Cpi - rpi Final Salary Schemes

exil

I have a feeling that both this and the previous government have more or less given up on the concept of retirement. You will be expected to work on until you consider you have enough of a "hump" to live on until you meet the grim reaper. In theory rules will be changed so your employer can't get rid of you just because you reach a certain age but the howls of protests about this from employers' organisations suggest the older worker will face a constant battle to prove he/she is still up to the job once they reach their 60s.

markr007

I have a feeling that both this and the previous government have more or less given up on the concept of retirement. You will be expected to work on until you consider you have enough of a "hump" to live on until you meet the grim reaper. In theory rules will be changed so your employer can't get rid of you just because you reach a certain age but the howls of protests about this from employers' organisations suggest the older worker will face a constant battle to prove he/she is still up to the job once they reach their 60s.

I think you may be right but also that this approach may be right.

1. We are living longer as a nation so something has to be done.
2. When pensions were introduced they were for people no longer able to work (the first was payable from age 75 when life expectancy was 40 something!)
3. We have had a golden generation of good pensions and healthy retirements - the nation now seems to view this as a right and retirement being a time to do all the things you didn't have time for when working, this is wrong.
4. Life expectancy is increasing quicker than healthy life expectancy

I think we are heading towards a time where pensions fade away and we just have long term incapacity benefit - no matter what your age. If pension age is just increased further then some workers will be left in a position where they can't work and can't retire. The more it goes up, the more this will be the case until eventually incapacity benefit is all we have left.

MikeJones_2

Hi mark007,

markr007 wrote: »

...4. Life expectancy is increasing quicker than healthy life expectancy...

Indeed, this is a very real issue.

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.

Debt_Free_Chick

No-one can be certain what Steve Webb's Parliamentary Statement will mean. Options are that relevant parts of the legislation (principally s 51 of Pensions Act 1995 for pensions in payment and the Pension Schemes Act 1993 for deferred pensions) will be amended, so that (current) references to RPI will be changed to CPI.

That alone may not be sufficient to allow pension schemes to make the change. Challenges for schemes are "do the Rules specifically state RPI or simply refer to statutory increases" and "what about the legislation which states that accrued pension rights can not be changed?"

And this only refers to statutory pension increases. Individual schemes may award distinct increases as described in the rules - it's almost certain that Government can't introduce legislation that will have the effect of auto-amending (or overriding) every set of pension scheme rules in the Country.

Amendments to scheme rules usually require both the trustees and the company to agree. Companies may well have the balls to make the change, but trustees may be more challenged if the change is likely to result in a deterioration in members' benefits.

The pensions industry thinks that Steve Webb's statement is laughable, as what is intended can not be achieved in practice. There may be some back-pedalling on this, so "sit tight, wait & see" is probably the only option.

jingleberry

spenderdave wrote: »

Many thanks for posting that link. This clarifies that for pensions in deferment, like mine, the change is NOT retrospective and all accrued RPI indexing, up to and including 2010, will be unaffected.

...

But surely any change to the rate that an existing pension pot will increase in the future is still retrospective. You have chosen to contribute to your pension (and made other financial decisions) in the expectation that it will grow at RPI in the future.

To be equitable, existing pension benefits should be ringfenced from any change. The benefits that accumulated prior to the change must continue to grow at RPI or whatever rate is specified in your pension contract. Any pension that you choose to contribute to after the change could grow at CPI, or any other rate, so long as you know what to expect before making contributions.

MikeJones_2

Out this morning, Guidance for Trustees:

Statement by The Pensions Regulator - The Consumer Prices Index (opens a 2-page pdf)

'Trustees should plan to communicate with members on the impact, as soon as possible, once known, even if the impact is likely to be negligible. They should also give serious consideration to an interim communication, to assist members who may be faced with decisions on transfers or retirement planning, or may be concerned about press coverage.'

Link Permission: None identified

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.

LindsayO

MikeJones wrote: »

Hi LindsayO,

Just off out now, but will reply by tomorrow morning in this window!

Mike

hi mike, just wondering, did I miss a link somewhere?

MikeJones_2

LindsayO wrote: »

hi mike, just wondering, did I miss a link somewhere?

Oops! Apologies, I forgot you Lindsay. I'll add my comment, as promised, later on today, if that's okay. A lot of water has passed under the bridge since the original announcement informing of the change in index.

Mike

LindsayO

thanks Mike, I'm in USS, which is under review and has changes due to come in on April 1st. I am also coincidently in poor health and unlikely to be able to continue working, having already gone to part-time and still not coping. So I'm trying to assess what my best options are, and I'm considering taking no lump sum for maximum pension, but I'm worried about the long term health of my pension company

MikeJones_2

Hi Lindsay,

LindsayO wrote: »

Mike, I'm interested in your opinion on this: in what sense might it backfire?

My view of the original announcement (12 July 2010 – Statement on moving to CPI as the measure of price inflation © Crown copyright 2010) is that the move was initially and intentionally designed to help employers who sponsor pension arrangements for employees.

Where CPI is lower than RPI this would potentially lower costs incurred by sponsoring employers for several reasons, such as (but not confined to):

(i) lower increases to preserved pensions of defined benefit type schemes
(ii) lower increases to pensions in payment
(iii) lower assumptions used in calculating scheme liabilities.

However, CPI has been higher than RPI for 6 out of the 21 years since September 1988.

The problem, eloquently highlighted by Debt_Free_Chick above, is that the proposals as they stand might lead to unintended consequences for many schemes. This is particularly so where Scheme Rules specifically cite ‘RPI’ rather than 'statutory increases' or such similar terminology.

Furthermore, sponsoring employers who would wish to avail themselves of the proposed changes may find themselves in conflict with Trustees who will be inclined to seek legal opinion on the proposals. I'm specifically thinking out aloud here in terms of the millions of scheme members with preserved benefits who will 'suffer' as a result of a change to 'promised' benefits (re: pension increases to preserved benefits, technically referred to as revaluation) – and whether the proposals, if they proceed as they stand, could be argued to breach Section 67 of the Pension Act 1995 (modification of past service rights).

However, I have seen a comment in another forum that argues the technicalities that 'revaluation' (pension increases between when a scheme member ceases to be an active member and when he draws his benefits) is only ‘granted’ at the date benefits are taken, so in that respect no 'promises' would be broken if the proposal goes ahead. I won't go any deeper into this specific argument but I can see the point.

Other comments I have seen are that the proposals may require a regulatory impact assessment, whilst there might also be lobbying by pension groups for a full consultation.

Finally, counter to all of this was another comment I've read which argued quite convincingly that from a legislative perspective nothing that was suggested in the DWP proposal had any legal uncertainty (but acknowledged potential difficulties may lie ahead with each scheme seeking to clarify its own position). Hence, The Pension Regulator’s comments today.

In terms of ‘backfiring’, I simply believe the well-intentioned proposals were hastily conceived. In over 25 years of being in pensions, I can tell you that nothing is as simple or as straightforward as one might initially perceive. Like a ‘house of cards’, take one away without due care and you’re just as likely to topple several more cards. This was never better highlighted than with ‘Pension Simplification’ (also known as A-day) most of which became effective in April 2006. This ‘easement’ acted only to further complicate the subject of pensions which now drowns in over 6,000 pages of legislation, rules and regulations.

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.