Saturday, February 16, 2008

Public Sector Pensions

Mark Wadsworth has done a different calculation of public sector pension liabilities, and his figure is pretty astounding too. [Emphasis mine.]
Right, let's assume that all the other civil service and public sector pensions are the same, this means that the true cost to today's taxpayer of the public sector is an extra 50% on top of the official cost of public sector salaries.

There are anywhere between 7 million and 8.2 million public sector employees, depending on whether you believe column E or column M of this [Excel document], call it 7.6 million for sake of argument, on a median salary of £498 a week as at a year ago*, call it £508 as at today, makes total annual salaries £200 billion, so half again on that is £100 billion.

Each and every year.


To be paid by 30 million taxpayers, so that makes over £3,000 a year each.

In perpetuity. Because for every one that retires another one joins.

But that notional contribution of £100 bn doesn't go anywhere in real cash terms, it just gets put on the never-never. Turning back to Neil Record's actuarial approach [PDF], the net present value of an annual £100 bn liability discounted at 2% is £5,000 billion, or about three or four times gross domestic product. So his estimate of £1,000 bn is pretty much at the lower end.

And what is Mark's little asterisk for?
* Scroll down to the very end of this - rather interesting is the fact that the median private sector salary was only £439 a week. Hmmm.

This is very interesting because the trade off in the public sector was always that you were paid less than the private, but you got a jolly nice pension, thank you very much.

Now, you get a jolly nice pension and median public sector pay is higher than median private sector pay. And those of us who grub around in this eeeeeevil capitalist market-place have to fund all of this.

Aren't we lucky?

14 comments:

Kay Tie said...

Still not sure about the actuarial calculations there. For a start, the pensioners themselves pay tax, so will be in the pot of the gouged tax payer.

If the prevailing rate of income tax went up, then surely the net liability would decrease (since a larger part would be clawed back)? In fact, this seems to me to be the only way out of this hole: a future Government would have to set tax rates such that pensioners (and everyone else) paid tax at much higher rates (the old trick of using inflation to destroy pensions won't work because the pensions are largely index-linked). This can possibly be done indirectly by rolling in NI into income tax (which wouldn't affect salaried taxpayers, and would claw in extra tax on "unearned" investment income).

Place your bets..

DrCrippen said...

In perpetuity. Because for every one that retires another one joins.

++++++

Er...no.

This is ten years of New Labour. You meant to say:

"...for every one that retires, two more join".


John

Dr John Crippen

Sir Henry Morgan said...

kay tie

Depends on the measure you use - and what is included in it - for indexing.

Remember, we're talking about bastard politicos here.

Kay Tie said...

"Depends on the measure you use - and what is included in it - for indexing."

Yes, it's true that RPIX tends to (currently, at least) understate inflation for pensioners. But RPIX has to be outside of political control: it's used for IL gilts and the Government debt market will throw all its toys out of the pram if they monkeyed with RPIX.

Anonymous said...

As you know of cause we are not lucky. We are completely up the creek without paddle, life jacket, or even boat.

Or put another way. Fucked beyond comprehension, and the real pain of this cruel sadistic bloody impalement, has not even really been felt yet.

I have long contended that a country where the best jobs are in the public sector. Is a country without any future worth having and in the end no future at all.

In my opinion we are well and truly the later, and going down faster then a crack whore with a cash flow problem.

Although I would love to be proved wrong at least once in my life.

Atlas shrugged, but then started to think. "Is this country really worth wasting even a shrug for, anymore?" Then swiftly came to the conclusion, it was not, but shrugged again anyway.

Anonymous said...

Devil

We do not need the almost extinct forces of liberty to be further divided. As I think I was indicating to you when we talked at Quido's drink in.

What we need is unity. Even if it means we have to extend a hand to our socialist cousins.

Look to your leader. Which is not David Cameron or me but. Dr Sean Gabb. He has a plan and it may just work one day. Most likely it will not. But there again at least we can tell future generations that we seriously tried.

Going off all over the place starting new political parties when the party system has been completely taken over by the establishment and their owners the Ruling class. Is more then pointless it is counter productive and indulgent in the extreme.

We do not need a revolution we need a COUNTER REVOLUTION and ASAP.

