Royal Mail Pension

jackiegibbo

Just wondering why the pension im paying into has such a huge deficit,any opinions please?

custardy

because RM took a massive payment break(years!)

jackiegibbo

so what happened to our contributions during that time:o

custardy

jackiegibbo wrote: »

so what happened to our contributions during that time:o

not enough to cover the full fund.
looks like its going to be covered by the privitisation deal anyway

MrChips

jackiegibbo wrote: »

Just wondering why the pension im paying into has such a huge deficit,any opinions please?

Because the projected liabilities are far higher than the fund's assets.

MrChips

Sorry, couldn't resist that one.

Don't know the specific circumstances of that scheme, but if it's anything like most other schemes the assets will have been suffering with the falls in the stock market. The liabilities will have increased because life expectancies have increased faster than previous projections and because interest rates have decreased.

RM may well have taken a payment break but that is likely to have been when the fund's outlook was a lot more rosey, say 10 years ago. Legislation at that time actually penalised funds with extra tax that were too well funded!

MikeJones_2

jackiegibbo wrote: »

Just wondering why the pension im paying into has such a huge deficit,any opinions please?

Don't instantly blame your pension scheme or your employer!

To try to answer your question, in no particular order, with an incomplete list (and not including those reasons already suggested), here goes:

- Increased life expectancy (roughly translated, for each decade during the 20th century average life expectancy improved by an extra 2 years - imagine trying to pay that extra income for 'x'000 pensioners and 'yet to be' pensioners when you hadn't foreseen it, or your advisers hadn't).

- Changes in pension accounting rules - without getting technical, various accounting changes have been introduced which have meant that the way a pension scheme reports its solvency (the difference between assets and liabilities to you and me) have resulted in 'widening' deficits or reduced surpluses.

Legislation - Increasingly burdensome legislation - aimed at improving and protecting members' benefits, but with financial consequences for sponsoring employers, such as:
- Providing increases to GMP pensions in payment for members Contracted-out after 5th April 1988. Schemes must match inflation up to 3% p.a. for this part of the pension.
- Equalisation of pension ages and benefits for pensionable service after 16th May 1990.
- Providing increases to pensions in payment for members with pensionable service after 5th April 1997. Schemes must match inflation up to 5% p.a. for this part of the pension.
- A mandatory requirement for schemes Contracted-out on the Reference Scheme Test after 5th April 1997 to provide a 50% spouse’s pension on death for this part of the pensionable service.
-Possible future costs may occur as a result of GMP equalisation.
- 'A-Day', otherwise known as pension simplification which did more to complicate pensions than to simplify them (in the short term anyway).

Regulation - charges and levies incurred by the introduction of bodies to 'protect' scheme members. These would include bodies such as The Pensions Regulator (although not all schemes are 'covered' by such bodies).

Economic – A huge subject, but to whet your appetite, if you look at a chart of the UK ‘stock market’ from the early 20th century to current date, the last 6 years or so would show one of the longest periods of ‘sideways drift’. In layman’s terms, this means the graph is ‘flat lining’, (although some sectors and investors manage to buck the trend). Low interest rates (generally) mean low cash, fixed interest and bond yields in the medium term.

Time span – Most people think in terms of what’s going to happen tomorrow, next week, next month etc, but a pension scheme and its sponsoring employer will be looking at the same timescale but also 30, 40, 50 years plus. Remember that many pension schemes provide pensions to surviving spouse’s, dependants and children so benefits payments can last many years after the death of a member.

Assumptions – (Slight cross-over here with some of the above). Schemes need to make various assumptions for all sorts or reasons. What do you think will be reasonable assumptions in the next 5, 10, 20, 40 years etc for (a) investment returns (broken down into each category such as equities, fixed interest, property etc), (b) inflation, (c) life expectancy… can you see the problems with this one – every answer given here just 18 months ago would be out of the window today, wouldn’t it?

Trends – one of my favourites! Managing a pension scheme can be like steering a large oil tanker - you can’t suddenly turn. But, every so often, someone comes up with a new idea, and if enough people believe in it, that idea turns into a trend. Recent pension trends have included ‘Socially Responsible Investing’ and ‘Liability Driven Investments’. Trend following might not work!

Sorry for the elongated response to your post, but your question posed a valid point.

Hope this helps.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

jackiegibbo

So what shall i do now.
Im a 43 yr old postie whose wondering what to do about my pension.This is my second time of being a postie i did it for 3yrs in the mid 90s(paying into the pension scheme),left when i had my daughter and went back to them 14months ago(paying into the new pension scheme which i believe is linked to the old one............well i asked them to link it and they said they would).Im part time so i pay approx £12-£14 a week into this huge deficit ive been reading about online.
Shall i carry on paying into it for a few months and wait and see what happens or shall i come out of it and pay the weekly amount off my mortgage?
Opinions please

MikeJones_2

Hi jackiegibbo,

The 'rule of thumb' is that where an employer provides an occupational pension scheme, it is wise to join the scheme and to remain in it where possible.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

exil

exactly. The only danger is if the employer goes bust - and there is a scheme for rescuing pension schemes in that scenario as well. However I suspect within the next 10 to 20 years we'll see the end of final salary schemes in both private and public sectors. Until that happens it's best to keep paying in.

dasherman

jackiegibbo wrote: »

Shall i carry on paying into it for a few months and wait and see what happens or shall i come out of it and pay the weekly amount off my mortgage?
Opinions please

Your contributions equate to 6% of your contributory pay,which is worked out as your basic pay + allowances minus the Lower Earnings Limit(£3,328-frozen since 1999),pro rata for part time employees.

The Royal Mail currently contribute 20% of your pensionable pay,or £40-45 per week(aprox) in your case.

If you come out of the pension scheme you will not get this extra money from RM and your income in retirement will ultimately be a lot smaller. And under the rules of the RM scheme you will not be able to rejoin the scheme.