Pensions

[Mr Poppy]

Reposting on the Issue Specific thread as IMO the articles laszlo4new posted is an interesting read and nice to keep the relevant info in one place - especially given the article offers the 'contrarian' view.

Jun 4, 2023 9:24:29 GMT laszlo4new said:

As to pensions and their sustainability (it is not new, but still valid)

thenextrecession.wordpress.com/2011/12/03/the-pensions-myth-part-one/

And a more recent one:

thenextrecession.wordpress.com/2023/03/31/whats-the-problem-with-pensions/

Thank you for supplying some detailed analysis in sources. Sustained GDP rise is the Holy Grail that everyone seeks but 'ceteris paribus' then the "pension problem" is certainly a choice* - not a myth.

YG has numerous trackers such as "What sector is the government spending too much on" and pensions comes in very low at just 5% 

yougov.co.uk/topics/education/trackers/what-sector-is-the-uk-government-spending-too-much-on

Also "Are we taxing and spending the right amount" which is a bit vague but is notable for the partisan split.

yougov.co.uk/topics/politics/trackers/are-we-taxing-and-spending-the-right-amount

So if LAB want to say they'll put up taxes, or cut defence spending, etc to increase state pension or lower state pension age in GE'24/29/etc manifesto then that is up to them. Minor tinkering aside then IMO we're pretty close to the 'sweet spot'** but of course I'd love to see a sustained boost in GDP - how to achieve that and what to spend it on/taxes to cut/debt to reduce would be a long discussion! 

* As an RoC then IMO the choice is one for the individual more than the state (although the state should have the minimal 'needs' role via a welfare state). In UK at least then workers have lots of 'choices' WRT to save now, retire more comfortably later (or not). 

** I appreciate some people think the Laffer Curve is a myth. They are entitled to their opinion of course. IMO it exists but it is very difficult to know where the 'inflection' points out. Segmentation of the tax base is IMO one to ensure the tax take is maximised and balanced with the need to keep the 'Golden Geese' laying their eggs in our polity rather than elsewhere.

[Mr Poppy]

Popping the below in the issue specific thread as well. The 'balance sheet' approach would have 'long term assets' as future tax revenues which in part would fund the unfunded pension schemes 'long term liabilities' - although that clearly means those assets can't then be used to fund other stuff. In terms of 'Income Statement' on an annual basis then the annual 'expense' of those unfunded pension liabilities is likely to rise (see IFS et al).

Although UK HMG can obviously change various things to lower/increase both the size of the unfunded liability and the annual expense. 

Jun 4, 2023 10:39:50 GMT colin said:

UK Defined Benefit Public Service Pension Scheme Balance Sheet 2018/19:-



Unfunded Schemes-(NHS/Teachers/Civil Service/Armed Forces/Police/Royal Mail/Fire /Others.)

Liabilities £1.756 trillion

Assets nil



Funded Schemes:-( Local Government/others )

Liabilities £ 0.488 trillion

Assets £ 0.351 trillion

Net Liability £ 0.137 trillion


Total Net Liability £ 1.893 trillion ( HM Treasury Whole of Government Accounts)


State Pension unfunded Liability 2018 £4.8 trillion  ( ONS)


Total unfunded liability 2018 £ 6.7 trillion 

[leftieliberal]

Jun 4, 2023 21:00:02 GMT Mr Poppy said:

Popping the below in the issue specific thread as well. The 'balance sheet' approach would have 'long term assets' as future tax revenues which in part would fund the unfunded pension schemes 'long term liabilities' - although that clearly means those assets can't then be used to fund other stuff. In terms of 'Income Statement' on an annual basis then the annual 'expense' of those unfunded pension liabilities is likely to rise (see IFS et al).

Although UK HMG can obviously change various things to lower/increase both the size of the unfunded liability and the annual expense. 

Jun 4, 2023 10:39:50 GMT colin said:

UK Defined Benefit Public Service Pension Scheme Balance Sheet 2018/19:-



Unfunded Schemes-(NHS/Teachers/Civil Service/Armed Forces/Police/Royal Mail/Fire /Others.)

Liabilities £1.756 trillion

Assets nil



Funded Schemes:-( Local Government/others )

Liabilities £ 0.488 trillion

Assets £ 0.351 trillion

Net Liability £ 0.137 trillion


Total Net Liability £ 1.893 trillion ( HM Treasury Whole of Government Accounts)


State Pension unfunded Liability 2018 £4.8 trillion  ( ONS)


Total unfunded liability 2018 £ 6.7 trillion 

You also have to remember that by offering a non-contributionary pension, the Government can pay its Civil Servants less. When I joined the Civil Service in 1996, my offer letter explicitly stated that my salary would be reduced by 8% to take account of the value of the pension that I did not have to pay into. I assume that the same applies for the other unfunded schemes.

[Mr Poppy]

Jun 5, 2023 12:43:32 GMT leftieliberal said:

Jun 4, 2023 21:00:02 GMT Mr Poppy said:

...

You also have to remember that by offering a non-contributionary pension, the Government can pay its Civil Servants less. When I joined the Civil Service in 1996, my offer letter explicitly stated that my salary would be reduced by 8% to take account of the value of the pension that I did not have to pay into. I assume that the same applies for the other unfunded schemes.

I'd quibble the word 'less' isn't applicable in all cases as Public Sector still earn more than Private Sector, see ONS data or the 2nd graph in the below link:

What's the gap between public and private sector pay?
www.bbc.co.uk/news/55089900

However, for sure, the 'guaranteed' pension is a nice perk for those that can get it and clearly worth something to those who can get it.

IIRC colin mentioned on the main thread that the opposite is also something that current public sector employees (like many private sector* employees, whose pensions were changed - often with no choice in the matter) might consider. 

IE get a bigger pay rise now and receive a lower/less 'guaranteed' pension when you reach retirement. "A bird in the hand is worth two in the bush" (although folks should obviously still save for a pension and 'auto-enrolment' etc is something I approve of)

DC schemes looked very bad compared to DB schemes during the 'Magic Money Tree' (QE) era but with higher gilt yields comes higher annuity rates so DC schemes don't look so bad now (as some folks nearing/over 55 are realising.. so I hear). Folks can run those numbers themselves but the main point is that a future govt could change policy - at least for 'new' employees or future pension payments (eg the 'old rules' apply to years already served but 'new rules' from the date when new rules are applied).

NB Of course if any govt stopped receiving the annual revenues from public sector pensions contributions that would create a 'cashflow' problem so I doubt HMT would want to 'outsource' public sector pensions in full. However, "ring-fenced" state-owned investments some of which were 'equity' style and some of which were 'bond' like (with adjustments to % weightings as folks near retirement) would create a 'wealth fund' for the kind of pinky promise Reeves has made... Folks could 'opt-out' if they wanted to and do their own DC scheme. 

* The DB schemes, due to the accounting rules used, creating massive black holes in many companies accounts. I appreciate a govt is different to a company but employment contracts can be changed - preferably by agreement between employees and employer.