RPI to CPI Early Day Motion 1032

Stargazer57

But JamesU's argument was based on hardship. My point is that even someone with an average public sector pension is better off than most of the population, and better off in pension value than they thought they would be when they started work. Where's the hardship in that?

The analogy with the pay cut doesn't work because these pensions are still more valuable than employees ever thought they were. For example NHS workers are told their pensions are worth an employer contribution of 14% of pay. The truth is that they are worth about double that. So there's a free gift of about 14% of pay, some of which is now being clawed back.

SnowMan

Stargazer57 wrote: »

The analogy with the pay cut doesn't work because these pensions are still more valuable than employees ever thought they were. For example NHS workers are told their pensions are worth an employer contribution of 14% of pay. The truth is that they are worth about double that. So there's a free gift of about 14% of pay, some of which is now being clawed back.

No. The pensions are exactly the same as what employees thought they would be (at least until these cuts). The employee expected to get a pension of x per annum, and they entered into a contractually binding agreement to get x per annum with their employer. They shook hands metaphorically and the deal was done.

The employer benefited from contribution holidays when surpluses arose (which they were entitled to do) and are now picking up the extra cost now there are deficits in the scheme, but that was the nature of the deal.

But the promise was always to provide a pension of x per annum not to put 14% of pay into the scheme. Failure to understand that is a failure to understand final salary schemes.

Now I would agree that public sector pensions are unaffordable and personally think they need to be cut back for future service or even terminated for future service. Otherwise there are two classes of workers, those private sector workers without a final salary scheme and public sector workers with a generous final salary scheme.

However that does not justify breaking promises for PAST service.

To continue the analogy earlier if my employer says SnowMan we are going to have to cut salaries from now on because times are hard that is probably reasonable and fair albeit it may cause me problems, if they say we will retrospectively cut your salary that is obviously unreasonable.

Pensions are a form of deferred pay after all.

JamesU

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.

Not hypothetical, real examples from people on 1/80 x No of years x final salary, with deferred pensions at present in the region of £4-5K increasing in line with RPI.

Agree that the deferrred pension value will have definitely increased more than 26% during employment (increases in salary and RPI increases) and upon deferrment (annual RPI increases). But your point is not really relevant as these increases were the contractual agreement between employer and employee.

Stargazer57 wrote: »

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.

This switch from RPI to CPI effects private and public sector workers, not just public sector workers, as I have already mentioned in my previous post. Regarding payment on the public sector side, it has not been paid for by taxpayers yet (but should/will be in the future) as the pensions are deferred. The whole point is that there are now attempts to reduce the amount that will be paid. For sure, agree that the accrual rate is/was favourable and may indeed lead to a higher than average final pension (whatever this really is). But they were the contractual terms and it is outrageous to try and change or reduce these obligations on past employment retrospectively irrespective of the fact you may consider them to be unfair. The employees worked and received their salary and are entitled to receive their future benefit accordingly. If an employer/Government feels future obligations are now unaffordable, that is not the fault of the employee. For sure, ammend pension arrangements for current employees according to affordability (leaving in place their accrued rights to that date), they then have the choice to accept these or move on. But for previously employees with deferred pensions there is no reasonable justification for this.

Stargazer57 wrote: »

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

Thats entirely up to the individual really. As far as I am aware there is no legislation in place which defines what people should do with 20 years of their life.

JamesU

JamesU

Stargazer57 wrote: »

But JamesU's argument was based on hardship.

My argument was not about hardship. OldSlaphead mentioned people with higher pensions may be effected more, and those on smaller pensions less. As in the previous post, I tried to clarify this properly with the calculations to demonstrate the fact the switch form RPI to CPI will have a significant effect on people with modest pensions, and that this will effect them disproportionately relative to those on higher pension provision. Sometimes terms such as "fat cat", "gold-plated" etc are loosely bounced around in conversation and reference to these should be differentiated from those public sector workers that are actually on modest pensions and do not fall into this category.

Stargazer57 wrote: »

My point is that even someone with an average public sector pension is better off than most of the population, and better off in pension value than they thought they would be when they started work. Where's the hardship in that?

