MSE News: Millions face cut in final salary pensions

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"The Government has announced plans to cut the rate at which some private sector pensions rise each year ..."

Read the full story:
Millions face cut in final salary pensions

LindsayO

Given that I am in a final salary pension scheme, and I don't like this, my questions are:

Is there anything we can do about this?

How do I figure out what difference this makes to the lump sum versus annual pension question?

andrew283

Your best speaking to a financial advisor. There are many other options to pensions to invest your money into if you feel your pension is facing a cut, but speak to an expert who can advise you on this

dunstonh

Whilst it is a reduction, I do fear that many will read the headline rather than the content and it will put off people from joining schemes which instead of being very very very good value for money are going to be very very good value for money instead.

How do I figure out what difference this makes to the lump sum versus annual pension question?

It wont make any difference to the lump sum. However, the decision on how much to commute to lump sum may be affected. Also, how it is implemented will have an impact as well. If it follows past changes you will have pre 2011 (or whatever year) benefits and post 2011 benefits. So, benefits accrued to date wont be changed but future benefits accrued will. We will hear more about that as consultation takes place. It is also possible that it will be a minimum standard but trustees will be able to decide. It would be unusual for legislation to allow benefits accrued under one rule to be changed where it specifically stated that you get RPI. If it just mentioned indexation and doesnt specify which then changing it on all benefits is possible.

There is a lack of detail at the moment but the headlines may be a bit more scaremonger than reality for most people. Or they could be guessing right.

Sapphire

andrew283 wrote: »

Your best speaking to a financial advisor. There are many other options to pensions to invest your money into if you feel your pension is facing a cut, but speak to an expert who can advise you on this

But these are final salary pensions. Surely you cannot remove money from them? It's also not much help if you are close to retirement.

Surely it's illegal to cut final salary pensions that have already been agreed on, in writing, with companies years ago?

Why would the government meddle with private pensions that are not funded by taxpayers?

Fatenbread

Sapphire wrote: »

But these are final salary pensions. Surely you cannot remove money from them? It's also not much help if you are close to retirement.

Surely it's illegal to cut final salary pensions that have already been agreed on, in writing, with companies years ago?

Why would the government meddle with private pensions that are not funded by taxpayers?

They aren't "cutting" final salary pensions. The amount agreed between employer and employee is usually a percentage of the employee's final salary. this then rises with inflation. The only thing that may change is how that inflation is calculated.

I'd still rather have a DB scheme than a pot of untouchable money invested, that I have to manage for 40 years while I pray that annuity rates will be favourable on the day I take my pension.

Sapphire

Fatenbread wrote: »

They aren't "cutting" final salary pensions. The amount agreed between employer and employee is usually a percentage of the employee's final salary. this then rises with inflation. The only thing that may change is how that inflation is calculated.

I'd still rather have a DB scheme than a pot of untouchable money invested, that I have to manage for 40 years while I pray that annuity rates will be favourable on the day I take my pension.

But if the government changed the way inflation is calculated in respect of pensions to the detriment of pensioners, surely this would be equivalent to a 'cut', and against the terms of pensioners' agreements with the private companies they worked for?

I'm not saying it would be wrong to give people less of a state pension if they already have a private company pension of, say, above £25,000 p.a. (quite a few people), but a great many pensioners already only have small pensions from private companies, and if they are close to retirement would not have the opportunity to prepare for a 'cut' such as this.

I don't like this at all.

C_Mababejive

Hang on..my understand is that this is an EC proposal and has nothing to do with what will happen.

I think the story has been misrepresented in the press as usual.

Sapphire

C_Mababejive wrote: »

Hang on..my understand is that this is an EC proposal and has nothing to do with what will happen.

I think the story has been misrepresented in the press as usual.

Doesn't really matter who has proposed it – it is wrong and surely illegal to change the terms of people's written agreements with their private company employers.

C_Mababejive

Sapphire wrote: »

Doesn't really matter who has proposed it – it is wrong and surely illegal to change the terms of people's written agreements with their private company employers.

I agree..though i do believe that the facts should be reported.Not red top rhetoric. My current understanding is that the EU Government in Brussels are looking into this as they think it is an area which should be rationalised. The press are presenting it as if its a done deal/will happen/the Torys have done it.

Anyone have any real facts on this?

AFAIK its an EU consultation and anyone can respond to it.

As usual of course,we will all sit back,moan and get shafted.

lvader

Sapphire wrote: »

But if the government changed the way inflation is calculated in respect of pensions to the detriment of pensioners, surely this would be equivalent to a 'cut', and against the terms of pensioners' agreements with the private companies they worked for?

I'm not saying it would be wrong to give people less of a state pension if they already have a private company pension of, say, above £25,000 p.a. (quite a few people), but a great many pensioners already only have small pensions from private companies, and if they are close to retirement would not have the opportunity to prepare for a 'cut' such as this.

I don't like this at all.

Actually nobody knows if it's a cut, if house prices stagnate then it could be an increase. My final salary pension has inflation fixed at 5% per annum (until I actually retire) so I've done rather well.