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Pay and Pensions

September 23, 2010

Jobs, pay and pensions are intimately interconnected. If you do not have a job, you do not have a pension (aside from the state pension). Pensions themselves are deferred pay – part of your salary that is set aside for the future. Pensions are of course linked to pay levels, and so lower pay means lower pensions. Accepting the current pay cut proposed by the employers will have a serious and long-lasting impact on members’ pensions.

The following calculations assume somebody in mid-career with 20 years until retirement. The total reduction in final salary, taking the current 0.4% pay increase and assuming inflation at only 3% over 20 years are

At the top of Grade 10, the reduction in salary is £5844

At the top of Grade 9, the reduction in salary is £4614

At the top of Grade 8, the reduction in salary is £3865

At the top of Grade 7, the reduction in salary is £3142

Divide this by 2 (assume we have a full pension on 80ths) and multiply by the number of years one might draw down on one’s pension. Taking twenty years, you lose the following in retirement

Grade 10 £58,440

Grade 9 £46,140

Grade 8 £38,650

Grade 7 £31,420

And this is before any inflation calculation!

Pay is linked to pensions. Pay cuts reduce pensions.

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