No hardship in that as discussed above.

Stargazer57 wrote: »

The analogy with the pay cut doesn't work because these pensions are still more valuable than employees ever thought they were. For example NHS workers are told their pensions are worth an employer contribution of 14% of pay. The truth is that they are worth about double that. So there's a free gift of about 14% of pay, some of which is now being clawed back.

Afraid I do not agree with your reasoning here. The pensions received in the future are what employees are contractually entitled to receive. It does not matter if the employees' perceived value of the future pension is greater or lower. And the employer does not have the right to claw back entitlements from past employment. I was not trying to make any analogy, just a statement of fact. A switch from RPI to CPI will reduce a modest deferred final salary pension by 17% over 20 years, and by 26% 10 yrs into retirement, and unless you can find anything wrong with the calculations, this conclusion is correct.

JamesU

Stargazer57

JamesU wrote: »

Agree that the deferrred pension value will have definitely increased more than 26% during employment (increases in salary and RPI increases) and upon deferrment (annual RPI increases). But your point is not really relevant as these increases were the contractual agreement between employer and employee.

My point wasn't about the amount of the pension, which has obviously increased for the reasons you mention, but the value of any given deferred pension. It is this that has doubled in the last 15 years due to longevity and changes in the value the market puts on guarantees. This increase has been concealed by the previous government and will be paid by the taxpayer even though the member is unaware of it. Even here, on a forum with some expertise, I have to repeat the point before you understand it. Show me what the taxpayer has got in return for this doubling in value. If they have got very little, as I suggest, I can't see that there is a strong moral case for the pension scheme members to hold on to it all. Even after the RPI to CPI change they will still be much better off in terms of the value of their pension (not the amount) than they ever expected to be while they were working.

JamesU wrote: »

As far as I am aware there is no legislation in place which defines what people should do with 20 years of their life.

There's no law but you do have to consider this if you are trying to claim that they are suffering some sort of hardship due to the small size of their pension.

Old_Slaphead

JamesU wrote: »

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?

JamesU

The pension would not be reduced - just increased at slightly less than RPI.

According to ONS stats the differential is 7.6% over 10 years and 13.8% over 20 years.

My mother (were she still alive) would have been receiving approx 14% less in her 80s (ie approx £330pa - the net effect would be less if that income was taxable) when her income requirements were significantly diminished. This would have been compensated by the 'free' TV licence, additional winter fuel payment and free bus pass (which she never had).

Anyway I've no issues with the low-pensioned getting decent increases (what about all those in the private sector who don't get such benefits ?) - my issues are those on above average payouts who retire at 50/55/60 and expect guaranteed taxpayer support for many, many years when they've actually contributed relatively little to their own retirement.

nb - people in FS schemes are usually only on modest pensions if they have not worked in that employment for long.

Ripoff_2

I have read many of these posts and find that several of you are mixing up the four main pension issues we have here. I know there are all sorts out there but these I think are the main ones.

1) State pensions
2) Public Sector Pensions
3) Private Sector pensions Defined Benefits and Defined Contributions
4) Private Sector pensions DB like BT which were once ExPublic Sector now long since been privertised.

In order to fully understand the impact of this change you do really need to deal with each one of these different pensions separately.

Some of you are mixing up what is a taxpayer liability and the ones that are employer liability, thus the arguments are getting a little confused. If you keep to the four different pensions when addressing your points then it will keep it clearer.

For Example Pension type (4) is not taxpayer funded and is a contract between the employer and the employee, fully funded by employer. Type (2) are part taxpayer and part employee, Type(1) is all tax payer. This does make a great deal of difference to the argument and the justification and effect this change has on each type.

Ripoff_2

To all BT and other simliar schemes you may think about joining the NFOP because they offer legal advice as well as other benefits. It's £15 per year till 1st Jan then it's going up to £18 pa. So join before and you save money, worth a look at the web site at least.

nfop.org.uk

Just passing on the info to assist you.

