Plan to change private pension inflation link

vivatifosi

Generali wrote: »

It's the end of the financial year here and I've had a brutal week. Can someone explain using short words and pictures !!!!!! is going on re this? I just seem to be getting it wrong.

Thx.

In 1995 the conservative government brought in the link to RPI. Prior to this, schemes had more latitude. Other changes in pensions were also going on around this time - such as the matching of retirement ages between men and women.

Because CPI will cost firms less than RPI the changes are to the company's benefit. However the situation is not as straightforward as it seems.

Yes there are schemes in deficit, and there are many that are unhealthy (think BA, RM, etc). However there are also huge numbers of good schemes that never make the news. Part of the reason for scheme deficit is technical: mortality rates have had to be increased and accountancy bases have changed as well as the obvious stuff like shares not performing to historical norms. Schemes may be capable of meeting all obligations without necesarily being fully funded. Many schemes also have employer convenants to pay down such debt. Schemes pay into the PPF levy based on their risk - so it makes sense to reduce it where poss.

We've been taught as employee trustees over many years that accrued benefits are safe and this breaks that covenant of trust. So well run schemes could be forced into the same austerity measures as those that aren't. As a trustee I'm furious, can't begin to tell you how much. If there is tinkering needed it should be in those private schemes that can't cope, not those that are functioning perfectly well without intervention. Bloody big state tories!

Generali

@vivatifosi. Put simply, has the Govt changed the rule to make insolvent funds solvent at the expense of members of other pension schemes? I have q mental block with this poo.

tomterm8

Generali wrote: »

@vivatifosi. Put simply, has the Govt changed the rule to make insolvent funds solvent at the expense of members of other pension schemes? I have q mental block with this poo.

Put simply, if they had introduced this rule a decade ago, every person with a private sector pension who retired 10 years ago would have a pension today worth 16% less. This is regardless of whether the pension fund is, or is not solvent. Currently solvent pension funds will have as a result a significiant surplus, (somewhere in the order of 20% of the total fund, by my very rough calculations ) and the business they belong to will be able to pocket the surplus.

tincans

Generali wrote: »

@vivatifosi. Put simply, has the Govt changed the rule to make insolvent funds solvent at the expense of members of other pension schemes? I have q mental block with this poo.

Not really.

The change effectively improves the position of all pension funds (and by implication will improve company profitability) at the expense of all members (I am assuming the current retired members will only get CPI).

I thought that when the Conservatives were pro-business, it would be by reducing the burden of regulation and taxation.

Don't remember reading in the manifesto that they would be taking say £8k off each pension scheme member to give back to companies.
May have missed it though.

Gorgeous_George

I'd prefer a time limited pension. Pay me a decent pension for 10 years and then reduce to half a decent pension over ten years. I'd adjust my lifestyle accordingly.

I think there will be many more 'Raoul Moats' before this government is finished.

Unelectable for a generation.

GG

Mr_Mumble

Oooh...

Inflation-linked gilts slump on CPI fears

Long-dated UK index linked gilts slumped by as much as 6% on Friday on fears that existing issuance will become linked to the consumer price index rather than the retail price index.

Think this fear is overdone, future issuance could be CPI based but for any attempt to change the yardstick for current issuance would bring about a drawn out legal battle that the government would likely lose.

With house prices likely to remain stagnant (HSBC with a note out today suggesting house price growth will be below earning growth until 2016 and only inline thereafter) its unlikely the gap between CPI and RPI will be as pronounced as in recent years.

On the topic in general, there's a pretty simple mantra that was forgotten in the seventies and eighties: "don't make promises you can't keep"! Employers should have taken notice. Though employees must recognise that they're only duping themselves if they expect the absurd final salary and defined benefit pension promises to be kept.

Its pretty clear now that defined benefit pensions were a ponzi scheme. In the private sector almost everyone under 40 will receive a contribution based pension to subsidise the fat cat baby boomers. In the public sector general taxation is making up the difference - the cleaner on minimum wage is paying so that the Whitehall civil servant gets their six figure pension. Net contributions to public sector pensions are expected to grow at 23% per annum during this parliament and on this trajectory the cost to meet the shortfall in pension contributions will surpass the amount spent on the NHS by 2030.

You have to wonder about the future competitiveness of Britain in the coming 20-30 years. Will talented younger folk be willing to spend another 5-10% of their income just to finance the lifestyles of the greedy pensioners? Or will a huge swathe of younger emigrants give up on Britain and so leave the country an empty shell that has every chance of becoming Detroit 2.0?

So, its hard for me to have a dig at this government for trying to make the situation better for younger generations by making CPI rather than RPI the yardstick. It would be nice for the government to be fully transparent and admit the pension ponzi exists and so tax pensioners more heavily. Why should rich pensioners with incomes above, say, £30K get off scot-free for impoverishing today's children?

vivatifosi

Mr_Mumble wrote: »

So, its hard for me to have a dig at this government for trying to make the situation better for younger generations by making CPI rather than RPI the yardstick.

I have no problem with them doing that for future benefits, what they shouldn't do is mess with those that are accrued. Its all very well to talk about ponzi schemes but lets not forget that for long periods firms chose not to pay into their schemes and to take a pensions holiday because they were fully funded, leaving employees still to pay in.

The government should at least leave it up to the schemes as to whether or not they want to apply the new formula. This has been in the press all day, people have been phoning their pension funds all day, how much info is there about this on the Pension Regulator's website? F all. They are a disgrace.

Wookster

Sir_Humphrey wrote: »

If we can afford to bail out the banks, pay chief executives ludicrous amounts, have the lowest level of income tax since WW2 and allow gaping tax loopholes we can afford to give people a decent standard of living.

It might mean changing some of the things I listed however.

Life isn't fair. The sooner you accept this, the happier you'll be.

Rochdale_Pioneers

Will Tory frothers be as upset by this raid on pensions as they were with Brown's? It's funny - change the government changes and the policies don't.

nearlynew

Don't forget.............

the goverment, and their masters, are all lying f*cking thieves.


They will do anything in their power to enrich themselves at our expense.