R.P.I. to C.P.I. am I right in thinking....

Andy_L

Shimrod wrote: »

I'm not sure how that is relevant.

I think you've been mistaken for the OP, where knowing that would be useful

JohnB47

sandsy wrote: »

Shimrod explained it well - many pensions schemes trust rules are worded in such a way that automatically links the increase rate to the government orders. So if the givernment changes the basis on which the orders are calculated, the trust deed ties their hands - unless they can be persuaded to change it.

In most cases, they won't - because they have to protect the rights of ALL members, not just existing pensioners. There will usually be many active and deferred members too. And in most cases, there interests (and yours!) are best served by having a solvent scheme which doesn't go into deficit more than it needs to. And the chances of deficit are reduced by linking revaluation and indexation to CPI rather than RPI.

So if a company doesn't fund a pension scheme responsibly, for example by taking pension holidays (which BT did in the past), then it's not a problem - they can just lower the pension payouts to current and future pensioners and use the argument that all pensioners must accept a cut so that the scheme can stay secure.

Am I alone in finding a problem with that sort of behaviour?

RichandJ

JohnB47 wrote: »

So if a company doesn't fund a pension scheme responsibly, for example by taking pension holidays (which BT did in the past), then it's not a problem - they can just lower the pension payouts to current and future pensioners and use the argument that all pensioners must accept a cut so that the scheme can stay secure.

Am I alone in finding a problem with that sort of behaviour?

How many times must it be stated that contribution holidays were taken as a result of legislation at the time that stated pension schemes could not be more than 105% funded without tax penalties on the sponsoring employer ? They weren't a result of "evil, top hat wearing, fat cat" directors deciding to rob future pensioners. If anyone believes they were they really really need to examine their own world view or stop believing leftist propaganda, or both.

chris_m

JohnB47 wrote: »

So if a company doesn't fund a pension scheme responsibly, for example by taking pension holidays (which BT did in the past), then it's not a problem - they can just lower the pension payouts to current and future pensioners and use the argument that all pensioners must accept a cut so that the scheme can stay secure.
Am I alone in finding a problem with that sort of behaviour?

You're probably not alone in misunderstanding it, I'm afraid

The pension holiday was a legal requirement, not irresponsible funding - the pension scheme was in surplus, so BT was not legally allowed to continue contributing to make it even more in surplus. Being allowed to do so would be a wonderful opportunity for a company to reduce their tax liability.

Since then, investment returns have gone downhill (coupled with the "pensions theft" set up by that most wonderful of economists, our former Chancellor of the Exchequer and latterly Prime Minister, who decided that pension schemes should pay tax on their investments) and the balance of workers to pensioners has dropped through a combination of the company workforce reducing in numbers, pensioners increasing in numbers and those pensioners living longer on average.
Also the accounting rules were changed (again by the government), indicating a larger scheme deficit under the new system compared to the old.

That situation was not sustainable so something had to be done, there was no choice. Accordingly, the pension scheme was altered from a final-salary one to a career average one, but with previous entitlements remaining unchanged.
It could have been worse, they could have just closed the scheme completely and made any future arrangements a money-purchase type scheme such as that which new joiners over the last few years have been offered. At least we have final-salary arrangements for all service up to a couple of years ago and career-average for subsequent years.

That change was designed to fix the scheme sustainability but not the deficit. That is being resolved by BT making extra, large payments into the scheme - £0.5 billion in Dec09, the same in Dec10. I saw today that a third £0.5billion scheduled for Dec11 is actually being made early, this month. Not sure if there are to be more in future years or not.

Shimrod

JohnB47 wrote: »

So if a company doesn't fund a pension scheme responsibly, for example by taking pension holidays (which BT did in the past), then it's not a problem - they can just lower the pension payouts to current and future pensioners and use the argument that all pensioners must accept a cut so that the scheme can stay secure.

Am I alone in finding a problem with that sort of behaviour?

And just to clarify - they don't lower the pension payouts, they just don't increase by as much.

Even if the increase rate for pensions in payment stayed at RPI, you will find that there is a cap on how big an increase has to be - again governed by inflation.

• For pension entitlement earned before 2005, that is 5%,
• for pension entitlement after 2005, the cap is 2.5%.
• For entitlement earned before 1997, it's a bit more complicated, but will either be somewhere between nothing and 3%. Pension trustees have discretion to pay over the cap, but that is unlikely to happen even if the scheme has a surplus.

So even if RPI is 20% the maximum parts of your pension have to go up by is 5%, and some may not increase in line with inflation at all.

The RPI/CPI change has the biggest impact on people with deferred defined benefit pensions, especially if they are someway off retirement.

Andy_L

chris_m wrote: »

(coupled with the "pensions theft" set up by that most wonderful of economists, our former Chancellor of the Exchequer and latterly Prime Minister, who decided that pension schemes should pay tax on their investments)

Actually it was originally set up by Major & Lamont. Brown, as with much of New Labour policy, simply took a Tory policy to its logical conclusion

chris_m

Andy_L wrote: »

Actually it was originally set up by Major & Lamont. Brown, as with much of New Labour policy, simply took a Tory policy to its logical conclusion

Thanks for the correction, something I hadn't realised.

Old_Slaphead

Andy_L wrote: »

Actually it was originally set up by Major & Lamont. Brown, as with much of New Labour policy, simply took a Tory policy to its logical conclusion

Being pedantic, thought it was Nigel Lawson who came up with the wheeze of taxing pension fund surpluses above 105%. Lamont started the ball rolling on reducing the tax credits on dividends which Brown later, and at considerably more cost to the schemes, abolished.