Pension Age Going Up and Strikes Public Sector

chucknorris

DCodd wrote: »

According to the ONS there are still 1400+ active DB private sector schemes.

I just asked my wife and she said yes there are loads in the private sector that are still active. But they are mainly closed to new entrants because they are too expensive to run. I will edit my original post to reflect this.

atush

Yes, it was my understanding they exist but are closed to new members.

My OH company has one, and although he has worked there for years was not able to join as it was already closed even then. And is now closed to new years being added for existing members. Very few are open to new members these days, or to buying new years for current members.

The_Angry_Jock

MikeR71 wrote: »

What the government wants to do is bring all these pots into one and use the surplus to pay off the deficit, mainly caused by the private sector companies and banks which we already bailed out once.

There was a deficit (and debt) before the bank bailout, caused entirely by your employer.

DCodd

Zelazny wrote: »

That's not entirely how I heard it. The way I heard it was that the payment holidays were at least partly enforced by the government. When the economy was booming, a lot of companies wanted to put extra money into their pension scheme. This had two advantages:
(i) It meant that they paid less tax (as pension contributions were taken off before corporation tax was calculated)
(ii) It meant that if profits dipped, they could stop paying in for a little while.

Thus, it became common practise to top up the pension fund in good years, so you could avoid making payments in bad years. The government looked at this and realised that if payments were the same in all years they'd get more tax revenue, and in 1988 decided to start taxing any surplus in the fund. Obviously this led to companies reducing the surpluses.

I seem to recall that the calculation of what would be considered surplus was based on the cost of providing ongoing pensions, rather than on a buy-out basis, so as companies reduced their surpluses, they made it so that the pension schemes were underfunded on a buy-out basis. Many schemes reduced their funding to the MFR (minimum funding requirement) which was woefully inadequate to purchase benefits if the sponsoring employer should go bust.

The contribution holidays were solely used to reduce the surplus in the schemes and thus to avoid tax.

If the tax on surplus had never been introduced, then companies would still be using pension funds in order to pay slightly less tax, and everyone would be better off:
Employers would be less likely to go bust when the market takes a turn for the worst as they could stop paying into their pension fund
Employees would be reassured that even if their employer did go bust, there would probably be sufficient money in the fund to pay their pension
The Government would have a stronger economy with less businesses going bust and workers that were better provided for.

Different take on the same reality really. The Government had to stop the rot when it came to the tax avoidance of certain companies who still had "access" to their employees pension pots.

I do agree with most of your points but from a slightly differing view point. The Employers still could have funded the pensions, with still generous tax benefits for doing so, the problem was that it became more immediately profitable to reduce tax liability via other means. This is what I meant by short sighted and short term gain.

DCodd

chucknorris wrote: »

I just asked my wife and she said yes there are loads in the private sector that are still active. But they are mainly closed to new entrants because they are too expensive to run. I will edit my original post to reflect this.

atush wrote: »

Yes, it was my understanding they exist but are closed to new members.

My OH company has one, and although he has worked there for years was not able to join as it was already closed even then. And is now closed to new years being added for existing members. Very few are open to new members these days, or to buying new years for current members.

I am trying to find the relevant ONS data set but it is like looking for needle in a haystack and I can't link direct to the data set anyway. But it said that there were 1400+ active and open schemes in the private sector and as a group they were in surplus. There were very many more closed and frozen schemes (still taking contributions in closed schemes) that were in deficit.

Short of time today, sorry

edit to say - The data set was probably a 2010 set so could be less than 1400 now.

Zelazny

DCodd wrote: »

Different take on the same reality really. The Government had to stop the rot when it came to the tax avoidance of certain companies who still had "access" to their employees pension pots.

I do agree with most of your points but from a slightly differing view point. The Employers still could have funded the pensions, with still generous tax benefits for doing so, the problem was that it became more immediately profitable to reduce tax liability via other means. This is what I meant by short sighted and short term gain.

I guess it's just down to perception. The biggest problem from my point of view and that of those I've spoken to (speaking as someone who works with Pension Scheme Trustees, Administrators and the like) is that if the scheme was fully funded on a buy-out basis, they had to pay additional tax (as it was viewed as being in surplus). Consequently, the vast majority of schemes are no longer fully funded on a buy-out basis.

It may well be that the companies were using the pension scheme to avoid tax, but they can't get that money back out easily. If they paid a vast amount of extra cash into the pension scheme then needed it back, they'd have to close the scheme and buy out all member's benefits in full first, before the Trustees could decide what happened to the surplus. The scheme rules could be written so that any surplus goes back to the sponsoring employer, but even then closing down the scheme is a lot of work, and buying out the benefits is costly - there are easier ways to simply dodge tax. This let them pay less in the bad years and more in the good years, so was ideal for keeping the companies strong.

