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Will this damage pensions?

Discussion in 'Retirement' started by tonyuk, May 2, 2020.

  1. tonyuk

    tonyuk Occasional commenter

    So I have a private pension which due to the crash has fallen hugely. Is the teachers pension protected or is ours likely to be decimated?
    Looking to retire in a few years and wondered if I now will have to keep going till I drop due to the crash?
     
  2. diddydave

    diddydave Established commenter

    It is protected.
    Will it remain protected is another question.

    It is protected because the Teachers Pension scheme is not based on the stock market so it is not vulnerable to such crashes. It is paid out of general taxation on the population - in exactly the same way that all public workers are paid by the tax payer. Teacher and employer contributions are part of that tax payment. The Government has previously made moves to cut the benefits - the move to Career Average scheme was one move, the increase in employer contributions that have persuaded private schools to leave the TPS is another move. Whether they will use this as a reason/excuse to have another attack at the public pensions remains to be seen.
     
    Jolly_Roger15, Prim and border_walker like this.
  3. letap

    letap Occasional commenter

    The government effectively wants the teachers pension paid by the teacher contribution and the employer contribution, over the years you will have noticed both contributions have gone up.Final Salary pensions are effectively valued by bond yields whereby a fixed final salary pension becomes more expensive with a decreasing bond yield. Bond yields are very low, thus the effective virtual liability of the teachers' pension scheme is high. I would not be surprised if the teachers pension scheme becomes a vastly inferior defined contribution pension in the future.
     
  4. diddydave

    diddydave Established commenter

    I agree with you, the race to the bottom in pensions started some time ago and it's one the government, apart from the age discrimination debacle, are winning.

    Your first sentence is interesting as that is the Government's rhetoric but, private schools aside, it is the Government (and through them the tax-payer) who is the real 'employer' so in effect the teachers pensions have always been paid for through teacher and employee contribution...and given that the private sector have paid their teachers wages by charging individuals, and not the tax-payer, who send their children to those schools and not burden the tax payer, paying for just their pensions was a better deal for the tax payer than if those children were educated in the state sector where the tax-payer would have paid the wages AND the pension.

    The tactics of divide-and-conquer allowed the Government to push through the change to the Career Average scheme, firstly by splitting those who it did and didn't affect by their transition arrangement where the older teachers who may have been more focused on the effects were placated and secondly by upping the costs so that the private sector are encouraged to withdraw. For the vast majority of teachers retirement is a distant concern. A lot of my posts are responded to and enquired about by those who are within 5 years of retirement so many do not realise how much their remuneration package has been under attack. When I see the Government put out figures, aimed at getting the general tax payer on their side of the argument, such as the cost of paying the pension if we go back to the "Final Salary" will cost £4 billion I'm afraid I am in the minority in thinking "No, that's the amount that you have wheedled out of the professions through your changes" and we didn't notice because it didn't affect our 'in your pocket' take home pay. The other phrase we hear so often is "It has to be fair to the tax payer" - and I want to reply with "Yes, and to be fair to the children of the tax payers we need to pay teachers fairly so the children get the best".
     
    Dorsetdreams likes this.
  5. diddydave

    diddydave Established commenter

    ...EDIT...of course I meant employer and not employee here:
     
  6. Dorsetdreams

    Dorsetdreams Occasional commenter

    One aspect of "Will this damage pensions?" which we can't skirt around if the undoubted fact that early death makes pensions much more affordable to providers, public or private.

    So far as private pensions are concerned, the fall in equity values is, we assume, temporary. The benefit to the providers from the drop in life expectancy will last for decades.
     
    baitranger and SteveWoodhouse like this.
  7. Dorsetdreams

    Dorsetdreams Occasional commenter

    ...and even more controversially, those who succumb tend to have conditions which would have cost the government/NHS most had they survived.
     
    SteveWoodhouse likes this.
  8. Luvsskiing

    Luvsskiing Established commenter

    The whole Corona virus thing does make me wonder, aged nearly 58, whether just to bite the bullet and take the pension now, two years early, against all the advice I've given in the last few years. I definitely don't need the money as am fortunate to have large cash savings (I followed my own very sound and profetic advice and sold all investments and shares a few years back and now only have cash in fixed savings bonds paying 2 - 3% lasting from one year to three years). I had also planned to live long and prosper past 76 (the approx age where it pays to take the pension at 60 rather than 58).

    a) I want to see at least some benefit for all those contributions made and dying early is possible and b) there is a slight niggle of what new pension changes might be imposed by Government as a result of the pandemic to help balance the books.
     
