The Sunday Times - UK (2021-11-28)

good deal compared with other state

employees. They pay in less than teach-

ers and doctors. Their employers (tax-

payers) pay in more — up to 30 per cent of

their salary. And they build up their bene-

fits faster.

So a civil service manager on average

pay would get a pension of £47,215 a year

in retirement. For tax purposes that

works out as a pot of £944,300, not far off

the lifetime pension allowance you can

build without incurring large tax charges.

To get that same payout with the bene-

fits that the civil service scheme offers

(being inflation-proof and paying 37.5 per

cent to a spouse every year after you die)

you would need to save £1.77 million in a

private sector pension. The lifetime

allowance is £1,073,100, so in reality you

would never get to this point without the

prospect of huge tax charges. If you were

auto-enrolled in a private sector pension

and earning the same as the civil service

manager you would need to save for 73

years to match their deal.

Doctors accumulate much bigger pen-

sion pots but they are paid about 50 per

cent more than civil servants.

MPs serve for an average of 11 years and

build up a pension of £17,671 a year, with

excellent benefits for their spouse if

they die. To match that on the same

private sector pay as an MP you would

need to save for 42 years through auto-

enrolment.

How we worked it all out

All public sector pension schemes are dif-

ferent. Doctors and nurses pay in from

5 per cent to 14.5 per cent depending on

salary, and the NHS pays in 20.6 per cent.

Teachers pay in from 7.4 per cent to

It is an interesting concept:

a debt that follows you from

house to house for almost

your entire life. Not only that,

but because rates are fixed,

loans can be quite generous,

at more than six times a

couple’s joint income, and

think what you save on

remortgage fees.

It’s possible because of the

difference between funding

from banks, which need

short-term deposits, and

insurers, which need stable

long-term funding.

UK insurers do offer

mortgages, of course, lifetime

ones, also known as equity

release. But this is the first for

regular homebuyers and

offers genuine possibilities,

particularly if first-time

buyers are able to get bigger,

more secure loans with

smaller deposits.

Insurers are searching for

markets such as this, and

competition could easily

push rates lower.

It could mean that those

fat baby boomer pensions are

being used to help first-time

buyers onto the ladder.

That would not be a bad

outcome.

@jimconey

Just look

at Help

to Buy.

Great for

builders,

not buyers

in and how your investments fare. There

is no guaranteed income and no prom-

ised income for your spouse if you die.

What is the difference between what a

doctor, nurse, head teacher, civil servant,

MP and judge get from their pension com-

pared with the private sector? And what

can you do to match it?

Our findings

There has been a lot of attention on the

NHS pension scheme because of the large

tax bills for doctors who, because of the

way contributions are calculated, have

paid in more than the tax rules allow —

but it is not the most generous public sec-

tor scheme.

Judges and civil servants have the best

deal. Judges get special treatment and

have a relatively short tenure in their job,

but civil servants have an astonishingly

11.7 per cent, and their employers

23.68 per cent. Civil servants pay in

between 4.6 per cent and 8.05 per cent

and employer contributions are 26.6 per

cent to 30.3 per cent of their salary.

Judges pay in the same as civil servants

but get an employers’ contribution of

51.1 per cent of salary. MPs pay in 11 per

cent and employers pay in 13 per cent.

Across the private sector, average

contribution rates are about 4 per cent

for an employee and 5 per cent for an

employer, or 5 per cent and 3 per cent in

auto-enrolment.

How your pension grows in the public

sector is also different. In the NHS

scheme, effectively one 54th of a year’s

salary is revalued for inflation and

converted into retirement income. A

doctor retiring after 40 years on an

average salary of £86,398 would get

T

he government should

stay out of the housing

market, it always adopts

the wrong policies.

Take shared

ownership, where buyers get

the chance to take a small

stake in a property and

progressively buy a bigger

share. Fine in principle, but

in practice buyers find that

they can rarely stretch to the

ever-increasing sums they

need to pay because of

soaring property values.

Or Help to Buy. Great

idea... particularly if you are

in the building trade; not so

much if you have to pay

above-market rate for a flat

that you struggle to resell or

remortgage.

Or the stamp duty holiday

last year. The government

was so sure that the housing

market would crash that it

gave a tax break to buyers

who did not need it and

ended up increasing prices

further.

And, finally, we come to

long-term fixed-rate

mortgages. These first reared

their heads in 2004 when the

economist David Miles

suggested we follow the

Danish, German and

Stay out of the housing market,

minister, it rarely ends well

James Coney

T

he number on my

phone screen was

unfamiliar. So was the

name of the man who

introduced himself. But

the voice was very familiar.

“Hello, it’s David King from

Prudential here,” he said.