DCodd

Zelazny wrote: »

I guess it's just down to perception. The biggest problem from my point of view and that of those I've spoken to (speaking as someone who works with Pension Scheme Trustees, Administrators and the like) is that if the scheme was fully funded on a buy-out basis, they had to pay additional tax (as it was viewed as being in surplus). Consequently, the vast majority of schemes are no longer fully funded on a buy-out basis.

It may well be that the companies were using the pension scheme to avoid tax, but they can't get that money back out easily. If they paid a vast amount of extra cash into the pension scheme then needed it back, they'd have to close the scheme and buy out all member's benefits in full first, before the Trustees could decide what happened to the surplus. The scheme rules could be written so that any surplus goes back to the sponsoring employer, but even then closing down the scheme is a lot of work, and buying out the benefits is costly - there are easier ways to simply dodge tax. This let them pay less in the bad years and more in the good years, so was ideal for keeping the companies strong.

Yes I agree it is down to perception. The Trustees and administrators you work with should look at the history, pre surplus tax to see that they (they meaning their predcessors not necessarily themselves), as much as the Government were equally to blame. Huge Companies were using the pensions scheme to fund the downsizing of their workforce i.e. "industiral restructuring". They then lowered their contributions to very much lower than they could have, the surplus tax did allow for a surplus to be created, it just limited the amount of surplus but these Companies reduced their contributions for many years to "Minimum Fund Requirement" levels.

Both the Companies and the Government were to blame for the poor performance of these pensions. I saw an article last year that estimated that over 30% of the current deficit is as a direct result of lowering the funds to the MFR level and a further 20%+ as a result of the surplus tax.

Something to fix for future generations me thinks.

StevieJ

Zelazny wrote: »

That's not entirely how I heard it. The way I heard it was that the payment holidays were at least partly enforced by the government. When the economy was booming, a lot of companies wanted to put extra money into their pension scheme. This had two advantages:
(i) It meant that they paid less tax (as pension contributions were taken off before corporation tax was calculated)
(ii) It meant that if profits dipped, they could stop paying in for a little while.

Thus, it became common practise to top up the pension fund in good years, so you could avoid making payments in bad years. The government looked at this and realised that if payments were the same in all years they'd get more tax revenue, and in 1988 decided to start taxing any surplus in the fund. Obviously this led to companies reducing the surpluses.
.

That is the way I heard it, our company informed us that they were taking payment holidays because the fund was over provided for and if they paid more in it would be swallowed up in tax. They did promise to provide funds as needed and so far so good.

Koicarp

gadgetmind wrote: »

As the stock market can drop 50% in a year, and gilt yields can halve in a decade, arguing about the odd 20% makes little difference.

Those funding their own pensions, rather than assuming that the money for their old age will drift down from some magic money tree, need to try and plan for worst case scenarios such as the one we're currently living through.

Trust me, the grass really isn't greener on the other side of this particular fence, so please try and chew your cud in quiet contemplation.

Agreed with you on volatility within markets, but I think that 20% would make quite a difference to those who need it. In terms of savings my spreadsheets show it to be equivalent to the difference between 3 and 5% compounding between now and retirement.
I've never heard of this magic money tree, do you have a grid reference?
I've never said the grass was greener, I just wanted to keep the good deal I had. We now have a less good deal, but it's better than the one the government initially offered which would have seen me take a 2.5k per year hit in retirement. I'm just going to have to save a little extra, but will still retire at 60 and the wife will finish up at 55.
One other thing nobody seems to have mentioned is that those TUPE'd out of the NHS will be able to remain as active members, that is a BIG win for the unions with the current pace of privatisation.

AndrewNorthWales

I work for the NHS and I am part of the old 1995 section of the scheme.
I have a long time until I retire as I am only 35 but I believe I just hit the proposed 68 retirement age as I am June 76.

I think,looking at the NHS calculator thing, that I will be roughly £3k worse off a year if I still desire to leave at 60 (my current permitted age) though If I stay on till I am 64 I get something like what I would at the moment and a fair bit more If I stay till 67/8
I am a band 5 employee but only been in since 2007, I think my forecast is something like £7k per year if I leave at 60 in the new scheme or about £10k if it stays as it is - doesn't sound a lot really but I guess it works out far better than just sticking money in an ISA for 30 years :S

I am not sure if I will still be up to the job by the time I am reaching 68 so I will probably leave earlier, maybe 60 or even 64 perhaps - I guess I wont know until I get there, heck I may be happy to carry on till 78 and come out with a whopping great pile of money

I think that we will have to take some kind of a whallop as the economy is in a poor state, though really I would prefer less money wasted on rubbish and perhaps spent on getting the state pension into such a good state of repair that it will cover all of us fairly well when we retire regardless of public or private status.

If we got the lazy back to work and spent less on ridiculous schemes or fighting countries we have no business fighting then we would have plenty of spare money to look after our old people with.

after all this, the majority of us posturing on this board wont see retirement as Cancer will see us off - it seems that everyone has it now or is recovering, and they usually die sooner rather than later.
sad really. Ill leave my money to my brother if that happens, make sure he has a good old age instead.