensions considerably.
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This whole issue of the States employees’ pension is rather larger than the above comments suggest.
Phil’s point is correct. The central unfairness of the final salary scheme, as opposed to scheme based on career-average earnings, is that it gives a disproportionately large award to people who move up into management posts or do a lot of overtime only in the last few years of service. The flip side is that it penalises staff who earn more consistently, e.g those who spend their whole career working on the ‘front line’, or work hard during their career as a whole but ease off towards the end.
But you need to understand the wider problem to see why action is required, and I apologise in advance if my facts are hazy or inaccurate.
There is a £6m annual deficit in the payments currently going out (£36m) compared to contributions going in (£30m). Combined with poor investment returns because of the recession, this means there is also now a substantial and growing deficit in the ‘superannuation fund’ – that is to say that the amount of money in the pension pot (some £900m or so) is less than the ‘past service liability’, which is the amount the States reckons it is going to have to pay current employees and retirees based on the service they have already given, and how long the actuaries reckon they will live after retirement.
T&R has a policy of keeping this deficit to 10% or less. This means keeping the superannuation fund topped up from tax revenues if necessary, to stay within that limit. As life expectancies increase, so do the actuaries’ valuations of the pension liability, and the taxpayer will have to pay to bridge the widening deficit gap this creates.
Already, the States has agreed that the contributions are going to have to increase. They can increase the ‘employer’s rate’, which basically is another way of putting more money in the superannuation fund out of general revenue, accounting for it as staff salaries. Or they can increase the ‘employee’s rate’, which means deducting more from the employees’ pay packets.
Either way this is an injustice – either taxpayers, or current States employees, are going to have to reach into their pockets to pay for employees who have paid tax or contributions at lower rates for most of their careers, and are now nearing or already in retirement. But it’s a necessary one unfortunately; those pensions have to be paid.
The problem is deeper than that though, because the deficits we are building up now will visit us year after year until those already in the pension scheme die, i.e. up to 60 years from now. Because the pension entitlements of existing employees are covered by their employment contracts, the States legally has to honour them – it can’t change the goalposts once they’ve started contributing.
The longer we continue with the present pension scheme, the worse the problem will get, as an increasing contributions shortfall compounds the deficit problem. Serious action should be taken to cover the shortfall now, by increasing contributions (as the States are doing).
But the long term solution means closing the existing scheme to new entrants, perhaps replacing the defined benefits scheme with ‘defined contributions’ to address the deficit problem once and for all, and switching to a career average model instead of final salary to protect relatively low-paid employees with full careers working on the ‘front-line’ from the worst impacts of the changes.
My understanding of this issue is not as complete as I feel it should be, but from what I’m hearing and reading, it seems that if urgent action isn’t taken, today’s school-leavers, 20-somethings and 30-somethings will be hit especially hard. Their children’s education, their healthcare provision and their States pension would ultimately have to be slashed to fund the burgeoning demands of propping up a fundamentally unsustainable public employee’s pension scheme.
Forget student loans – I think this is the single major issue which theoretically ought to engage ‘generation Y’ in local politics. But because it is complicated and abstract, it may just seem too boring for them to get worked up about until they realise they are being robbed blind.
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James
Quoting an ‘average’ civil service pension is meaningless as your ‘average’ figure will include those who have worked a full career and those who have popped in for a few years and moved on.
6 people from the same office retire on the same day, all on salaries of 30k. 2 have worked 40 years and take 20,000 PA in pension and 2 have worked five years and take 4 have worked 2 years and take 1000 pensions. The average pension for the 6 is 7,333. But this does not actually relate to the reality of any of them does it?
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Phil – in the spirit of agreeing with people we usually oppose, I agree entirely with your post. A final salary pension scheme is not only a ticking timebomb for future generations (as ChrisJ points out) but also far too open to abuse – as both yourself and others have pointed out.
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Paul – I didn’t quite say the final salary pension scheme itself is a ticking timebomb. The growing superannuation fund deficit is. That’s the core problem which has to be addressed, and the final salary scheme has to end to rebalance things so that staff who work full public service careers on lower salary grades will still get a reasonable pension.
Rather than saying the current scheme is open to abuse, it’s perhaps more fair to say that it creates perverse incentives for staff – for example it encourages those nearing retirement to cling on to senior positions even if their roles are virtually redundant, they don’t really need the salary and want to be using their experience to do something different.
A career average model doesn’t have the same problems – because your years of senior officer service would count for virtually as much in your pension package even if you spent the last few years doing something different on a lower grade.
So I’m broadly in agreement, but I feel I should clarify some things.
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Another problem this creates, which I think is part of the reason the Civil Service is under huge pressure, is people who have been at the top of their game (and im talking the big guns) continue to do their jobs once they get within viewing distance of the finishing line, even if they are burnt out and simply dont care anymore, this means that people are in the job and not doing it to 100% and also prevents others from getting the chance to step up. If we took an average earning approach, people in top jobs with top salary would possibly be inclined to take a new position at a lower rate of pay to see out their days knowing that they will get what they deserve out of the pension pot, no?
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Auntie GP,
:-)
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No.
The motivator is power, not ‘ackers.
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Without wanting to add general doom to this debate – there is another fly in the ointment.
And thats everyone else who hasn’t got a final salary scheme.
The same effect (unless you are very wealthy) is affecting those who are in defined contribution plans or personal pensions such as RATs i.e. returns are not consistently beating inflation – or if you prefer the value of the individuals pension pot is actually decreasing in value.
This is THE ticking timebomb – current annuity returns for those about to retire are the lowest they’ve ever been. The exact figures escape me for the moment but to get a “decent” retirement annuity of say 25k per annum you’d need a million quid saved up.
That means saving over 40 years 25k per annum now that’s frightening.
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Unlucky The Truth, caught out. It’s alright I’ll accept your apology LOL. Gotcha!
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Thanks ChrisJ – apologies if I misquoted you somewhat.
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Hurray!! At last some real facts about Civil Servants pay. This will shoot down all the moaners in the private sector about our ‘cushy’ jobs and yachts in the South of France when we retire.
Don’t forget civil servants contribute a significant amount of their monthly wages to this fantas-morigal pension they receive for five years and then die….
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