I knew my contributions were going up as my employer had informed us just after the new year, however I thought it was for everyone, could someone explain to me (and I struggle with pension talk) why this only largely affects public sector workers.

http://www.bbc.co.uk/news/business-35913487

Use simple language please 🙂

Because we’re lazy scrounges with gold plated pensions.

Beacuse the change effects only people with final salary schemes (as they previously got a rebate on their NI, ie paid less) and those scehemes are virtually unheard of now in the private sector

Beacuse the change effects only people with final salary schemes

So why is it effecting the public sector?

http://www.which.co.uk/money/retirement/guides/contracting-out-of-state-second-pension-s2p/what-contracting-out-means/

There you go. Basically you’ll be paying more in NI now but getting a larger state pension as a result and you won’t really be losing anything.

So why is it effecting the public sector?

Because there are more people in the public sector with final salary pensions. Private sector employees are being affected too.

So why is it effecting the public sector?

Because the uber efficient private sector realised that it could take money from the employees and give it to the share holders by scrapping final salary pensions and moving their staff (except the execs) to defined contribution schemes. Effectively giving the staff a pay cut.

Whereas a lot of the public sector are still on final salary pensions.

Because there are more people in the public sector with final salary pensions.

So why is it effecting those that aren’t, the majority? Because if it’s only for those on final salary like Jambalaya suggests then we shouldn’t be effected.

So why is it effecting those that aren’t, the majority? Because if it’s only for those on final salary like Jambalaya suggests then we shouldn’t be effected.

It was available for longer for those with defined benefit pensions but later became available for those on Defined contribution so a larger take up. I guess the longer availability means that more people took up the option in the public sector.

Drac – what is your pension then ?

is it a defined benefit(aka final salary) or is it a defined contribution.

Defined Contribution: you and your employer contribute a % of your salary to a ‘pot’ and that pot is yours at retirement (without ANY relation to your actual work salary, your years in the job etc)
OR
Defined Benefit: you and your employer contribute a % of your salary to a ‘pot’, however your actual pension from that employment is in someway related to the years you have worked there and the salary you were paid. ?

@footflaps final salary (defined benefit) schemes just don’t work financially – the numbers don’t stack up. Get yourself a spreadhseet and sit down and try and do the numbers. I manage money for pension funds (i.e. Defined contributions) and have spent decades looking at the numbers.

The reason the state has stuck with them is classic “kick the can down the road” they don’t want to deal with the difficult conversation/issue and they don’t want the hit of having to pay 10% extra in pension contributions per anum now. So they pretend the issue doesn’t exist.

By the way did you see the story on fire service execs who’ve retired with £400k lump sums and are now being rehired. As an aside to get a £400k lump sum a private scheme would need to be £2m whuxh is close to double the £1.2m allowed before penal rates of tax are applied.

Drac – what is your pension then ?

Because of my years of service and age mine is an odd combination. I was on a final salary which is now frozen and now on a career based. There’s only been a career based for a number of years now and others moved onto if they didn’t have enough years of service.

There is no final salary pension now in the NHS with the execption of a small percentage who were protected, they are very few now. So claiming it’s because if that it wrong gone’s link is a better explanation.

I’m not going to be any different as the tax relief changes balance it out. The media are hyping it more than it needs to be too, no surprise, it’s been fairly well published.

so it a sort of ‘average salary’ (*I think) – which still means defined benefit – isn’t it ?

still comes down to the same reason – bit like jam said – pension management should have been addressed years ago (however you don’t win elections by saying – as you’re all living a lot longer I’m sure you all understand that you’re in retirement for much longer so obviously you all understand that you’ll need to save a lot more for it, this means that you pension contributions will have to go up massively[or you’ll get a MUCH smaller pension] – now please vote for me) you need more money in your pension pot when you retire as you’re likely to live much longer than before is the simple reason.

@footflaps final salary (defined benefit) schemes just don’t work financially

Well they don’t if you take an employers 10 year contribution holiday during a boom, because the actuary says the fund is over-funded. (See PO and sundry other funds in the 80’s and 90’s). I suspect the numbers would have worked if someone on a board hadn’t got greedy. That was pensioners money not company money that they stole and the actuaries did nothing other than wring their hands when things got tight in the 00’s.

I manage money for pension funds

In which case, you’d know that the rest of your statement is just meaningless gibberish unless you qualify what the benefits and contribution are, which will be different in each scheme.

You’re letting your ideology get ahead of your maths.

Final salary pensions transfer the risk (of investment shortfalls) from the employee to the employer, but there is no reason why they cannot work well, assuming the right ratio of contribution to payout ratio.

