Gut-busting inflation

Rollinghome

GeorgeHowell wrote: »

...but on top of that a damaging and divisive inequality between the state and private sectors.

If by devisive you refer to the very obvious envy of many towards those in the public sector with pensions, which average just £7000 pa, then that can't be denied. Just an unfortunate side of human nature.

GeorgeHowell wrote: »

Public sector pensions became unaffordable under Labour for demographic reasons and also because Labour inflated the size of the public sector so much.

I'm not sure where the theory comes from that those recruited to the public sector in recent years could be in part responsible for a rise in the current pensions bill or what figures exist to support that idea. It seems unlikely. Those who have taken up public sector jobs within the last few years but already since retired would presumably be fairly few and based on so few years service would be entitled only to very small pensions. Sounds more like the world according to the Daily Mail.

le_loup

talexuser wrote: »

Don't you remember the first thing Brown did when Labour came to power was to grab the tax relief from private pensions

Don't you remember that what he did was take part 2 of the tax relief, part 1 having been taken by the Tories? Don't you also remember his reduction of corporation tax at the same time as well the abolition of advanced corporation tax?
Memory is a very strange thing and can be frightfully selective.
Oh! And by the way, the change in demographics, us living longer and incorrect actuarial valuations may have had just a little to do with the reduction in value of company final salary pensions. Oh! And pension payment holidays that companies took in the 80s & 90s.
But frankly why worry about such trivial detail ... the Daily Mail says it was Browns fault, therefor it must be.

talexuser

le_loup wrote: »

Oh! And pension payment holidays that companies took in the 80s & 90s.

actually I said that in my post! but why worry about such trivial detail - read your Daily Mail instead

GeorgeHowell

I can't really comment on the various references to the Daily Mail because I don't read it.

The mention of envy in this instance is misguided. I used the word divisive. In an ideal world everyone would have a decent inflation proofed pension based on their final salary or wage. The main reason that is not the case is because people are not willing to sacrifice enough during their working life to secure this in their retirement -- or at least politicians have the perception that such a sacrifice will not be made. What is completely untenable is some sectors of the economy having decent pensions funded out of taxation, and the others sectors, many of which do not, paying for it. This has nothing to do with envy, but all to do with fairness, reasonableness, and political sustainability. It is especially the case now that average public sector pay no longer falls behind that of the private sector (also funded out of taxation of course).

The more public sector workers there are the more is the overall pension liability, whether it be payable in the short or the long term.

Brown's raid on the private sector funds was not the only cause of the demise of the bulk of final sector pensions. But what it did was to give a ready excuse to employers who had already been angling at reducing their increasingly unaffordable pension liability.

I would like to see public sector pensions brought in line with most of the private sector in terms of employee contributions, retirement age etc. Would also like to see all private sector employers obliged to provide pensions broadly equivalent to those of the public sector, and all employees obliged to contribute to them. Yes it would mean lower take home pay and higher prices, but it would be for everyone's own good, whether they like it or not. And we would have a level playing field.

Many of today's younger generation might not be able to conceptualise that it is in their better interests to be able to both eat and heat their homes after they retire, than it is to have a new mobile phone, gym membership, and a skiing holiday every year now. But it is, and it's up to governments to show leadership.

Old_Slaphead

Rollinghome wrote: »

If by devisive you refer to the very obvious envy of many towards those in the public sector with pensions, which average just £7000 pa, then that can't be denied. Just an unfortunate side of human nature.

These £7000 pensions - for how long a working life do they relate to? You see averages don't mean that much when they have part timers and short service employees included to average the figure down.

The average MPs pension may 'only' be around £16,000 but as it relates to just 10 years service it's pretty darned good.

The public sector paybill is around £150bn and it accrues a pension of 1/60th pa ie £2.5bn. That pension may be paid for 20 years ie £50bn - less employee contribution say £10bn. That gives a net £40bn pa by which public sector pensions are currently accruing. That's a lot of money.

Linton

GeorgeHowell wrote: »

..
Brown's raid on the private sector funds was not the only cause of the demise of the bulk of final sector pensions. But what it did was to give a ready excuse to employers who had already been angling at reducing their increasingly unaffordable pension liability.
..

Do doubt good in the political cut and thrust, but look at the numbers - it really was pretty marginal.

