RPI to CPI Early Day Motion 1032

Old_Slaphead

Prof_as_was wrote: »

[FONT=&quot]BBC news website 9 Dec 2010[/FONT]

[FONT=&quot]Defence firm BAE Systems has said it is planning to shed almost 1,400 jobs - mainly as a result of cutbacks made in the government's Spending Review.[/FONT]

For info, the object of the forum is to discuss the thread topic and not make one line comments which don't, without explanation, seem to have any relevance.

Would you clarify what point you are trying to make and does it relate to the rpi/cpi debate ?

Ripoff_2

BT Private pension scheme or similar schemes (ExPublic Sectors) and ALL Private DB schemes not linked specifically to RPI.

At the following location on the DWP web site there are two documents 1) Consultation 2) Impact Assessment

Dwp.gov.uk/consultations/2010/cpi-private-pens-consultation.shtml (copy and paste into IE)

If you are in any doubt whether what has been said on this subject on this forum I suggest you read the Impact Assessment document page 2. I quote

COSTS: Main Affected groups: COST Best estimate £76.6 billion
"The main cost of this policy is to members of private sector DB pension schemes who will see the anticipated value of their pension rights reduced and the value of their total remuneration package reduced in the short term".
(Note: Short Term is 15 years)

BENEFITS: Main affected groups: BENEFIT Best Estimate £76.6 billion
"The main benefit of this policy is to sponsors of DB pension schemes who will see the value of their pension liabilities reduced and the cost of the total remuneration package for their employees reduced in the short term." (Note: Short term is 15 years)

Non-monetised Benefits:
"Some pension schemes may become more sustainable or affordable due to the reduction in pension scheme liabilities. The impact of company accounting standards will mean that the reduction in pension scheme liabilities is reported transparently and may have a beneficial impact on companies with substantial DB liabilities – for example improved credit ratings and ability to pay dividends."

So now we have the true reason in black and white, take the money from the pensioners of DB private schemes and give it to the employers so they can pay dividends to share holders and have a better credit rating. This is after many employers of DB private schemes had pension holidays, when the going was good and have changed their schemes to career average with reduced benefits, but now the pensioners will have to pay for shareholders and credit rating improvement to the tune of £76.6 billion.

Hence why I have always said this change is deception and theft.
This is aside to the public sector pensioners who will also be hit very hard. If you read the document fully you will see that the hardest hit are deferred members and existing employees. The reduction is –20% over time.

Steve Webb has signed off on this, so there is no doubt that he is fully aware that this policy is taking from the workers and giving to the employers.

Goldenyears

In the case of public sector pensions I want to return to what the actual rules say about uprating, in particular to the Principal Civil Service Scheme that many are based on.

Hughskevi rightly pointed out many posts ago that the scheme rules trump the scheme guides. But then he said the uprating in the rules is governed by legislation such as the Social Security Pensions Act 1975 without specific reference to RPI. The current PSCS rules actually refer to both, but I think the 1975 Act reference is to uprating salary of a returning employee. The RPI references are quite specific in Section 1.13 (February 2010 rev).

Having said all that, the rules can be easily changed anytime just by the replacement of "retail" with "consumer".
I am not a pension expert, just an interested pensioner.

Prof_as_was

Old_Slaphead wrote: »

For info, the object of the forum is to discuss the thread topic and not make one line comments which don't, without explanation, seem to have any relevance.

Would you clarify what point you are trying to make and does it relate to the rpi/cpi debate ?

Sure. In two recent posts I have quoted some points made by you from Planet Zog - I wasn't too sure myself, here on Planet Earth, about their relevance, but you must be, so that answers the relavance points, I hope. I was just questioning/disputing/refuting/arguing with them, as you do.

I'm usually a painfully long-winded old !!!!!!, so I was quite pleased with the the brevity, concision, and, I thought, clarity with which I did so. Must have been wrong on the last if you didn't get it. To be clear then - I was suggesting you might be wrong, on the some of the points you were making. Sorry if I caused you any distress by that.

Andy_L

Goldenyears wrote: »

In the case of public sector pensions I want to return to what the actual rules say about uprating, in particular to the Principal Civil Service Scheme that many are based on.
<snip>

Having said all that, the rules can be easily changed anytime just by the replacement of "retail" with "consumer".
I am not a pension expert, just an interested pensioner.

Only for accrual going forwrds, otherwise its a change to accrued benefits which, under separate legislation, requires the agreement of the civil service unions which, lets be honest, is unlikely

Old_Slaphead

Ripoff wrote: »

Hence why I have always said this change is deception and theft.
This is aside to the public sector pensioners who will also be hit very hard. If you read the document fully you will see that the hardest hit are deferred members and existing employees. The reduction is –20% over time.

But they can do what the rest of us do when they find that their pension is unlikely to meet expectations - make contributions to their own pension plans or AVCs.

Should be much more profitable now because , as you say, private companies can make shedloads more money through not having to pay so much into their employees pension plans - and can make big divident payments to their shareholders who are - errr, mainly pension funds.

Recently Anne Eagles said that the average public sector pension was £4000. If that's the case and the average RPI shortfall against CPI is 0.7%pa. Over 20 years it should average 7% or £280pa - roughly the equivalent of the government stopping the winter fuel allowance.

