‘Close final-salary scheme to new States staff now’
Monday 18th October 2010, 11:30AM BST.
THE States’ final salary pension scheme should be immediately closed to new entrants, an industry body has said.
Confederation of Guernsey Industry chairman Peter Budwin (pictured) made the demand following finer details of the public sector scheme being published in the Guernsey Press.
He also disagreed with the suggestion that pension provision in the private sector was woefully inadequate.
States head of HR and development Simon Elliott said the private sector had currently ‘got it wrong’ with staff pension schemes. That view was backed by UK pension reviewer Lord Hutton, who said he would not recommend a ‘race to the bottom’ that would see public sector pensions go the same way as the private sector’s.
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If the final salary pensions were closed to new entrants there would be a problem further down the line. Imagine in twenty five years time the chief officers job comes up in a particular department. There are two capable candidates, one on the final salary pension scheme, the other not. I can see the officer on the scheme being sidelined in favour of the cheaper alternative.
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Steven, how is the existing scheme to be funded then? How would the public sector workers like it if they were forced to contribute to my private pension?
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Steven
What utter nonsense – if that were to happen then the overlooked candidate would have a case against the department concerned. A rather poor attempt on your part to maintain the status quo I’m afraid.
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Steven,
Concerns about transitioning have to take a back seat – they can’t be used to argue that we should indefinitely continue with an unfair and unsustainable status quo.
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If there isn’t a final salary pension scheme… then what is there to attract people to working for the civil service?
Low pay compared to private sector workers in similar roles, job security isnt guaranteed, scrutiny of every penny spent for fear of being accused of wasting public money, no bonuses, no automatic promotions and everyone complains about civil servants… so if you take away the final salary pension scheme, who would want to be a civil servant?
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Anonymous
Here are a few benefits for starters:-
1. Flexitime – the opportunity to add 18 days a year to one’s annual holiday entitlement
2. Job security – whether you like it or not job security is far higher in the public sector
3. Working hours – how many civil servants do unpaid overtime every single week? They either get paid or take time off in lieu, whereas in the private sector numerous firms expect their employees to work until the job gets done, not until the clock chimes 5.00pm
4. No commercial pressure – States departments overspend, waste their budget (for fear of it being reduced the following year), often work at a snail’s pace etc, because they do not have to make a profit to survive. The private sector is not so cushy, if you fail to make a profit the company either raises income, sheds costs (i.e. staff) or it will eventually fail. It cannot rely on the taxpayer to bail it out year after year after year.
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They should have closed the States final salary scheme years ago.
Most final salary schemes were designed long ago when life expectancy was significantly lower. We are now all much more likely to live well into our eighties and beyond, which means these pension schemes need to continue paying people their final salary pensions for far longer than was originally intended.
There is simply not enough money in those pension funds to be able to afford the years of additional payments.
This is a problem which can only get worse and worse and the potential liabilities are enough to cripple our future economy.
There are good alternatives – a number of Guernsey firms offer inexpensive private pension schemes which can accept contributions from both employers and employees or from self employed/private individuals (e.g. Carey Group). They are not as “generous” as final salary schemes because you can only take out of them what you put in, but surely that is how it should be.
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I was chatting to a seventeen year old lad yesterday and this subject was discussed. He said he’d be happy to work in the civil service without the final salary pension as he would just like to work instead of just hanging around town all day. He is a bright lad with an above average i.q. left school a year ago with 7 good g.c.e.s’ and has only managed to get part time employment in a shop which has just come to an end. He can’t understand how foreiners can get jobs and he can’t. He asked if I knew why that was but I was at a loss. Does anyone else know what the agenda is?
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There still seems to be a lot of confusion amongst commenters here about the ‘final salary’ scheme, and the article itself doesn’t help clarify things. I sometimes wonder if ‘final salary’ means you get a pension which is somehow equivalent to your final salary, which is absolutely not the case!
In fact there is nothing intrinsically generous about a final salary scheme. All it means is that your pension entitlement is calculated based on your length of full-time service, and your final salary on retirement. So if you have two people with the same length of service, one who retires when they are earning £50k per year and one who retires on £25k a year, then the person earning £50k a year will get double the pension.
The unfair thing about this is that the person retiring on £50k will still get double the pension even if they had actually been in a £25k job for virtually all their career, but only moved to the £50k job in their last year. In other words, for each pound they contributed to the pension scheme, they will get twice as much out in their retirement as the person who retired on £25k.
