Public Sector Pension.

We have a crisis in the funding of public sector pensions. The Shimmin Report indicated tha within the next few years approximately £100 million per annum will be diverted from general tax revenue to pay these pensions. Faced with similar fiscal problem Ireland implanted a sliding scale of pension payment reductions - the lowest paid pensioners were fully protected and the reductions applied were highest for the largest pensions. There is also common law precedent in the USA for similar moves. Keep in mind that these pensions are in addition to State Pensions. Implement via publicising the problem

and proposed solution together with clear examples of the reductions that would apply at different levels. Difficulty is that this impacts politicians and senior public servants who may oppose on self-interested grounds.

Why the contribution is important

It is the big elephant in the room on government finances. £100 million of tax revenue taken out of funding public services. If services are to be cut then leading by example is important. The proposed rate cuts and savings need to be properly determined (Ireland provides a good model). Overall savings look to be about 10% of pensions paid. As said recipients also get State Pensions so not being put into penury.

by dpfellows on April 05, 2017 at 10:10AM

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Comments

  • Posted by Galen April 05, 2017 at 10:27

    The crisis in Public Sector (PS) pensions is not new. It has been there for many years. It is just previous administrations have chosen to ignore it until it became highly visible. However, it is not the fault of those who are in receipt of PS pensions, and who have paid into the schemes throughout their working lives - albeit not always at the same rate as some of those in the private sector. Those who designed the schemes knew full well the consequences but chose to proceed with the scheme design that has now produced the current challenges. It is worth remembering that those in receipt of PS pensions also pay tax on them and contribute to the local economy by buying local goods and services. So not only did they pay a contribution to the pension they are now receiving when they were employed, but still 'contribute' indirectly to their pension in retirement.
  • Posted by TinTin April 05, 2017 at 10:44

    This ignores the fact that Government pensions were part of the package that attracted staff to work for IOM Gov instead of elsewhere, and were contractual in terms and conditions of employment, so it is fundamentally wrong to change that for people who have retired, or are near to retirement with little realistic likelihood of being able to choose to change employer or contractbout and find an alternative pension.

  • Posted by DocMills April 05, 2017 at 14:34

    The PSP pensioners were sold a pup; a Ponzi scheme in every sense except name.

    Through combination of workers' ignorance, apathy and greed, politicians' connivance and actuarial plain-and-simple incompetence, the pot is empty.

    But this is nothing to do with the current crop of taxpayers.

    The fault lies with the PSP pensioners. If their pension promises cannot be fulfilled then it is their pensions that should be affected.

    Ireland introduced a pension 'hair-cut' for anyone receiving more the 30,000 Euros per year. The same should be done here.
  • Posted by TinTin April 05, 2017 at 16:56

    It is not the bulk of pensioners' fault, but the people who set up and managed the pension system. It is fundamentally and unacceptably wrong to punish the pensioners, though certainly punish those that let things go wrong if they were negligent or incompetent, except that would make no financial difference.
  • Posted by dpfellows April 05, 2017 at 18:05

    I note the comment that I am ignoring that pensions are part of the TOCs - equally those who hold this line are ignoring the matters of affordability and the fact that money for public services is having to be diverted from them to pay for these pensions as the underlying Fund is now virtually bankrupt and will be entirely bankrupt soon.

    An alternative of course is to reduce the size of the current public sector by jobs equivalent to £100 million per annum to balance the books - lose about 2,000 jobs.

    Those who want to leave things as they are choose to ignore that we are now robbing Peter to pay Paul and taxpayers including public servants are going to have to sacrifice services and benefits to cover the massive public sector pension funding nightmare.

    There are precedents as mentioned for the steps I am proposing and those steps protect the less well off.
  • Posted by dpfellows April 05, 2017 at 18:15

    I hope that the following I posted elewhere may be a useful input into considering the cots of the situation:

    As a cost guide the Australian Government has this year, as part of its tax policies, determined that the cost of a typical (not top end) defined benefit scheme is 16 X the annual pension.

