Pensions - Government VS Private

[Kosmik]

Hi all,

So some thing that's been bugging me lately and the recent article about MPs resigning their posts as they wish to stick with the higher pension of a minister VS the downgrade of a normal mp. If I understand it correctly, government pension is paid based on your pay job pay before retiring? Whereas private pensions are paid based on whatever a person has contributed over the years and the purchase of a living annuity (might be using the wrong word here, minds gone blank).

Surely this is also not a sustainable practice? How is it handled if a person joins later in life? They get the full pension any way? Interested if someone could shed light on this?

 

[Azg]

Hi all,

So some thing that's been bugging me lately and the recent article about MPs resigning their posts as they wish to stick with the higher pension of a minister VS the downgrade of a normal mp. If I understand it correctly, government pension is paid based on your pay job pay before retiring? Whereas private pensions are paid based on whatever a person has contributed over the years and the purchase of a living annuity (might be using the wrong word here, minds gone blank).

Surely this is also not a sustainable practice? How is it handled if a person joins later in life? They get the full pension any way? Interested if someone could shed light on this?

It's a defined benefits pension fund. Not unique to SA.
https://en.wikipedia.org/wiki/Defined_benefit_pension_plan

The one that you refer to as private is a defined contribution plan.

 

[supersunbird]

Hi all,

So some thing that's been bugging me lately and the recent article about MPs resigning their posts as they wish to stick with the higher pension of a minister VS the downgrade of a normal mp. If I understand it correctly, government pension is paid based on your pay job pay before retiring? Whereas private pensions are paid based on whatever a person has contributed over the years and the purchase of a living annuity (might be using the wrong word here, minds gone blank).

Surely this is also not a sustainable practice? How is it handled if a person joins later in life? They get the full pension any way? Interested if someone could shed light on this?

I don't know if ministers and MPs get a pension from GEPF or from some other arrangement, but GEPF is a defined benefits scheme, where your pension is based on a formula including the average of your salary the past 2 years, and how long you've worked for government has an influence and other things. You do contribute via deductions from your salary.

In the past many SA company schemes also worked in the defined benefit way, it's mostly been done away with.

Multinationals close the door on defined benefit pensions as deficits become unmanageable, says PwC survey

The closing of defined benefit (DB) pension arrangements has become a global phenomenon with employers grappling with what to replace it with, according to new research from PwC. PwC surveyed 114 Fortune 500 global multinationals (of which many operate within South Africa), which together employ 4.7 million people and have combined pension liabilities of $950billion, and found that only six percent wish to perpetuate DB arrangements, where the employer underwrites the costs and risks of providing workers with guaranteed pension incomes. Nine in ten are actively deploying defined contribution (DC) as their predominant workplace retirement provision, with the commensurate transfer in cost and risk from employer to employees.

https://www.pwc.co.za/en/press-room/pension-news.html

 

[Kosmik]

Thanks gents, explains a lot. Also points to my assumption that it's not really a sustainable practice and the only reason it works so long is that the state has the backing of the taxpayers.

 

[Rkootknir]

I don't know if ministers and MPs get a pension from GEPF or from some other arrangement, but GEPF is a defined benefits scheme, where your pension is based on a formula including the average of your salary the past 2 years, and how long you've worked for government has an influence and other things. You do contribute via deductions from your salary.

In the past many SA company schemes also worked in the defined benefit way, it's mostly been done away with.

Multinationals close the door on defined benefit pensions as deficits become unmanageable, says PwC survey

https://www.pwc.co.za/en/press-room/pension-news.html

MPs join the Political Office-Bearers Pension Fund. These days it is a defined contribution fund but it used to be a hybrid defined benefit / contribution arrangement up to 1 March 2016 (see links).

 

[Azg]

MPs join the Political Office-Bearers Pension Fund. These days it is a defined contribution fund but it used to be a hybrid defined benefit / contribution arrangement up to 1 March 2016 (see links).

Thanks for that. In that case I can't see how the Ministers benefit by resigning. Or are ministers on a different scheme than MPs?

 

[naasier]

How can we get the Political Office-Bearers Pension Fund to invest in SAA, Eskom, Post Office etc?

 

[Rkootknir]

Per the "About" page ministers are on that Fund as well. Only thing that I can think of is that they were ministers before 1 March 2016 and so are still eligible for benefits on a DB basis.