I know this is an unlikely scenario, but in the UK pension report, Lord Hutton identifies common scenarios where ‘high fliers’ who progress steadily through the ranks end up getting twice the pension benefits per pound contributed as a ‘low flier’.
At the moment, because people are living longer and there is a contributions deficit, this means the taxpayer is having to foot the bill for the pensions of the high fliers. We could bodge a fix without getting rid of the final salary scheme by simply halving pension entitlements or doubling contributions, but then that means the low fliers will have to foot the bill for the high fliers – they won’t get their contributions back in their retirement because they are being used to subsidise people who retired on much higher salaries.
So a final salary pension scheme is not a ‘perk’, it’s actually punishingly regressive – if we increase contributions, or reduce benefits, without addressing the unfairness of the final salary scheme, we will simply be shifting the millstone from the taxpayer to the ‘low flying’ public servant.
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The fairest system is to insure that the pension awarded is consistent with the money that an individual have set aside- a “Defined Contribution” system. However members of the Guernsey Police/Fire services and Judiciary should have pay rises if this were to be brought in because they are forgoing market rates of annual salary for higher pension benefits.
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Phil – not sure if you are a civil servant but I am so can correct your post:
1. Flexitime – not many States departments offer flexitime so that is certainly not a benefit if the job your going for doesn’t offer it.
2. Job security – job security is definitely not higher in the public sector than the private, the same employment laws refer to both and I would suggest the staff turnover may be greater.
3. Working hours – my States department does not offer ‘time in lieu’ if you have to work over your allocated hours you don’t get paid. Unlike the private sector where you bill for time meaning you DO get paid for every minute you work.
4. No commercial pressure – like Anonymous has said although we do not have to make a profit, every employee gets scrutiny of every penny spent for fear of being accused of wasting public money, we get no bonuses, no automatic promotions and everyone complains about civil servants constantly. Even though it is only the very top level civil servants (about 1%) that make the decisions and over spend. The other 5000 employees (99%) are trying their hardest at saving money and providing the best possible service for value for money. After all we are all tax payers too!
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CS
Ok, let’s continue this discussion:-
1. Which departments offer it and which don’t? I certainly know of several people who take advantage of this benefit, I won’t say which department they work for at this stage as I’d like to hear what you’ve got to say.
2. How many civil servants have been made redundant in the last couple of years? Staff turnover may be higher, but that doesn’t equate to job security does it?
3. Absolute nonsense. Not all work is billable you know? Whether I work 35 hours a week or 55 hours a week I get paid the same salary, you obviously have no idea of how the private sector works.
4. More rubbish I’m afraid – “every employee gets scrutiny of every penny spent”. IF, and it’s a very big IF, that is true then it just goes to show the amount of trust (not to mention faith in the employee to get the best deal) that management has in its staff. Also, where are all these “automatic promotions” that you mention? I can’t ever remember a single person being “automatically promoted” in the companies that I’ve worked for.
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Phil
Re your point 3. The private sector seems to work for you on the basis of you making regular postings here and on WNG during office hours.
Perhaps your allusion to 35 hours is a tad optomistic, let alone 55?
Back to topic. Closing a final salary pension scheme to new entrants is nothing new. Many private firms have done it since the late 1990′s. Good thing if the States follow suit in my opinion.
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Gloria
If you can tell me what on earth my working hours have got to do with you then I may take some notice of you. You presumably know what time I arrive in the morning, what time I leave in the evening and how long I take for lunch!
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You’ve already taken notice dear. You’ve replied. At the end of a long lunch maybe.
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Phil, flexi time would not equate to 17 days off a year anyway mate – its 13 max. Plus I know of one dept that does do it and one that does not – each dept and even teams within depts work on different ones.
My guess is that you dont get paid overtime or in lieu because you are senior level and already being paid a handsome amount for your job, if you are incabable of doing your job in the allotted time perhaps your employers need to look at head count requirements and performance reviews?
I would also guess that bonus’s are an option for you? Discretionary of course. Also do you get medical cover for you and the family? Share Options? Travel Allowance? Sports and Social functions covered by the company???
If lifes so bad in private sector, and great in civil service, theres plenty of jobs being advertised over the course of the year, switch jobs!
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Final Salary pension scheme is based upon one’s earning at retirement and the number of years worked under the scheme. It is contributory (not free to anyone), and usually at a rate far in excess of private pension schemes.
Phil – I have to say that I have worked alongside civil servants AND those working in the private sector for many years, literally seeing both sides of the story. Those in civil service, in my experience work harder for less. The exception, of course, are the privately self employed or semi-self employed where their time is quite literally their own money.
