Are civil service pensions funded?

locknbarrel said:
What am I not seeing here?
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You are not inflation adjusting on the contributions side, or if you are a 7% real return is too generous. I would go with 5% real return plus 2% inflation.

locknbarrel said:
Extra ASC charge ignored for PS pension
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I simply don’t think you can ignore this. It’s a tax that private sector workers don’t pay


These two adjustments will offset each other to some extent. I’ll let you crunch the numbers!
 
@locknbarrel the power of compound interest! 7% growth would not be considered as conservative. The official report comparing the PS with the Private Sector used an assumption of 4.5% p.a. growth (70% equity, 30% bonds). Using this figure I get the residual 4% pension to be €14,590.
But you really have to talk in "real" i.e. inflation adjusted terms. That's because the PS version really comes into its own in the later years as each contribution buys the same percentage pension but with much less time for the compound interest.
The report calculated the implicit employer subsidy at 25% of salary. That you have managed to trump that is because of heroic assumptions on the real growth.
I see my post has overlapped with @Dr Strangelove
 
Yes, of course, I decided not to get into the obvious difference between the guaranteed nature of the PS scheme with the highly volatile/risky strategy of pure equity investment, which seems to be the assumption behind the contrarian example. 4% is a sort of accepted rule of thumb for drawdown of a pure equity ARF and I suppose on average it would provide an inflation linked annuity + an estate, but oh so what if?
 

I've adjusted to account for ASC - for 65000 salary works out as 1.56% - therefore upped contributions for DC Private to 8.06%
Reduced Growth Rate to 4.5%

Private DC Figures
Total private pension pot after 40 years : € 584,928.25
lump sum of €97500
leaves € 584,928.25 - €97500 = € 487,428.25 in pension pot
annual income = presume a 4% withdrawal rate = € 487,428.25 * .04 = €19497.13 pa

We're never going to get a perfect like for like comparison - but to all my private pension brethren who are influenced by the "Gold-Plated PS Pension" fallacy and feel they're hard done by - the numbers do not bear it out.

I am in the public sector - and if the government offered me to cash out the estimated value of my pension now so that I could put it in a private pension, to which I could continue to contribute - I'd grab it with both hands.

It would be one way to alleviate the state's PS pension obligation - allow public servants the choice to contribute their pension deductions to a private pension and you may see a rapid take up of the offer.
 
You're still not allowing for inflation. Pension pot €353,121 in today's money. Residual pension in today's money €10,244. PS figures do not change as they are inflation adjusted. And do you really believe inflation will be held at 2% for 40 years?
 
If you insist on using a 4.5% growth rate - it has to be an inflation adjusted return ( and it's still low compared to the last 60 years)
 
locknbarrel said:
If you insist on using a 4.5% growth rate - it has to be an inflation adjusted return ( and it's still low compared to the last 60 years)
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You are of course right that historically fully equity investment throughout life would have worked out the better. The report above looks forward and projects 5% growth pre retirement and 2% post retirement with 2% inflation to be deducted. That gives them that your PS deal has a 25% employer subsidy. Clearly the PS deal is a much "safer" proposition, in particular on longevity. You would forgo the security and take the "risks" and that would have worked well in the past.
Now the post 2013 deal only has a 8% subsidy and your argument would hold more sway for those.
 
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