RPI to CPI Early Day Motion 1032

Old_Slaphead

Ripoff wrote: »

It's £100bn over 15 years, and it's higher dividends to the shareholders from the savings, read the article where fund managers are advising investors to buy BT shares, now I wonder why they are doing that????

No it's not - the £100bn quoted covers the whole of the final salary pension industry (mainly public sector).

You yourself quoted the total loss due to RPI/CPI as £80bn a few months back.

The BT pension fund is only worth around £35bn - use some logic - how can saving say 1%pa over the next 15 years be worth £100bn ??????? As suggested in the Observer - total savings to BT might be as much as £4bn and even then it's pumping £525m pa to support the scheme.

As for stockbrokers recommendations (and they'll always push company in the news - that's their business - selling shares) the share price fell yesterday !!! And also remember how shareholders have fared over the last 10 years. In 2000 the share price was £10-£15 now they're £2. The shareholders (and I am not one) have hardly been milking it have they?

hugheskevi

No it's not - the £100bn quoted covers the whole of the final salary pension industry (mainly public sector).

You yourself quoted the total loss due to RPI/CPI as £80bn a few months back.

I don't agree that the £100bn reference includes public sector.

£100bn is consistent with estimates of private sector reductions in liabilities and there is no reason to think investors would benefit from a windfall as a consequence in a reduction in unfunded public sector pension liabilities (except benefitting indirectly as everyone else does through lower general taxation/lower borrowing/higher spending).

The DWP estimate the private sector impact to be £83bn in this Impact Assessment.

According to ONS data in Pension Trends the liabilities of unfunded public sector schemes and the funded Local Government Scheme are £929bn.

The Hutton Report estimated that the change to CPI had reduced benefits by an average of 15%. So taking 15% of £929bn gives £139.35bn.

Add that number to the £83bn and you get a total impact across both public and private sectors of the change of £222.35bn.

It is worth noting that the liability estimates are often considered to be an underestimate due to the discounting methodology used. Also, since these reports were prepared, the Office for Budgetary Responsibility has revised its expectation of the gap between RPI and CPI to 1.2% in the long run due to changed sampling methodology for clothing in data collection for the inflation statistics. As such, the £222.35bn is likely to be an underestimate of the total impact.

Ripoff_2

Old_Slaphead wrote: »

No it's not - the £100bn quoted covers the whole of the final salary pension industry (mainly public sector).

No it does not, it's only the private sector. The public sector is a seperate saving of, the figure I saw was £525bn over 15 years but that was some time ago, it's more than likely more than that now.

I quoted £83bn at the last count you are correct and since then the variance between RPI and CPI has grown to about 1.2% hence the £100bn figure. I concede that not all the £100bn will be BT but from the private sector as a whole but it still doesn't change a thing, the shareholders of BT and other private companies are gaining directly from private pensioners....it's still WRONG and it's still Day light Robbery and it needs to be put RIGHT. It's a betrayal of accrued rights and the whole pension ethos.

Old_Slaphead

hugheskevi wrote: »

I don't agree that the £100bn reference includes public sector.

£100bn is consistent with estimates of private sector reductions in liabilities and there is no reason to think investors would benefit from a windfall as a consequence in a reduction in unfunded public sector pension liabilities (except benefitting indirectly as everyone else does through lower general taxation/lower borrowing/higher spending).

The DWP estimate the private sector impact to be £83bn in this Impact Assessment.

According to ONS data in Pension Trends the liabilities of unfunded public sector schemes and the funded Local Government Scheme are £929bn.

The Hutton Report estimated that the change to CPI had reduced benefits by an average of 15%. So taking 15% of £929bn gives £139.35bn.

Add that number to the £83bn and you get a total impact across both public and private sectors of the change of £222.35bn.

It is worth noting that the liability estimates are often considered to be an underestimate due to the discounting methodology used. Also, since these reports were prepared, the Office for Budgetary Responsibility has revised its expectation of the gap between RPI and CPI to 1.2% in the long run due to changed sampling methodology for clothing in data collection for the inflation statistics. As such, the £222.35bn is likely to be an underestimate of the total impact.

The impact assessment is £83bn over 60 years or say £20bn over next 15 years.

Your comment re. Hutton report - starts year 1 at 1% and only reaches 15% at year 15 - ie an average of approx 7.5%. That's £70bn (based on your figures)

Total about £90bn for public & private, according to your posting, over 15 years.


Looked at another way - total combined private & public sector pension liabilities are around £2tr. If that represents say an average of 20 years accruals then around £100bn will be paid out each year (obviously this is a very big assumption) . Total savings will be of the order of £1bn yr 1 £2bn yr 2 etc. By the end of year 15 the accumulated savings will be circa £120bn.

Old_Slaphead

Ripoff wrote: »

No it does not, it's only the private sector. The public sector is a seperate saving of, the figure I saw was £525bn over 15 years but that was some time ago, it's more than likely more than that now.

I think you're getting confused.

Total public sector pension liabiltity is around £1trillion so it's extremely unlikely that saving 1%pa on payout will generate anything remotely close to £525bn (more like £52.5bn)

The annual saving to BT at a £200mill will not make it a raging 'buy' on the stockmarket no matter what the brokers say. Maybe it will allow them to increase their charges a little less steeply in future however.

hugheskevi

Your comment re. Hutton report - starts year 1 at 1% and only reaches 15% at year 15 - ie an average of approx 7.5%. That's £70bn (based on your figures)

The Hutton Report states (page 9) "This change in the indexation measure may have reduced the value of benefits to scheme members by around 15 per cent on average."

As the value of benefits is, by definition, the liabilities that is a reduction of 15%, or £139bn.

