Striking doctors and teachers

Sam has been on strike today because the government is altering the terms of doctors pensions - they'll eventually have to work until they're 68 and the scheme is moving from a final-salary scheme to a career average scheme. It's the first time doctors have been on strike in almost 40 years.


Max was on strike for one day last year, but refused to join in and worked normally when a second strike was called this year. He said he didn't feel that the pension offer was that bad and he didn't want to leave his A-level group without lessons that day.


He'd had some flack from a couple of the more militant NUT members, including one guy who won't speak to him any more. I think he's a bit irked by their reaction, but there's no-one more passionate and unreasonable than a middle-class leftie. 


Tom was almost caught up in some industrial action last week when AP journalists were planning to strike, also about pensions. The dispute was called off at the last minute. Tom isn't in the uniion and, of course, hadn't had an opportunity to vote on action.


It seems all disputes these days are about pension provision, especially in the public sector, which is the last bastion of defined-benefit schemes, rather than money-purchase schemes. The disputes are all around detail - retirement age, revised contributions and benefits (career average v final salary benefit). The problem (although it's a nice problem) is that people are living longer and that pension funds can't provide the money to sustain 30 years retirement when, only a few years ago, most men lasted only about 10 years after retirement.


Private companies have to find the money, most can't so they've closed defined benefit schemes. Public sector schemes are often funded by taxpayers and only now has the government grasped the nettle and said that they are unaffordable.


As a taxpayer in the private sector, whose pension fund is £80 million in deficit, I don't have much sympathy and I don't see why I should pay for others to have a better pension scheme than I've been able to get (and mine is very good compared to what I'd get these days).


Pensions really have to be sorted out and the government has made only a small start. Expect thousands more disgruntled public sector workers in the next decade.


People of my age (or close by) have been hit by the state pension retirement age rising. My sister Margaret was able to retire at 60, but my wife Margaret (less than four years younger) has to wait until she's 64 and some months. That's saved the government (and cost me) around £25,000.


A friend of mine, in the police, was able to retire at 50 on 60 per cent of final salary. He'd started as a PC and finished as a deputy chief constable. He's a classic reason why final salary (rather than career-average) pensions are expensive. He might have spent 32 years climbing the ladder earning a fairly modest wage for the first 15 and really big money in the last five. Yet his pension is based on his final salary which rose steeply late in his career. To susteain a pension of £60,000, you'd need to have around £1.2 million in your pension pot. There's no way he's made that level of contibutions when for 20 years, he's been paying in around £2,000 per annum. The difference, in this case, is made up by the taxpayer of course.


If he had been on a career average, rather than a final salary, he'd have accrued a contribution each year based on his salary that year. It would have increased each year by inflation, but it wouldn't be anywhere near the final salary amount.


It's this change that's irking doctors and teachers, along with an increase in contributions and in the retirement age.


In the private sector, the issue is more about the closure of defined benefit schemes and the introduction of money-purchase schemes. In a defined benefit scheme, you get a guaranteed amount. It might be based on your final salary or on a career average, but you know what you're getting and that's a big advantage. The money to finance this comes from your contributions plus contributions from your employer. The pension fund is managed by trustees and benefits paid out of the fund. There's a liability on employers to make up a shortfall in the fund which, in our case, is pushing £80 million.


We're in deficit because the Labour government removed tax concessions, so investments earn less (there's less money to pay pensions and to accrue) and also because the stock market has performed so badly during the past 15 years, with virtually no growth. It's been a grim time and has come at the same time as life expectancy has increased dramatically.


Our final salary scheme closed three years ago and we're all on money-purchase schemes now. With a money-purchase scheme, you and your employer pay into a fund, but instead of going into a pot, it goes into a personal fund, which you build up over the years. You might pay five per cent of your salary and the employer match that, so you could have £3,000 per year going into your pot. It's invested and so will grow, but 30 years work on an average salary might see you with a pot of £150,000. When you retire, you can take part of the pot as a lump sum (25%) and the rest has to be used to purchase an annuity. An annuity paying £5,000 per annum and inex linked would cost you around £120,000. A lot of people in the private sector will be lucky to get that, so you can see why they are envious of public sector final salary schemes (or would be if they paused to think about it).


My own pension provision is made up of a final-salary scheme with Northcliffe, a final-salary scheme with PA and a money-purchase scheme with PA. It's a complicated business, pensions! In reality, I'll draw my final salary pension from two former employers and take my money-purchase pension as a lump sum.


The government could do a lot to make pensions more straightforward and easy to understand. People's eyes glaze over when you start talking about money-purchase schemes and annuities. People might be encouraged to save more, but the trouble with private pension provision is that you're not allowed to do what you want with your money. Some might be taken as a lump sum, but the rest has to be used to buy an annuity and they are shocking value for money. You could work to 65, spend £250,000 on an annuity and then die two years later. None of your dependents would get a penny.


I've preferred to put my spare money (and there's been precious little of that) into ISAs. I don't get a tax break when the money goes in, but it is tax free when it comes out. I've also got control of my money.