    So to support an annual DB pension of £25,000 needs funds of about £400,000. One of £75,000 needs £1,200,00.
  • Posted by Fairforall April 11, 2017 at 16:27

    This is by far the most sensible suggestion so far and one that I have put to a number of MHK's over the last year or so. While this may not create greater efficiency or save money it can help towards the public sector pension system being self generating. The senior civil servants and the week Politicians who created the problem because of greed and empire building as well as down right incompetence must be the ones to have their pensions cut.
    The increases in employers contributions is already taking extra money from the tax payer so to rob the people's reserves is nothing short of grand theft.
    See also the suggestion headed Retired Politicians. Well done dpfellows for suggesting this.
  • Posted by Yukiyama April 12, 2017 at 17:40

    Tax lump sums - job done easy.
  • Posted by dpfellows April 16, 2017 at 21:50

    Yukiyama that won't fix the problem unfortunately. Lump sums apply to a number of people retiring each year. Addressing the increasingly and growing high cost to general revenue of pensions in payment needs to be done to bring the whole payment structure into better financial shape.

    As said one alternative would be to reduce the size of the public sector drastically so that at least the £100 million pa that will coming out of general revenue in a couple of years time to pay pensions will be funded from a saving of the same amount in PS staffing costs.
  • Posted by madeleine April 16, 2017 at 23:40

    Tin tin says: ' it is fundamentally wrong to change that for people who have retired, or are near to retirement with little realistic likelihood of being able to choose to change employer or contractbout and find an alternative pension'.

    I am sorry but that is exactly what happened to all the woman born in the 1950's and 60's.

    It is entirely fair and reasonable that Government pensions paid out of tax payers contributions rather than the employees contributions should be capped at a level the country can afford. £30k as Ireland has capped such pensions seems generous to me. How can any public servant who has had the good fortune to work in a secure and stable, cushy job for 30 or more years complain about that and moreover how can they justify receiving even this much?
  • Posted by dpfellows April 19, 2017 at 17:28

    Madeleine you illustrate the difference between some PS employees who say "no change because I'm entitled to it even if the scheme is becoming bankrupt" and the realist who says "The scheme is becoming bankrupt so what is the solution to this problem that is affordable?"

    As said elsewhere 50% of something is more valuable than 100% of nothing.

    Very unlikely politicians will take a hard line (despite Irish and USA precedents) because they have a self-interest in getting taxpayers to foot any shortfall. Will they offer the same dip into general revenue if a gold-plated private sector scheme runs out of money?
  • Posted by PH April 20, 2017 at 15:21

    We must not ignore the fact that many PS staff who have retired in recent years are those who have had the maximum gains from the scheme, making minimal contributions for significant benefits. Therefore, rather than simply turning the spotlight on current staff the next measures should focus on the legacy issue and in particular those pensions in payment before significant increases in contributions took place. These are the people who are escaping any detrimental effect of the changes. Consideration needs to be given to measures in respect of pensions in payment before a given date such as applying no annual increases and/or setting a maximum payment period - for example, payment not exceeding 15 years of full entitlement. It is questionable as to why an 80 year old should have an occupational pension on top of their state pension.
  • Posted by Yukiyama April 23, 2017 at 22:54

    Taxing lump sums saves minimum of 20% of what's paid out from year one.

  • Posted by madeleine April 28, 2017 at 21:56

    I agree with PH moreover would suggest that current PS pensions are also capped at a reasonable level of, say £25K per annum and as suggested for a maximum period of say 15 or 20 years. And all lump sums taxable as earned income in a tax year. It is monstrous for the tax payer (younger generations) not only to be paying exPS workers salaries whilst they were earning but also their state pension and then, on top up to £100K a year in additional PS pension.
  • Posted by StiltonMan May 14, 2017 at 22:24

    not only tax lump sums - but also increase the minimum age that a pension can be taken to at least 60
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