It is certainly not fair to say that civil servants work at snails pace. In the civil service employees constantly have it drummed in to them that money is being spent from the public purse (by managers, the press, and on forums such as this). The average grass roots worker, supervisor or middle management in private employment however, again, in my experience, have no concept of the strategic aims of a company or the need to sustain profit. Just like their civil service counterparts, the vast majority turn up at work, do their job, and then go home at the end of the day. It is a rare find when one encounters (whether in the private sector or civil service) someone who ‘gets’ the bigger picture and truly puts 150% in.
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The potential savings from axing the public sector pension scheme are not likely to be as big as many imagine.
Firstly, as the GP reported, the average amount being paid per pensioner is not that large. Secondly, and more importantly, those public sector workers denied a pension will probably not pay into a discretionary private scheme themselves. They’ll just end up with no pension.
We know this because of the UK data on what happens to private sector companies who axe their pension schemes. People don’t (as would be sensible) invest large amounts of their pay in their own private pension – only 25% of those not in final salary schemes saves towards a pension.
So if we axe the public sector pensions, we are likely to end up with a large number of impoverished pensioners, contributing nothing financially to the island’s economy, and having to be supported by the benefits system.
Of course, the States could introduce legislation forcing all adults to contribute adequately to a pension [cue rubbing of hands in the finance industry investment sector]…
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“Firstly, as the GP reported, the average amount being paid per pensioner is not that large” – of course not. Your average pensioner probably retired seven or more years ago. The real saving will be made by not having to fund FUTURE pensioners’ shortfalls. The Civil Servant that wrote the piece was pretty careful not to underline that problem, and to make public concerns appear mean spirited or irrelevant by quoting current figures.
“Secondly, and more importantly, those public sector workers denied a pension will probably not pay into a discretionary private scheme themselves” So what? most other people already don’t. At least by hurling themselves upon the tender mercies of the state their hand-outs will be means tested, whereas their final salary pensions wouldn’t be, and are ultimately funded by us either way. Without a pension at sixty surely they’d be far more likely to remain economically productive through need.
If a current pensioner is on 3000 a year, and the average post-retirement survival (from 60) is 25 years, then the fund at retirement has to be £75k (ignoring investment returns or losses). If £3k represents half salary, then earnings were £6k at retirement (say) after 40 years service. Employee contribution at 5% for 40 years, assume no inflation – is 200% of salary, or 12K. We have to fund the remainder of 63K. Mostly because other retirees aren’t dying early enough and life expectancy is greater. Partly because investment returns are flatter. We are paying in five times what the employee does to fund the pension. We will recover one fifth through tax.
The bare figures tell us little about the current average age or service length of the average public sector worker. There could be a lot of worse news lurking therein as the baby-boomers head for retirement after a lifetime in the service, and we struggle to recruit replacements. The Press release from CS didn’t address any of that.
So either retirement age must increase, or final salary scheme must go/change; members contributions must increase substantially if they wish to retain these benefit levels.
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Gloria
How could I have had a long lunch if I posted at 3.32pm? Even if I’d gone to lunch early at 12pm it would only have been 3 and a half hours…..
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I see from your posting you cut your lunch short by a minute today Phil. Hope you didn’t sacrifice your free time just to get back to me…
There was no ‘big sigh’ as I waited…:-)
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Bob:
I think your maths have excluded increases in funds through investment by the fund managers.
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No one has seemed to have made the link between The Crown Officers receiving the highest pension pay off in the States and the artificially high fees practicing advocates charge (£350 per hour).
Win Win all round for the most greediest members of our society!!
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Phil, you need to spend some time over a pint and have a lengthy and sensible discussion with someone who can put you right. Now stop talking twaddle and get some work done.
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Bryn
I look forward to it, especially as I have now had some of my points confirmed by a senior civil servant, particularly with regard to flexitime and unpaid overtime. How about Thursday, usual time and place?
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Bryn
If you can’t do the whole three and a half hour shift which Phil has for lunch I’ll fill in for part of it. I’m sure Phil would be sweet enough to lend me his Daily Mail if you two are still chatting.
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Truth Man – yes, quite deliberately. It ignores inflation too, as I say, which as these schemes are index linked compensates for around 90% of any investment returns. The two largely compensate at present.
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Bob:
The return for the member is index linked. The index linking does not relate to the capacity for fund managers to obtain better rates of return than the rate of inflation during the investment period.
Do you agree?
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