I’m still on defined benefits, private sector too, changing to DC on earnings over £63k (rising with salary increases each year). Fund was fine till they were merged in order to save one of the schemes. Now closed to new entrants who will be on the DC scheme.

I manage money for pension funds (i.e. Defined contributions) and have spent decades looking at the numbers.

Only for public sector pensions, there is no “fund”

footflaps – Member

Final salary pensions transfer the risk (of investment shortfalls) from the employee to the employer, but there is no reason why they cannot work well

This is a stupid thing to do as the employer may well not still be around when you retire. Much better that everyone takes on the risk and responsibility of their own pension and can make their own choices associated with that.

Public sector pension schemes were usually defined benefit – e.g. linked to a final salary. Some private sector schemes were similarly generous and will be affected too.

If you’re a member of a stakeholder scheme, then you won’t be affected at all.

The chancellor has removed the lower rate (Table D) NIC contributions for those people who are members of a Defined Benefit scheme, so they will be deducted NIC at Table A rates from 6th April, regardless of their pension scheme type.

Some public sector organisations have gotten wise to this and have transferred staff to a salary sacrifice scheme – eg, your pension contribution is deducted from your salary before PAYE and NIC is calculated. Obviously, this would only happen after a lengthy consultation process.

This is a stupid thing to do as the employer may well not still be around when you retire.

The pension fund can still exist after the company has gone (as many do). Admittedly they can’t bail out the fund, but if they have sensibly funded it in the first place the fund should be able to manage.

Much better that everyone takes on the risk and responsibility of their own pension and can make their own choices associated with that.

This would be fine if employees were given the equivalent pay rise when they were switched from defined benefit to defined contribution. Only, they weren’t, so it is effectively a pay cut. Just a way of transferring wealth from employees to shareholders.

It only affects public sector employees because what the underhand government have done is reclassify public sector pensions. Currently they are classified for NI purposes as opted out of state pension, so a reduced NI rate was levied. After 1st April they will be reclassified as opted in for state pension which means they no longer qualify for the reduced rate of NI.

Its just a way for the government to tax public sector workers more and to enable them to get more of the ‘increase in funding’ back via then tax system so the extra funding doesnt actually exist

As an aside to get a £400k lump sum a private scheme would need to be £2m whuxh is close to double the £1.2m allowed before penal rates of tax are applied.

As I pointed out on another thread under the new £1m limit with a DB scheme you can have a pension of nearly £63k whereas £1m will buy you less than a £28k in a DC scheme…

It only affects public sector employees because what the underhand government have done is reclassify public sector pensions.

Some private sector employees are also affected.

After 1st April they will be reclassified as opted in for state pension which means they no longer qualify for the reduced rate of NI

And consequently they will qualify for more years of the state pension so it’s not like everyone isn’t getting something from the removal of this rebate.

Final salary pensions transfer the risk (of investment shortfalls) from the employee to the employer, but there is no reason why they cannot work well, assuming the right ratio of contribution to payout ratio.

As pointed out public secror pensions aren’t funded at all, the government makes zero contributions

So @footflaps what’s a “sensible contribution” ? Its impossible to know what future investments returns or inflation will be, positive or indeed negative. Also its impossible to anticipate how a persons career will go – whether they’ll get a big pay rise due to a promotion so even career average pensions are impossible to make contributions for. Then you have the whole longevity issue.

Defined benefit schemes make no sense – they’ve worked spectaculrly well for the current generation of retirees but as companies, and braver governments, have actually seen the real costs they’ve backed away.

A lot of public pensions are funded, there are 4.6 million member of the local government pension scheme. In that both the employer and employee pay into an administered fund.

From last Nov when there was a lot of coverage

http://paullewismoney.blogspot.co.uk/2015/11/national-insurance-rise-for-millions.html

Because of my years of service and age mine is an odd combination. I was on a final salary which is now frozen and now on a career based.

This is me too – 16 years of final salary now frozen, plus 17-25 years of career average depending on how long I can bear it.

So essentially whatever is going on with NI makes no difference to me, is that the gist of it? I admit I have not read the link, a quick answer will do 🙂

As pointed out public secror pensions aren’t funded at all, the government makes zero contributions

Not true – MPs are not stupid. 😈 Their pensions ARE funded unlike the poor NHS, teachers, civil servants and armed forces whose pensions are based on a Ponzi scheme.

If I recall correctly TGA you make higher contributions now in order to receive higher returns later…..your guess is as good as mine

The Economist on this issue (and other aspects)

http://www.economist.com/blogs/buttonwood/2016/03/public-sector-pensions