This can only be done by putting all our efforts into creating our own internet TV channel and talking till our voices are sore.

Atlas shrugged and waited to here the devils opinion.

Mark Wadsworth said...

Ta muchly for link as ever. That £5,000 bn is almost certainly overcooked, but I'd like to see somebody whittle that back down to anywhere near the 'mere' £1,000 bn that Neil Record and many others have calculated.

Vasey said...

Realistically, an unfunded pension liability of that magnitude simply won't be paid at all. It might not be outright revoked but you can bet good money that they'll monkey around with the retirement age to ensure that the numbers who last long enough to get cash out of them will be small enough to deal with. Contract? Psh. Contracts are for little people, not governments, or at least not our government.

Anonymous said...

I am a public sector worker - after Government raids on our pension fund - my pension is now smaller - will be paid later - and I now have to pay more into it.

Fewer people are joining the pension scheme becasue they will be better of blowing all their cash now and letting the state keep them in old age!

A decade ago our pension scheme was self funding - didn't cost the tax payer a penny and membership was rising.

A decade of Gordon Brown stealing £5 billion a year and he has left pension schemes across the country in ruins.

Kinderling said...

Yep. This year I'm joining a Local Government because last year the tax benefits of being a locum sole trader were removed. Can't wait to boost my pension and ride the storm of the next five years, for businesses in the UK are going to go bust. Well, that's my forecast.

david said...

To get the best of both worlds, become a GP or a dentist. So-called NHS "private contractor" with self-employed status, yet still able to draw a fat public sector pension bankrolled by the poor taxpayer! No wonder the likes of Drs Crippen and Rant just love the NHS!!

John B said...

"Now, you get a jolly nice pension and median public sector pay is higher than median private sector pay."

That doesn't mean much, though: the issue is pay for jobs with a particular skillset. FWIW, I'd certainly be taking a paycut of at least £10k if I were to move into the public sector.

A decade of Gordon Brown stealing £5 billion a year and he has left pension schemes across the country in ruins.

Complete and utter bollocks. For one, the pension schemes aren't in ruins; for two, GB hasn't been stealing £5bn a year (assuming you mean the withdrawal of dividend tax credits, the impact was directly offset by cuts in corporation tax).

Anonymous said...

john b said: "Complete and utter bollocks. For one, the pension schemes aren't in ruins; for two, GB hasn't been stealing £5bn a year (assuming you mean the withdrawal of dividend tax credits, the impact was directly offset by cuts in corporation tax)."

So why then are nearly all private sector final salary schemes being wound up in favour of cheaper money-purchase ones?

Anonymous said...

Great blog about an issue which will bring this country to it's knees. Would the site owner please investigate the paper produced by the IEA which calculates the percentge of salary one would need to invest into a money purchase scheme to return the same pension benefits for a given final salary accrual rate. From memory if you wanted to enjoy the same retirement benefits enjoyed by a police officer you would need to invest a mere 70% of your salary into a private sector money purchase scheme.
Accrual rates enjoyed by MP's are the best available @ fortieths - meaning 20 years work for half final slary pension (index linked of course)
NHS & eduncation are 1/80th's, Civil service 1/60th's.
Less than 10% of private sector employees now enjoy the benefits of a final salary scheme pension whilst over 90% of the public sector do.
True to say median pay in the public sector has moved ahead of the private sector. Direct comparisons are difficult to make but prison officers carry out exactly the same job whether private or publicly employed. Guess what - public sector prison officers get approx £5k per annum and enjoy a final salary scheme pension unlike their private sector "colleague". Given that their 60th accrual rate is worth 42.5% of salary the true difference in salary is over 50% (because the private sector guy would need to contribute this amount into his money purchase scheme to enjoy the same pension benefit)
Ineos employees at Grangemouth were prepared to bring Scotland to it's knees because Ineos wanted to close the final salary scheme to new employees and phase in a 6% contribution from existing members.
Can you imagine what will happen if we were to tinker about with the public sector?
Your public sector employed neighbour doesn't give a toss if you are to retire on means tested benefits - as long as his gold plated pension is untouched he's quite happy.
What a bunch of unprincipled selfish gits!!