Economist Michael Johnson has issued a stark warning that public sector pensions have become a ‘Madoff-style pyramid’ scheme.
His report for the Centre for Policy Studies explains that public sector pensions are ‘collapsing under the weight of insufficient contributions, rising longevity and an ageing workforce’.
Johnson makes the brave recommendation that the government should start to close final salary schemes in favour of defined contribution schemes.
This would require careful negotiation with public sector unions as well as a robust plan to smooth the transition between defined benefit and defined contribution.
We agree with his conclusion that self-sufficiency in the key when it comes to retirement planning.
Whilst employees in the public sector can continue to benefit from accrual under generous defined benefit pension schemes for now, they should not expect this situation to continue forever.
The first step towards self-sufficient retirement planning is understand what benefits you have already accumulated before deciding on a target level of retirement income.
These calculations can be complicated, particularly where defined benefit pension schemes are involved, so working with a suitably qualified and experienced independent financial adviser is a good way to devise a sensible plan for retirement.
Photo credit: Flickr/Ed Yourdon
