National Grid Final Salary DB Scheme

hyubh

C_Mababejive wrote: »

It has worked for decades

Accounting standards for pension liabilities were pretty rubbish not so long ago. Also increasing life expectancy...

the scheme is well funded and generates good returns.

The annual reports I've found through Google suggest otherwise, though the main issue is your next point...

Those pulling out of the pot are slowly dying so liabilities will peak and then fall off.

Actually, a maturing membership *increases* the strain on a final salary pension fund.

Where will the £11 billion or so thats in the scheme go then?

It will be needed to pay off the liabilities already accrued.

No..whats going on is a race to the bottom perpetuated by media and received wisdom that this sort of pension no longer works and yet it has worked for years.

Hmm, you're not familiar with my posting history on this board, are you . Looking at the website (https://www.nationalgridpensions.com), your scheme seems very similar to the LGPS in its current form, only with a better lump sum commutation factor - in other words, your scheme is slightly more generous than the LGPS. Despite that, the current employee contribution rate is a lot less (in the LGPS in England and Wales, it's between 5.5% and 7.5% depending on the member's rate of pay - from next year, between 5.5% and 12.5%); on top of that, employer contribution rates for 'future service' in the LGPS (i.e., pension benefits currently being earned) start from around 12%, and (depending on the nature of the staff involved) can go much, much higher.

Ultimately, either there's a massive conspiracy of actuaries going on, or defined benefit schemes in their late 1970s-early 2000s form just aren't sustainable (I realise they've been around a lot longer, but various bits of legislation in that period didn't help). In my view, the question is how to encourage companies to move to defined benefit or at least mixed schemes with a sustainable basis rather than just dumping their old unsustainable ones for rubbish DC schemes.

C_Mababejive

Well time will tell. Clearly if there are such big problems,then the execs on the 1/30th DB scheme with already massive accruals will take the hit first and lead from the front. Presumably they will also stop allowing higher tier managers from taking early huge VR packages and drawing their pensions whilst re-hiring them as consultants through the back door.

rpc

C_Mababejive wrote: »

Well time will tell. Clearly if there are such big problems,then the execs on the 1/30th DB scheme with already massive accruals will take the hit first and lead from the front.

The problem with that is that:

1 - Turkeys don't normally vote for Christmas
and
2 - The liabilities associated with a few hundred execs on generous schemes are pretty paltry when compared to 100,000+ regular members

On the bright side, if the scheme goes bust and the PPF kicks in, those execs will suffer the biggest losses. Most regular members aren't likely to exceed the PPF limit.

chainsaw

atush wrote: »

Could it be because workers who used to live to 70 or so, now live to 90+? Could it be that an increased worker contributions for a rare DB pension is required for the long term health of the fund?.[/QUOTE)

This is a red herring

People are living longer but babies and children are not dying so young which makes the average age people live to appear older. People often lived till their 80s in years gone by.

If the pension scheme was run well and not robbed by employers and governments it wouldn't matter how long people lived

chainsaw

MONEYSAVERLOG To answer your question

Most people on here seem to have an agenda regarding our pension, some of these people seem to be motivated by Jealousy. A race to the bottom! Never a truer word said. Can you imagine people in the USA with that attitude? They are all working hard to get the best deal not drag others down.

Anyway to answer the question, short version. NG are in fact paying a lot of money into the scheme. A lot more than most people relaise and they are going to have to pay even more in the future due to changes to NI and the state pension scheme. NG/BG have dipped into the scheme in the past as have governments. NG also make big profits.

Nevertheless the 3% we contribute is nowhere near enough and certainly not a fair share. As most of us in the DB are probably within a decade of retiring making higher contributions for the last few years in order to maintain what we have is a bargain.

rpc

chainsaw wrote: »

People are living longer but babies and children are not dying so young which makes the average age people live to appear older. People often lived till their 80s in years gone by.

Babies and children dying or not doesn't affect cohort life expectancy (the figure that actuaries normally care about).

Some people lived till their 80s decades ago. More people live to be that old now. An average person of a given age has a longer life expectancy than they did before.

In 1981, a 60 year old man could be expected to live another 18 years on average. Today, a 60 year old man is expected to live another 26 years on average. There lies the problem.

jamesd

Cohort life expectancy is how long it will take for half of people who have already reached a certain age to die. So get the cohort life expectancy for a 65 year old and the deaths of children or anyone else who died before 65 are irrelevant because none of them made it to 65.

Some people wrongly use life expectancy at birth for children born about now to get life expectancy for say 65 year olds, subtracting 65 from the life expectancy at birth. Bad mistake - cohort life expectancy is a good deal longer because of the younger deaths that are included in the life expectancy at birth figure.

Another mistake is to use period life expectancy instead of cohort life expectancy. Period is how long you'd live if today's death rates applied for the rest of your life, while cohort uses the anticipated death rates for each future year you live. Again, the result is a life expectancy that is too short.

chainsaw wrote: »

If the pension scheme was run well and not robbed by employers and governments it wouldn't matter how long people lived

The time for which a pension must be paid matters hugely and the substantial increases in cohort life expectancy are really bad news for defined benefit pension schemes. And for the income available from those using defined contribution pensions who plan to buy an annuity. Here's a sample, cohort life expectancy for various years for men in England and Wales aged 65 in that year:

1951: 12.1 years more
1961: 12.2
1971: 12.9
1981: 14.1
1991: 16.1
2001: 19.7
2011: 21.6
2021: 22.7 (projected)

Someone has to pay for those extra five years of life expectancy picked up between 1991 and 2011... and that's us, somehow.

chainsaw

rpc wrote: »

Babies and children dying or not doesn't affect cohort life expectancy (the figure that actuaries normally care about).

Some people lived till their 80s decades ago. More people live to be that old now. An average person of a given age has a longer life expectancy than they did before.

In 1981, a 60 year old man could be expected to live another 18 years on average. Today, a 60 year old man is expected to live another 26 years on average. There lies the problem.

I think it depends whose figures you look at, how they are calculated and who is telling the story. I think The Office for National Statistics say the average age men lives to is 78 some way short of the 26 years you mentioned.

I am not denying people are living longer but I don't agree with the spin from companies and governments who have raid the pensions time and again that people living a few years longer is the cause of all pensions problems.

In 1989 British Gas (who became Transco and then National Grid) told their workers there was so much money in the scheme they (and British Gas) would never have to contribute a penny ever again. Luckily the members did not vote to stop contributions.

Contributions have continued all this time for almost a quarter of a century after we were told we didn't need to pay another penny. Where has the money gone??

Redundancy payments? Pension Holidays? Reduced contributions? Poor management of the scheme?

chainsaw

http://www.moneymarketing.co.uk/national-grid-pension-surplus-court-of-appeal-reverses-previous-decision/90001.article

C_Mababejive

http://www.publications.parliament.uk/pa/ld200001/ldjudgmt/jd010404/ngrid-1.htm

Clearly it seems that once upon a time you paid 6%,then there was a surplus,your contribution rate was cut and now its going up again..but to what?