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Cap Public Sector Pensions?
Submitted by Leo Kolivakis, publisher of Pension Pulse.
Here is some food for thought. The Independent reports that a a senior Labour backbencher is calling for a £50,000 a year cap on public sector pensions:
Pensions for public sector workers should be capped at around £50,000 a year, a senior Labour backbencher suggested today.
With salaries for the best-paid executives in the civil service and
local government soaring in recent years to as much as £250,000 a year,
pension
entitlements have risen in some cases to "excessive" levels, said Terry
Rooney, the chairman of the House of Commons Work and Pensions
Committee.
His proposal of a cap could
prove controversial, with unions representing senior public servants
likely to resist any restriction on pensions.
Mr Rooney told BBC Radio 4's Today programme: "Some people who are
earning £200-£250,000 a year can see a pension in the range of
£150,000.
"I think most people would think that that was excessive."
"Perhaps there should be a cap of, say, somewhere around £50,000."
The "gold-plated" pensions available in the public sector have become
increasingly controversial as a growing number of private sector
companies have closed down their generous final-salary schemes and
moved staff onto more risky schemes linked to the stock market.
And a recent report suggested that the total taxpayer liability for future public sector pensions may be higher than £1 trillion.
Meanwhile, citing the FT, Reuters reports that UK specialist insurer Pension Corporation is eyeing a third capital raising:
UK
specialist insurer Pension Corporation is eyeing a third capital
raising round of up to 400 million pounds ($652.7 million) from new and
existing investors, the Financial Times reported on Friday.
Citing people close to the privately-owned specialist pension buy-out
and insurance company, the FT said the capital would be used to back
new deals taking over liabilities of closed pension schemes, books of
pensions in payment, or deferred pensions.
The company does both buy-out deals, where it takes over assets and
liabilities, and buy-in deals, where it writes an insurance policy
against liabilities.JPMorgan is
co-ordinating the capital raising and might add to the money it put in
during Pension Corp's second capital raising last year, which gave it
about 5 per cent of the group.
Pension buy-outs were once dominated by Prudential and Legal & General until a number of smaller, specialist firms, usually backed by private equity, entered the field earlier this decade.
Pension Corp recently tried to buy rival Paternoster, one of the first
such companies to set up which is run by Mark Wood, the former
Prudential executive. That deal failed and Paternoster is now
restricted from pursuing new business due to a lack of spare capital.
Pension Corp hopes to raise fresh money potentially in the form of
equity and long-term junior debt, while the rest of the capital would
be lined up as commitments for when deals are done.
One person familiar with the company said that it had spare capital,
but "was seeing more large deals coming its way and that prospective
counterparties wanted increased certainty it would have the extra
capital needed to support a deal."
Forbes reports that in New York, Comptroller Thomas DiNapoli announced on Thursday that NY pension fund contribution rates will rise:
New
York Comptroller Thomas DiNapoli said Thursday that state and local
governments, and their taxpayers, will need to pay far more into the
state's public worker pension fund, which lost about 25 percent of its
value in the global financial meltdown.
The government
contributions will increase to 11.9 percent of payroll for most workers
in 2011, and 18.2 percent for police and firefighters whose pensions
are more expensive. While the fund has regained some value with recent
stock rebounds, public costs are expected to keep climbing.
"We're
going to see more pressure for additional increases past this one,"
DiNapoli said. "A lot of it's driven by performance. It really depends
on how we do this fiscal year."
The 2011 increases followed five
years of rate cuts as fund investments grew. The rates are set to drop
next year to 7.4 percent of payroll that state, county and municipal
governments pay for most employees, and 15.1 percent for firefighters
and police.
The New York State Common Retirement Fund has about
350,000 retirees and 650,000 active members. It had $116.5 billion in
assets at the close of its last quarter, down from the historic high of
$154 billion in spring 2008.