What GB did was to remove what was arguably a subsidy to pensions that did not for example apply to ISAs. For ordinary rate tax payers dividends are taxed at 10%, but it is assumed that the 10% has already been paid within the companies tax. So it is effectively an arbitary somewhat imaginary figure. Nevertheless for many years pensions were given a refund of the 10% dividend tax. GB stopped this.

The FTSE100 has an average dividend of about 3%, so if pension funds invested in the FTSE (which they dont particularly) it would make 0.3% annual difference.

No, what did for the final salary pensions was the demographics, falling rates of investment return, wage inflation, and the ability to cease funding during the good times if the pension fund was deemed to be in profit. All, IMHO, much larger factors than a <0.3% tax change.

opinions4u

it really was pretty marginal.

I suspect an extra £100bn in pension schemes would be a better place for it then paying for non-jobs in the public sector.

It probably equates to around £10k being taken out of each private pension scheme. But hey, dishing out free TV licences and winter fuel allowances to all and sundry today would, in the eyes of a political strategist, be more lilkely to win votes than a hidden tax on pension funds nobody understands.

GeorgeHowell

Linton wrote: »

Do doubt good in the political cut and thrust, but look at the numbers - it really was pretty marginal.

What GB did was to remove what was arguably a subsidy to pensions that did not for example apply to ISAs. For ordinary rate tax payers dividends are taxed at 10%, but it is assumed that the 10% has already been paid within the companies tax. So it is effectively an arbitary somewhat imaginary figure. Nevertheless for many years pensions were given a refund of the 10% dividend tax. GB stopped this.

The FTSE100 has an average dividend of about 3%, so if pension funds invested in the FTSE (which they dont particularly) it would make 0.3% annual difference.

No, what did for the final salary pensions was the demographics, falling rates of investment return, wage inflation, and the ability to cease funding during the good times if the pension fund was deemed to be in profit. All, IMHO, much larger factors than a <0.3% tax change.

I think you have missed the main point that I made there, although you did quote it. Brown's action, fully sanctioned by Blair no doubt, gave the green light message to employers that pensions were no longer considered ring-fenced and that taking lumps out of them was now fair game in terms of improving their profitability and balance sheets. Labour did not want private pensions to be as good as state ones. It was all part of the 'client state' strategy -- ie trying to buy with taxpayers' money the votes of those whom it considered to be its natural constituency.

Linton

GeorgeHowell wrote: »

I think you have missed the main point that I made there, although you did quote it. Brown's action, fully sanctioned by Blair no doubt, gave the green light message to employers that pensions were no longer considered ring-fenced and that taking lumps out of them was now fair game in terms of improving their profitability and balance sheets. Labour did not want private pensions to be as good as state ones. It was all part of the 'client state' strategy -- ie trying to buy with taxpayers' money the votes of those whom it considered to be its natural constituency.

But, but,!!!!

That action by employers had been going on for most of the 1990s. For example, the large international company I joined in 1994 had already closed its final salary pension scheme to new entrants, and it wasnt the first.

Companies awarding themselves contribution holidays to "overvalued" pension funds again was something that was happening throughout the 1990s.

No, companies didnt need any green light from the government, the actuaries had already convinced them that their pension commitments were unaffordable.

Rollinghome

GeorgeHowell wrote: »

What is completely untenable is some sectors of the economy having decent pensions funded out of taxation, and the others sectors, many of which do not, paying for it. This has nothing to do with envy, but all to do with fairness, reasonableness, and political sustainability.

I find it extremely odd for anyone to suggest that while public sector remuneration is publicly funded that the pensions that are an integral part of that pay package should somehow not be.

You apparently want to see state control of private sector pensions and presumably state control of the contract every employee enters into with an employer. That’s quite a step. Perhaps you're confusing “everyone's own good” as you put it with your own good.

I assume you worked in the private sector because at the time you thought it offered you better prospects and pay than the public sector and aren't claiming you were unfairly excluded in some way. The choice was yours. Now, belatedly, you seem to think you made the wrong choice. Perhaps you didn’t understand at the time the advantages of lower remuneration in return for a public sector pension not dependent on the vagaries of the stock markets. The idea that the private sector needed an excuse to reduce their pension liabilities seems a pure flight of fancy.

If you now find yourself with an inadequate pension I’ve every sympathy for you and everyone in a similar position. But I’m afraid it’s for us all to make these career decisions and it’s pointless to blame others if we get them wrong or to envy those who get them right. We can’t expect to be nannied all our lives.