JamesU

Old_Slaphead wrote: »

The main losers will be those on very good pensions and those who've benefitted from a low retirement age ie most "public servants" - the effect of those with modest pensions will be negligible.

Slaphead, this is not entirely correct. Steve Webb mentioned in his Parliamentary speech over the last ten years the differential between RPI and CPI was 0.8% (RPI average 2.8%, CPI average 2.0%) so lets stick with that number.

So for somebody on a £4000/yr deferred pension and retiring in 20yrs time:

Assuming CPI = 2.0%, £4K compounded over 20yrs = £5944
Assuming RPI = 2.8%, £4K compounded over 20yrs = £6949

Differential is (6949/5944) = 17% reduction in income

Over 30 yrs (i.e 20 years before retirement then 10 years into retirement):

Assuming CPI = 2.0%, £4K compounded over 30yrs = £7245
Assuming RPI = 2.8%, £4K compounded over 30yrs = £9159

Differential is (9159/7245) = 26% reduction in income

I do not think it is justifiable for public or private sector workers on such modest final salary schemes to face a 17% reduction in income at retirement, rising to 26% reduction in income 10yrs into retirement. These are not "gold plate, fat cat" pensions, and lower income pensioners are going to suffer badly from this government intervention. And the maths works the same irrespective of whether it is private or public sector pensioners. This governmental tinkering of RPI/CPI effecting modest deferred pensions is an absolute disgrace.

Closer to home, you mentioned your own family member's pension of £200/mth which equates to £4800/yr, and which is hardly a fat cat pension is it? How would you feel if that £200/mth was reduced by 26% of its value leaving around £150/mth instead?

The effect on those with modest pensions will be very significant. In fact, far more significant because on an modest income one cannot afford an approx 25% pension income cut, whereas a "fat cat" with a "gold plated" pension on say £50K/yr will still be able to afford the odd luxury on £37.5K/yr.

JamesU


PS: if any of the maths is in error please let me know and I will correct.

SnowMan

Of course public sector workers will lose out badly but private sector workers who have been members of final salary schemes will lose out also.

76.6 billion is an awful lot of money to transfer from people's pensions to employers. It does not seem right to me that the state should interfere in what is a past private arrangement between employees and private employers. The government seem to be acting as a middleman in this theft of people's pensions by employers.

While today's announcement effectively says the government won't provide the getaway car, the government are nonetheless strongly endorsing the theft. I don't blame the employers but I do blame the government.

Very few will understand the technical reason which underlies the theft, that CPI is not as good a measure of inflation as RPI because of the unjustifiable switch from the arithmetic to geometric average in the calculation method. As a result using CPI is simply just a means to increase benefits by less than the true rate of inflation.

I suspect that the real losers will be the most vulnerable people in society. People who have little savings but are relying on their private company or public sector final salary schemes could lose thousands. The richer in society who have substantial stock market investments in UK companies (whose valuations and share prices should go up or have already gone up accordingly) will be the winners.

Ironically some of the gainers could be those with personal pensions or money purchase scheme pensions hit by Brown's stealth tax through the removal of ACT. Did that rake in in excess of 100 billion was it? Assuming they have money invested in the UK stock market then my calculations would suggest that the value of their pensions should have jumped by about 5% of what they have in the UK stock market if the 76.6 billion gain to employers materialises (based on 76.6 billion being about 5% of the total UK stock market capitalisation, sorry I may be way out there please correct me).

No doubt huge amounts of money will be spent on legal advisers looking through the small print of trust deeds and rules for each scheme. And the small print will determine which scheme members lose and which don't and it will be pretty much arbitrary.

Away from pensions other losers will be those who are having to rely on state benefits who will also see these rise in line with CPI rather than RPI.

All in all all a pretty abhorent move by the government.

Stargazer57

JamesU wrote: »

I do not think it is justifiable for public or private sector workers on such modest final salary schemes to face a 17% reduction in income at retirement, rising to 26% reduction in income 10yrs into retirement.

Assuming your hypothetical individual had 15 to 20 years service their pension will have increased in value by considerably more than 26% since it started to accrue, due to increases in longevity and rises in the cost of providing a guaranteed stream of income. This increase - which is approximately 100% - will have been paid for by taxpayers many of whom are poorer than your example public sector pensioner who appears to have been able to accrue a higher than average pension in less than half a full working career.

Then there is the question of what they will do in the 20 years between earning such a handsome pension and reaching pension age.

SnowMan

Stargazer57 wrote: »

Assuming your hypothetical individual had 15 to 20 years service their pension will have increased in value by considerably more than 26% since it started to accrue, due to increases in longevity and rises in the cost of providing a guaranteed stream of income. This increase - which is approximately 100% - will have been paid for by taxpayers many of whom are poorer than your example public sector pensioner who appears to have been able to accrue a higher than average pension in less than half a full working career.

Then there is the question of what they will do in the 20 years between earning such a handsome pension and reaching pension age.

The whole point of final salary schemes is that the employer takes the risk. It can work both ways. But at the end of the day the employer has promised to pay the employee a certain level of benefit.

If a former employer of yours came up to you and decided to retrospectively reduce your pay for your time of employment while you worked there, and presented you with a bill for say 10K as a result, and the government put in place legislation to force you to pay that bill, you would be hopping mad wouldn't you.

But that is pretty much analogous to what is happening here.