Are teachers' pension self-funding?

Hello
I've heard a number of people recently claiming that teachers' pensions are self-financing. Does anyone know if this is true, and if it is, how is it possible to finance an undefined cost with a pre-defined contribution?
Thanks Thomas
Reply to
Thomas
wrote:
They aren't, although they should be.
Teachers pay into a defined contribution scheme. The payments should go into a properly administered fund, as final salary pension schemes used to. Teachers pension contributions actually go to the government and pensions are paid from government funds, just like the state pension.
A properly funded final salary scheme should calculate the cost of providing future pensions based on life expectancy, investment yields, etc. The requisite contributions from employee and employer are then set at a level that will build up a suitable fund.
This can work reasonably well, but the attractions of a very large pot of money apparently doing nothing for many years was too much for employers and the government, who sarted putting their sticky fingers in the pot, with the result that schemes that were perfectly viable are so no longer.
Reply to
Bill Taylor

Thanks. In which case, the question becomes: are the contributions made by current working teachers sufficient to fund the pensions of current retired teachers?
It seems to me that you face two major problems in trying to finance final salary pensions. Either the date at which the pension is to be drawn is too distant to reliably predict its cost, or is too close to allow sufficient funds to be built up to fund it. This was certainly the problem that I faced in trying to fund my own pension. It wouldn't be so bad if things changed gradually - you could then make affordable and timely changes. In reality though, rates of inflation, investment returns and annuity costs change quite abrubtly making it almost impossible to keep pace. As far as I can see, all you can really do is save as much as you can and hope for the best - unless you're fortunate to have a copper bottomed final salary scheme that is.
I wouldn't be so resentful of state final salary schemes if they were truly self-financing, but in reality I suspect they will add a significant burden to my taxation both before and (more significantly) after I retire.
Thanks Thomas
Reply to
Thomas
They aren't but I think this comes from the claim that up until about the early 1990s the net contributions to the teachers pension fund had exceeded the net pensions being drawn by retired teachers.
It was around this time that early retirement for teachers was abolished. I seem to recall that it was claimed that had the teachers pension contributions been paid into a fund then at the point early retirement was "unaffordable" then the fund would have been about 500bn in surplus not counting investment growth.
I have no idea if these claims were actually true, I can just remember them being made at the time.
Tim.
Reply to
Tim Woodall
No. Teachers don't pay into a defined contribution scheme. They pay into a defined benefit scheme. If it were the former, they would only get whatever their fund and annuity rate provides when they retire. But as it's the lat ter, they know that they will get a given percentage of their salary when t hey retire, dependent on years of service.
Reply to
cryptogram

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