Only it was not David King, it

was a fraudster I had last

spoken to in May — when he

had called himself Pat and

had tried to convince me to

invest £50,000 in a non-

existent bond. I recorded the

calls and confronted him. He

swore at me and hung up.

Here he was again, trying

the same trick with an almost

identical script, even though

I had alerted Lloyds Bank, the

police, telecom companies

and the regulator, the

Financial Conduct Authority,

about him. So what was Pat/

David up to this time?

When the initial call came

about two weeks ago I played

of everyone authorised to

work in financial services. It

is a publicly available record

which the regulator often

urges people to use.

It all checked out, of

course, because the scammer

had simply found the name of

an unwitting Pru employee

and copied their details. (The

Pru said later that the worker

was being given support.)

A few days after that I was

contacted by Edward, who

would take me through the

final process, including an

anti-money laundering

identity check. Banks are

legally obliged to know the

identity of their customers

and can be fined if they fail to

ensure that genuine identity

documents are used.

I was given the option to

send utility bills, my passport

or driver’s licence. As I had

given false information I

could not do this, so when

Edward called again the next

day, I explained that my

relevant documents were

kept in another property and

that it would take a few days.

Edward said he could do a

soft check on my identity if I

provided a national insurance

number. This would speed up

the process. I gave a fake

number and a few hours later

he said it had been verified.

He sent me the bank details

where I should send my cash.

The copycat scam was

complete. The sort code

belonged to APS Financial, a

company that specialises in

offering accounts to start-up

businesses through the brand

CashPlus — at the same bank

the fraudsters used last time.

I immediately informed

the Pru and APS Financial

about the scam. I contacted

the FCA and the City of

London Police, the lead force

in tackling financial fraud.

When Edward rang a few

hours later asking if I had sent

the money, I confronted him.

He laughed: “I’m actually

quite flabbergasted by what

you stated there. I am calling

from the Prudential, the

compliance department, we

are not a scam.”

I explained that Prudential

had confirmed that his bond

did not exist. I asked if he

would like to meet to discuss

it. He put the phone down.

So how had I been targeted

again? Well, my fake details

were now on a “suckers” list

that the scammers use a lot.

While I had handed over

all the details to the police,

no-one had investigated. The

phone numbers used were

untraceable because the

fraudsters can shut up shop if

they fear being uncovered,

and the scammers use fake

names and bank accounts

that often belong to money

mules or are opened with

fake documents. The financial

trail goes cold very quickly.

But this all means that the

scammers will be back.

The FCA said it has

updated the scam details on

its register.

APS Financial said it always

required identification and

verification of applicants.

I reported my

scammer to

the police —

now he’s back

ALI

HUSSAIN

How we reported the

original scam in May

along and was sent details of

an investment bond being

offered by the insurance and

finance firm the Pru. The

bonds paid up to 3.3 per cent,

more than double the best

rates at a bank. The brochure

said the bonds were

completely safe and covered

by the Financial Services

Compensation Scheme

(FSCS), the government

safety net for savers. I knew

this was all false but the

documents looked genuine.

Then someone else,

supposedly from compliance,

rang me a couple of days

later. This also happened last

time. He gave himself the

name of a genuine employee

at the Pru (who we have not

named) and invited me to

check his credentials on the

FCA register — an official log

Hear Ali Hussain’s

conversations with

his fraudster

thesundaytimes.co.uk

off out of the property

market.

But then along came

something a little bit different

last week — a long-term fixed-

rate mortgage underwritten

not by a bank, but by an

insurance company. The

rates for up to 40 years are

offered by the lender

Kensington in partnership

with the life insurer Rothesay.

Not only are they quite

cheap — at 3.77 per cent for a

30-year fix for those with a

5 per cent deposit — but also

flexible, and you can overpay

10 per cent every year.

Australian systems where you

fix for 20 years or more.

It gained no traction, but

reappeared at the behest of

Gordon Brown in 2007, so a

few building societies, such

as Nationwide, Nottingham

and Norwich &

Peterborough, obliged and

offered some deals.

Customers foolish enough

to sign up to these long-term

loans ended up on rates as

high as 6.39 per cent, then

watched in horror as the

financial crisis arrived and

you could get mortgages at a

third of the cost.

Boris Johnson then

decided that he would

become the third prime

minister to make long-term

fixed-rate mortgages a policy

commitment.

Government intervention

only serves to pump up

house prices, which stokes

the anger of first-time buyers,

who feel that the only

beneficiaries are baby

boomers with property

wealth (which they believe

they will never have) and

giant final salary pensions

(which they will definitely

never have).

