MSE News: Millions face cut in final salary pensions

dunstonh

How did you know what the government were spending?
Did you forsee the banking crisis and the global recession?

It was pretty easy to see that the Govt was spending beyond its means. However, it was largely ignored as its wasnt the media hot potato and the Conservatives were pretty ineffective in opposition for much of the Labour Govt and people fell for the SPIN. We ended up with a typical Labour Govt in the end. They did what they always do historically.

The only ones that saw the banking crisis and global recession were the doom mongers who every year predict disaster. The law of averages is that they will get it right occasionally. The general view was that the climbdown on debt could be managed over time. Not the sudden freeze that we had.


History shows a cycle. Labour spend too much if left in power for too long. Conservatives cut back too much if left in power for too long. Labour, when they start, try to repair some of the overcutting but take it too far. Conservatives, when they start, have to but back the overspending and borrowing. This is nothing new. It's gone on for generations yet it still happens and it will happen again.

Even if you don't personally feel any responsibility it should still be our generation that clears the mess.

Every generation leaves a mess for the next to pick up the responsibility for. The mess left behind just changes with each generation.

LardyCake

I was under the impression that increases in private sector pensions were a matter for each schemes own rules as set by that schemes trustees and not the government. Is there a current government rule that forces pension schemes to use RPI? I am genuinely mystified by this report.

For instance the scheme I belong to uses "RPI or 5% whichever is the less" it does not use "government set inflation measure for pensions or 5% whichever is less"

I note that the report uses the phrase "some private sector pensions". It would have been helpful to give some examples of the schemes the author had in mind. What exactly is going to change that would force private pension schemes to change their rules?

Just a reminder - "Millions of private sector workers with a final salary pension face lower payouts" is the topic of this thread.

Hodgie

Ok, some may say people with a final salary pension are lucky but they accepted this as an attraction to taking their jobs many years ago.
The change from RPI to CPi index linking doesn't seem significant but using the current figures of 5.1%(RPI) and 3.4%(CPI) a person who retires on a £7k pension in 20 years time will be on £13.6k instead of £18.9k a loss of 27%. A cumulative loss of £43k over 20 years. Someone retiring on £20k after 20 years is on £39k instead of £54k. The accumulative loss is £123k over 20 years.
It's equivalent to taking on another hefty mortgage.
The hit these people are taking, bearing in mind they have paid in a significant part of their wages to support their retirement, is way out of proportion.

Andy_L

LardyCake wrote: »

I was under the impression that increases in private sector pensions were a matter for each schemes own rules as set by that schemes trustees and not the government. Is there a current government rule that forces pension schemes to use RPI? I am genuinely mystified by this report.

For instance the scheme I belong to uses "RPI or 5% whichever is the less" it does not use "government set inflation measure for pensions or 5% whichever is less"

Lowest of RPI or 5%/2.5% (depending on date of accrual) is mandated in legislation, although schemes are free to exceed that minimum. AIUI the change to CPI simply changes the minimum indexation, although hard information is thin on the ground

Public Sector pensions (and SERPS/S2P) have their increases specified in the 1971 Pensions Increase Act as, unlimited, RPI and, again AIUI, that is the act the Gov will change to reduce public sector pensions
If a private scheme uses that act as a definition then it would automatically change to CPI from RPI (subject of course as to whether that counts as a reduction in accrued benefits).
If it specifies RPI in its own wording then a change would have to go through the usual process for changing a pension scheme

Sapphire

lvader wrote: »

Did you complain about the low interest rates or the obscene goverment spending?

If you are addressing me, then yes, I spoke out about it often – particularly the obscene government spending, and the low interest rates in respect of the damage they were doing to prudent savers like me.

nanatopsy

Recently received this about my Civil Service Pension,
'The increase in each April is based on the % rise in RPI in the 12 months leading up to the preceding September. The review for April10 therefore takes account of the rate of inflation in the year up to September 2009. This was actually a negative figure. However, the Act 1971 does not allow for a decrease (nice one)in the rate of a public service pension. Therefore there is no increase in the rate of service pensions in 2010'

Don't think I can do any worse then with the changes:(

LardyCake

Andy_L wrote: »

Lowest of RPI or 5%/2.5% (depending on date of accrual) is mandated in legislation, although schemes are free to exceed that minimum. AIUI the change to CPI simply changes the minimum indexation, although hard information is thin on the ground

Public Sector pensions (and SERPS/S2P) have their increases specified in the 1971 Pensions Increase Act as, unlimited, RPI and, again AIUI, that is the act the Gov will change to reduce public sector pensions
If a private scheme uses that act as a definition then it would automatically change to CPI from RPI (subject of course as to whether that counts as a reduction in accrued benefits).
If it specifies RPI in its own wording then a change would have to go through the usual process for changing a pension scheme

Many thanks Andy L - just the info I (and I suspect others in private final salary schemes) was looking for. Explains what is going on without the scaremongering. Pity the news media including MSE could not include this explanation in their reports.

Wobblydeb

lvader wrote: »

Everyone seems to think it's a good thing to make future generations pay for our mistakes. We made this mess, we should pay.

I don't see this type of legislation change as being about resolving the current government debt and consumer credit crisis.

To my mind it relates to the ongoing issue of people living longer.

The next generation is likely to live longer than us again, so pension rules HAVE to try and keep up, rather than lagging the change. Somehow I have to earn enough in 40 years to support myself for possibly another 40.... (granny made it to 97 ).


This isn't a mistake to be rectified, but ongoing demographic change. The important question is - at what point will the increase in life expectancy stop?

C_Mababejive wrote: »

I didnt make any mess....

BUT, you (and everyone else who quoted living frugally and saving for their future) .... have a pension based upon unrealistic expectations of your life expectancy...

Old_Slaphead

Hodgie wrote: »

The change from RPI to CPi index linking doesn't seem significant but using the current figures of 5.1%(RPI) and 3.4%(CPI) a person who retires on a £7k pension in 20 years time will be on £13.6k instead of £18.9k a loss of 27%. A cumulative loss of £43k over 20 years. Someone retiring on £20k after 20 years is on £39k instead of £54k. The accumulative loss is £123k over 20 years.

The average difference between RPI & CPI over the last 20 years is 0.7%, (0.56% net of tax). Over 20 years this compounds to about 11%net - someone on £7000 it will 'cost' an average of £350pa. Costs will be lower in the early years and higher in the later years when pensioners tend to spend less money but use a lot more public services (ie NHS). This seems emminently reasonable.

The one's who pay the most are those who've benefitted from early public service retirement age and those with the largest pensions. Again this seems very fair.

LindsayO

Old_Slaphead wrote: »

The average difference between RPI & CPI over the last 20 years is 0.7%, (0.56% net of tax). Over 20 years this compounds to about 11%net - someone on £7000 it will 'cost' an average of £350pa. Costs will be lower in the early years and higher in the later years when pensioners tend to spend less money but use a lot more public services (ie NHS). This seems emminently reasonable.

The one's who pay the most are those who've benefitted from early public service retirement age and those with the largest pensions. Again this seems very fair.

how does ill-health retiral figure into this? what about people forced to retire early due to ill-health, who can't work, still have mortgages to pay? does their loss with the switch from RPI to CPI seem fair?