Total about £90bn for public & private, according to your posting, over 15 years.

I don't understand why you would want to put everything in 15 year terms. You can make an argument that they have time to adjust to the loss, but that doesn't change the fact that they have lost pension.

Many of the worst affected by the change in pure monetary terms will be those aged about 40-45. That group are old enough to have built up decent pension rights, but still far enough away from Normal Pension Age for revaluation based on CPI to erode the value (relative to RPI) of their pension.

Yet if you just look at cashflows over the next 15 years, this group are unaffected as they wouldn't actually be receiving their pension during this period. So despite suffering a loss in value of well in excess of 15%, they would be deemed to not have lost anything at all on a 15 year measure.

I'm not sure I understand the logic behind your £222bn as both components seem to relate to public sector - tho' having not read the full Hutton Report I may well be wrong.

£83bn relates to private sector, which includes many formerly public sector companies.

£139bn relates to unfunded public sector pensions and Local Govt.

Looked at another way, the DWP has assessed the loss to private sector pensions as £83bn. That is with 80% of scheme members moved to revaluation based on CPI and 20% of scheme members moved to CPI for indexation.

In the public sector 100% of members have moved to CPI for both revaluation and indexation. And of course there are a lot more Defined Benefit members in the public sector. Therefore, it is inconceivable that the loss in public sector pensions is any less than the £83bn loss in private sector pensions. So a figure around the £200bn mark to cover both public and private sector is around the right ballpark.

Old_Slaphead

hugheskevi wrote: »

I don't understand why you would want to put everything in 15 year terms.

Because my comments related to an article in the Guardian quoted RipOffs post #978 and I am disputing RipOff's interpretation of these figures......I didn't choose the timeframe. If you want to introduce a whole new set of financial criteria (ie timeframes) when commenting on my post (ie your post #983) then please make it clear.

The article said the pensioners would lose out by £100bn over next 15 years due to shift from RPI to CPI indexing. RipOff seemed to think that all of this related to BT pensioners whereas I suggested that it covered all public/private FS schemes and have offered some fairly crude figures to support this.

The 3rd quote from me in your posting - I quickly realised my error and deleted it - unfortunately not before you commented on it - you were a bit too quick for me, sorry!

Ripoff_2

Old_Slaphead wrote: »

I think you're getting confused.

Total public sector pension liabiltity is around £1trillion so it's extremely unlikely that saving 1%pa on payout will generate anything remotely close to £525bn (more like £52.5bn)

I believe the £525bn I quoted includes benefits and public sector pension savings and the term may well have been longer than 15 years but lets assume my memory has let me down and ignore that figure because I can' find the source document, I have tried but with no success.

Below are the Treasury's own figures for 4 years savings. As you can see the saving is compounded each year and this will continue year on year. So after, say 40 years the saving is even greater, I can't be bothered to do the maths but it's big numbers.

One question that has never been answered however is "How do public and affected private sector pensioners afford care costs in later life if their private pension reduces over time?"

We know the reduction is compounded, just like the savings, the longer they live the more they lose. At exactly the same time, when their income is at it's lowest, is exactly when they will need to fund care costs". i.e. The older they are the less income they recieve due to the compounding effect.

They no doubt will have to rely on the state (tax payer). So the proposed savings to the state (tax payer) will actually be swallowed up by care costs for the pensioners who now will not be able to afford them.

It's obvious to me that if the pensions do not keep up correctly with inflation, true inflation (RPI), then something has to give and ultimatley pensioners, you and I, will need looking after as we grow older. The reduced income over time is the problem and hence why the Government has a duty to maintain the level of income that keeps up with inflation, this change does not do that.

Time will tell how severe the crisis will become when public/private pensioners can't afford to live and support themselves but that day will come with the change from RPI to CPI indexing. Unless, the State pension is greatly increased to offset the loss. I can't see that happening though. But if it did then the proposed saving would not really be a saving because it would be paid out in higher state pensions.

This is not an easy subject to understand or to fully apprieciate the implications over time but there will be many implications of this policy change and some may not show for many years.

According to the Treasury's figures, switching the index would save the Exchequer £1.17 billion in 2011/2012, £2.24 billion in 2012/13, £3.9 billion in 2013/14 and £5.84 billion in 2014/15.

Old_Slaphead

Ripoff wrote: »

According to the Treasury's figures, switching the index would save the Exchequer £1.17 billion in 2011/2012, £2.24 billion in 2012/13, £3.9 billion in 2013/14 and £5.84 billion in 2014/15.

Better make it crystal clear RipOff. Your thread has been devoted to the effects on changes in FS pensions caused by a change from RPI to CPI.

The figures you're quoting as Treasury savings relate to the effects of ALL benefits, tax credits etc being reduced, the effect on pensions will be considerably less.

http://citywire.co.uk/new-model-adviser/consumer-price-index-switch-will-save-treasury-13-billion/a408955

Ripoff_2

Old_Slaphead wrote: »

Better make it crystal clear RipOff. Your thread has been devoted to the effects on changes in FS pensions caused by a change from RPI to CPI.

The figures you're quoting as Treasury savings relate to the effects of ALL benefits, tax credits etc being reduced, the effect on pensions will be considerably less.

http://citywire.co.uk/new-model-adviser/consumer-price-index-switch-will-save-treasury-13-billion/a408955

They do you are right but what I was trying to show in the figures is how the compounding effect works. I don't have the figures for just FS public sector pensions at hand but the effect is exactly the same. It's not the actual figures that are so important but how the change causes a loss which is compounded as time goes on. These figures show that and as they are treasury figures I thought they would be better accepted as fact and therefore the effects would be indisputable as they clearly show the exponential effect and why the change is so detrimental to pensioners income over time.