No, governments are best

MONEY

Follow us on Twitter @ST_Money

WHAT BROOKLYN

BECKHAM AND

I HAVE IN COMMON

IAN COWIE,

PAGE 15

IS THE CARD IN

YOUR WALLET STILL

WELCOME IN SHOPS?

I MADE THE PAGE 14

MISTAKE OF

DOING MY

OWN TAXES.

IT COST ME

£100,000

FAME AND

FORTUNE,

PAGE 18

WHAT THE PUBLIC SECTOR GET

HOW YOU CAN MATCH THAT

Average salary

Pension pot you

will need

They save every month

Annual pension

What you need to save

monthly for 40 years

How long it would

take in auto-enrolment

DOCTOR NURSE JUDGE CIVIL SERVANT

(MANAGER)

HEAD TEACHER MP

£972

£63,999

£2.42m

£1,684

69 years

£50,875

over 40 years

£231

£47,215

£1.77m

£1,284

73 years

£58,062

over 40 years

£493

£40,745

£1.51m

£1,032

67 years

£81,932

over 11 years

£751

£17,671

£700,000

£253

42 years

£126,150

over 20 years

£773

£58,538

£2.22m

£1,354

58 years

£33,384

over 40 years

£258

£24,728

£900,000

£620

68 years

£86,398

over 40 years

How to match a civil service pension.

Clue: it may take you 73 years...

D

octors are working less and

GPs are retiring early

because of hefty tax charges

on their pensions. Private

school teachers are striking

over fears about losing their

retirement schemes. Fire-

fighters are threatening legal

action because of changes to

their pensions and MPs

argue that they need second jobs because

they do not earn enough.

Meanwhile the taxpayer bill for all

these pension promises, and those in

other public sector jobs, has hit £2.4 tril-

lion. All this just six years after the

schemes were reformed and made less

generous.

Public sector workers get a defined

benefit (DB) pension that provides a guar-

anteed income for life and rises with

inflation. They also get death benefits to

provide a partial income to their spouse.

They once got a retirement income based

on their final salary, but it is now based on

average salary — still generous, though.

What public sector workers pay in has

also increased. They save a bigger aver-

age proportion of their salary than pri-

vate sector workers. Employers such as

the NHS, the civil service and other gov-

ernment departments also make huge

contributions, bigger than most private

companies.

While about 6.6 million workers in the

public sector have a DB scheme, only one

million private sector employees do,

down from 3.62 million in 2006. Most pri-

vate sector employees have a defined

contribution (DC) scheme — a “pot of

money” pension where what you get in

retirement is based on how much you pay

Public sector workers

pay a lot into their pots,

but anyone hoping to

get the same deal faces

a big financial shock

40/54 of that — so £63,999 a year.

Separate analysis reveals that the

accounting cost of providing the pen-

sions is about 63 per cent of a public sec-

tor worker’s salary each year, according

to John Ralfe, a pensions consultant.

The way DB pensions are valued in

terms of contributions and the total

saved is different too, which can make

them seem more generous.

We took government documents and

career websites to determine average sal-

aries and pension contributions in both

sectors. Where salaries had a wide range

we used the midpoint, and where earn-

ings started low and rose through train-

ing the salary was mapped to a typical

career trajectory. Length of service was

assumed to be 40 years except for short-

lived roles such as MPs or judges.

We then calculated the size of pension

pot in a DC scheme to replicate a similar

income in retirement. This meant buying

an annuity that rose in line with inflation

and provided similar death benefits for a

spouse, for example 33.75 per cent of

your pension in the NHS scheme and up

to 63 per cent for MPs.

All contribution rates and actual costs

were supplied by Ralfe. The costs for

annuities that matched each public sec-

tor pension were calculated by Retire-

ment Line, a broker. Calculations for how

much you would need to save to build the

necessary pot came from AJ Bell, a wealth

manager, and assumed 4 per cent a year

investment growth, 2 per cent inflation

and a 30-year retirement.

We have ignored the impact of the life-

time allowance, but in reality anyone

who built up more than £1,073,100 in a

pension would face large tax charges. We

assumed your employer paid 5 per cent

of your salary into your pension, the aver-

age for the private sector according to the

Office for National Statistics. We also cal-

culated how long savers in auto-enrolled

schemes, with lower employer contribu-

tions rates, would take to build up a pot.

“Public sector pensions are extremely

generous, in large part because they are

massively subsidised by the taxpayer via

significant employer contributions,” said

Tom Selby from AJ Bell. “To build a retire-

ment income even close to those in the

public sector, private sector workers will

need to save significant sums early, tak-

ing advantage of matched employer con-

tributions, tax relief and tax-free invest-

ment growth along the way.”

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