"It's simply terrible news, a
doubling of the pension rate at a terrible time," said Stephen
Acquario, executive director of the New York State Association of
Counties. The counties paid $337 million in 2008, he said, with costs
projected to rise to 24 percent of payroll by 2012. "That's staggering."
A
doubling of the pension rate is terrible news? I got a better idea, why
don't we also cap public sector pensions in North America? Any
politician courageous enough to propose this idea here? Of course, that
means a cut in their own gold plated pensions.
»
Please, let's be careful WHICH public workers we are talking about. Are we talking about George W. Bush, Hank Paulson, and Tim Geithner? Or are we talking about the public workers who fix the potholes on our road, dispose of our garbage, police our neighborhoods, teach our children, bring drinking water to our houses, and pipe the sewage away from it? Because, I believe that the day we will REALLY have to worry about REAL TROUBLE is the day these public workers decide that we stole their pensions to treat ourselves to another new car and another vacation in the Virgin Islands. And the WAY we stole them, whether that is by gambling them away in the stock market or any other way, will make no difference. In summary, what goes around comes around.
Nope, Leo. Ultimately, I think public backlash will force state and local employees into the same deal as private sector and federal employees -- forcing people to switch from defined benefit to defined contribution plans.
.....
Not much of a solution to the pension crisis. DC just shifts the burden on individuals and pretty much ensures pension poverty.
Leo
I think that is the idea. DC plans are portable and shifts responsibility of the individual -- where it should be. We can incentivize via tax policy. If retirement poverty is the result, then the individual most likely lived too well (spent too much) pre-retirement.
People need to understand they can not afford cell phones, buying new cars (try buying a used car every 10+ years),, living in a house >1,800 sq ft, going to movies, eating out, cable TV, taking vacations, etc, etc, until they are saving enough for retirment. I know that is barbaric in this day when everyone deserves everything they want. It is the core problem - people consume much more than they can afford. Financial dieting is no fun. Sorry. Tell your kids they need to live on half their income and they will thank you in 20 years.....oh, but I know, no one can wait 20 years, we demand everything NOW......
And no one compares industrialized world "poverty" to the rest of the world poverty -- we ALL live like kings comparatively.
Leo: A doubling of the pension rate is terrible news? I got a better idea, why don't we also cap public sector pensions in North America? Any politician courageous enough to propose this idea here? Of course, that means a cut in their own gold plated pensions.
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Nope, Leo. Ultimately, I think public backlash will force state and local employees into the same deal as private sector and federal employees -- forcing people to switch from defined benefit to defined contribution plans.
That sounds like a good idea to me since we are up to our ears in government pensions and unfunded retiree health care liabilities up here in Minnesota... but we simply lack any brave politicians to propose such legislation, gather the troops, and try to push it through... because most everyone is a career politician.
The concept of career politicians protecting their turf and guarding their re-elections is making our fragile democracy completely ineffective in dealing with hard, complex issues right now... we just kick the issues down the road... until the pile is so large in the road that it becomes impassible.
It is interesting to imagine what our landscape would look like if everyone who is elected can only serve one term... ever...
What happened? Did Minnesota give up its 90 day, biennial legislative sessions with very limited pay? Basically a part time, non-professional legislature.
Seems that is the way to go. Full time legislatures are full time meddlers and do nothings. Seems like a contradiction, but they work to appear to work, and then pander to big contributors to keep their jobs.
I don't think having a part time, non-professional legislature is the solution either... I feel that the longer anyone holds public office (even in Minnesota) the more susceptible they are to special interest capture... I see it even on the City Council level... there is a subtle 'you quietly scratch my back, and I will scratch yours'... and as the years go by the 'itch' becomes greater and greater, with a corresponding frenzy of behind the scenes scratching.
Always enjoy reading your stuff, Leo.
I have stopped visiting NC all together ever since you started posting here.
Many thanks.
If they cap it, then all pensions will rise to the highest level, no?
Glad to see you here on ZH.