JamesU

Stargazer57 wrote: »

My point wasn't about the amount of the pension, which has obviously increased for the reasons you mention, but the value of any given deferred pension. It is this that has doubled in the last 15 years due to longevity and changes in the value the market puts on guarantees. This increase has been concealed by the previous government and will be paid by the taxpayer even though the member is unaware of it. Even here, on a forum with some expertise, I have to repeat the point before you understand it.

The point you are making is of course correct technically i.e. the deferred pensions are increasing in a compounded manner based on RPI which is what the employee expects, and which the employer has a contractual obligation to meet. But any concealment of the real future cost of meeting the deferred pension obligation is the reponsibility of the employers/trustees/government in the private and public sectors. It is not the employees' responsibility (i) to be aware of this concealment (ii) to understand the real costs involved and (iii) to have the burden shifted on to them to meet this shortfall by reducing their pension entitlements based on past work. As in previous post, I see no reason why ammendments cannot be made to existing contracts to reduce those pension entitlements for exisiting employees when that are considered unaffordable, provided this is not retrospective. Then the employee decides whether or not to accept these changes. I do understand your point and there is no need to repeat it. I just feel the point you are making relates to the failings of the pension providers and/or Government and it is not past employees' responsibility to be burdened with this through reduced pension provision.

Stargazer57 wrote: »

Show me what the taxpayer has got in return for this doubling in value. If they have got very little, as I suggest, I can't see that there is a strong moral case for the pension scheme members to hold on to it all.

Obviously the taxpayer will have nothing in return when employment ceases and the deferred pension is in place and starts to increase in value (irrespective of the size of the increases). The real point is that this pension increase is being received for the past work already undertaken, and that is why the previous employee is entitled to "hold on to it all". It is the benefit the employee is contractually entitled to, and I see no moral case against the employee which needs to be answered. If anything, I think employees have a much stronger moral case based on the fact employers do not have the right to renege on employees' past contractual entitlements.

Stargazer57 wrote: »

Even after the RPI to CPI change they will still be much better off in terms of the value of their pension (not the amount) than they ever expected to be while they were working.

I am not sure how this point is relevant. The real contractual pension entitlements stand irrespective of the employee's perception of their future pension as mentioned in my previous post. If the current or future intrinsic value of their pension is actually higher than the employees' expectation at the time they were working (which may or may not be the case), so be it, it is still their entitlement. This reasoning based on employee perceptions is certainly insufficient justification for reducing their pension entitlements.

Stargazer57 wrote: »

There's no law but you do have to consider this if you are trying to claim that they are suffering some sort of hardship due to the small size of their pension.

As mentioned in last post, I did not say there was an issue of hardship, so there is nothing to consider here.

JamesU

Prof_as_was

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.

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.

Just to offer an interesting example by way of confirmation (originally brought to notice (mine anyway) by one G Gardiner posting on BBC Peston's Picks 4 Aug 2010.)

From Lloyds interim results, Aug 2010, page 104:

[FONT=&quot]"During the first half of 2010, the Group implemented a change to the terms of its principal UK defined benefit[/FONT]
[FONT=&quot]pension schemes. As a result of this change all future increases to pensionable salary will be capped each year[/FONT]
[FONT=&quot]at the lower of: Retail Prices Index inflation; each employee’s actual percentage increase in pay; and 2 per cent of[/FONT]
[FONT=&quot]pensionable pay. The effect of this change was to reduce the Group's retirement benefit obligations recognised on[/FONT]
[FONT=&quot]the balance sheet by £1,019 million with a corresponding curtailment gain recognised in the income statement." [My italics]
[/FONT]

[FONT=&quot][/FONT]
[FONT=&quot]Let me recognise, before I am told to, that this is not a conversion from RPI to CPI, just a declararation of intent to go lower than RPI at opportunity, immediately acted upon; and that that Lloyds is an interesting case, because just at the moment Joe Public is a considerable shareholder. But as an illustration of Ripoff's general point, its valid, clear, and candid. From a bank.
[/FONT]

[FONT=&quot][/FONT][FONT=&quot][/FONT]
[FONT=&quot] [/FONT]