    Last edited: May 3, 2020
    tall tales and baitranger like this.
  9. diddydave

    diddydave Established commenter

    If you are in a sound position my advice would be to sit tight. Once you take the pension the lump sum becomes your responsibility and if inflation jumps - one possible outcome of the stresses placed on the financial system - then it is very quickly eroded. Leaving it in the TPS keeps it in line with inflation.

    In respect of pension changes being imposed I suspect that they will not bring them in retrospectively, if at all, so you will probably have enough warning of any that would be to your detriment and be able to act accordingly. I also don't see them being able to do much about pension benefits that have already been accrued in final salary type schemes such as the teacher and bringing in taxes on the lump sums etc wouldn't be popular with many of their supporters.

    I certainly do believe that this will be used to justify changes to public sector pensions though I get the feeling the public won't be too happy with headlines that scream about nurses pensions being plundered. However, pensions are definitely in their sights as the Chancellor has already mentioned about the differences in National Insurance contributions made by the self-employed, and I can see that being used as a vehicle for change particularly as it was, in part, started to fund the NHS so that makes it an easy 'spin' for the politicians. That said,all of the measures I envisage will be based on payments and arrangements for the future rather than taking on pensions already bought and paid for.
     
  10. Dorsetdreams

    Dorsetdreams Occasional commenter

    Luvsskiing, I see your dilemma, and I have a little less confidence than diddydave that, in these unprecedented times, earlier pension promises will be honoured.

    The one complication I would remove from your decision making is any concern about dying early: if you do you won't be in a position to agonise over what you missed out on!
     
  11. Luvsskiing

    Luvsskiing Established commenter

    LOL. Tricky one. I stopped working full-time about 7 years ago, doing the odd short term contract for the first three years, then gave it all up entirely four years ago. Just about the only sensible thing I did financially speaking was to get interested in investing 20 years ago. If I hadn't, I'd still be in hell, struggling daily full-time teaching in my late 50s with an aching body, maybe not seeing an end for another ten years, instead of finishing up and having loads of full-time fun in my early 50s. C19 has thrown a right spanner in the works though. I'd usually be in Spain by now for a few months walking a Camino, then looking forward to SE Asia in June and the 88 temples walk in the Summer in Japan for a month or two. The teachers pension thing is luckily a smallish problem for my circumstances but still would hate to lose out by yet more rule changes. If there is even a hint, I'll take it, but will probably do as dd suggests and hang on in there. We shall see.
     
    diddydave and wayside34 like this.
  12. Luvsskiing

    Luvsskiing Established commenter

    Just looking at the spreadsheet DD, and it looks like a retiree is nearly 80 before losing out financially, if they take their pension at 58. Have I read that properly? I had it down as 76 for some reason?
     
  13. diddydave

    diddydave Established commenter

    I put them all on there so anyone can check my calculations for themselves but I am pretty certain it's right. The Career Average sheet is a little more difficult as there are different reductions depending on whether you are still working when you take the pension or if you are deferred.
     
  14. Luvsskiing

    Luvsskiing Established commenter

    No, you're right. I blame the buttons on my calculator. Thnx.
     
  15. diddydave

    diddydave Established commenter

    They know how to be pushed...
     
  16. Dorsetdreams

    Dorsetdreams Occasional commenter

    It is also worth pointing out that after the 'break-even' date you are not suddenly much worse off. I've pointed out this before: the apparent 20% 'loss' for taking the pension 5 years early only materialises into a real 20% if you manage to live forever.
     
  17. PeterQuint

    PeterQuint Lead commenter

    Back to the OP.

    Perhaps the larger threat to pensions will be indirect.

    The government are going to be skint, so possibly introducing NI for pensions.
     
  18. 50sman

    50sman Lead commenter

    The government cannot intoducevNI on pensions. The reason for this is that you have already paid NI on it’s it was deducted from your gross salary before you paid your pension contribution.

    the order goes
    Gross pay
    NI
    Pension contribution
    Income Tax

    The reason your pension is taxed is because you have yet to pay tax on that income. That is the same reason why the state pension contributes to taxable income once you can claim it.
     
  19. Dorsetdreams

    Dorsetdreams Occasional commenter

    50sman - rather out of context for sure, but "Past performance is no guarantee of future results".
     
  20. 50sman

    50sman Lead commenter

    No I was replying to @PeterQuint s commment about government putting NI on pensions - they already have so cannot tax the same income twice!
     

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