How goverments piled costs onto pensions during the good times

BobQ

taktikback wrote: »

companies were not allowed to fund their schemes at more than 15% over fully funded -they had to take holidays...

So?

If your point is that these fine major employers were only complying with the law, very true, but who lobbied the Tory Governments to introduce the flexibility in the first place?

zagfles

hugheskevi wrote: »

This old Pension Policy Institute briefing note is worth reading for a quick overview of the policy and the number involved (not quite £7bn a year)

Yes, a good summary.

zagfles

BobQ wrote: »

James,

You can dismiss it as a relating to a strip cartoon, but Altman has a reputation and I cannot accept that she would damage it by making unfounded statements.

(ETA Incidentally Ms Altman has been arguing this for some time as per her website. For example: http://www.rosaltmann.com/crisisfacingUKemployers.htm

In which, if you bother to read it, she doesn't make the simplistic argument that "it's all the employer's fault". She blames the govt more for piling on extra requirements such as indexation, spouse pension, revaluation etc.

She is also probably right when she says

Maybe the Government did not really get to grips with this issue because the public sector schemes are all final salary and no-one wanted to rock the boat and highlight the enormous costs of public sector pensions

Yes, she talks a lot of sense.

BobQ

zagfles wrote: »

In which, if you bother to read it, she doesn't make the simplistic argument that "it's all the employer's fault". She blames the govt more for piling on extra requirements such as indexation, spouse pension, revaluation etc.

She is also probably right when she says
Yes, she talks a lot of sense.

I agree. The point I was making was that this is something she has been saying for years and not some trivial text to support a Guardian strip cartoon.

Linton

zagfles wrote: »

How was it neutral? In 1997 the main rate reduced by 2% (from 33% to 31%), nowhere near making up for the loss of the 20% tax credit

The main rate reduction of 2% is on the total company profit. The 20% is on that part of the company's profit that went into those dividends that were paid into pension schemes. Companies may have only paid a small amount of profits as dividends and many of those dividends would have been paid to people not eligible for ACT relief. So the 2% and 20% are percentages of totally different numbers and arent comparable.

See here for some further partly relevant discussion.

jamesd

hugheskevi wrote: »

This old Pension Policy Institute briefing note is worth reading for a quick overview of the policy and the number involved (not quite £7bn a year)

That paper does not say that the cost is 7 billion. It says that:

"The cost to pension funds was lower, at £3.5 billion per year"

"give companies who make profits more scope to increase their pension contributions, without being worse off. A recent estimate is that the offsetting gain to pension schemes could be as much as £1 billion per year5. This means the cost could be as low as £2.5 billion"

"If the reform were successful so that companies reinvest more of their profits and share prices grow, the long-term cost could be still lower than £2.5 billion. Pension funds would begin to see more of their income coming in through capital gains rather than dividends and so would be less affected by how dividends are taxed."

"it is clear that when the reforms were introduced in 1997 they cost pension funds significantly less than £5 billion per year. It also seems likely that this cost will have reduced over time."

Of course, all of that is in 1997 Pounds, not today's Pounds, and ignores whether pensions shifted their investments from shares to bonds, as many did, or to capital gains that weren't taxed at all.

Overall claims like five billion or seven billion are bogus and do not account for the reduction in corporation tax from 35% in 1993 to 31% in 1997. That 4% lower taxation was available for companies to use to increase dividends. For a company with a gross profit of 4% it could double the dividend. Today the corporation tax rate is down to 21%.

jamesd

BobQ wrote: »

You can dismiss it as a relating to a strip cartoon, but Altman has a reputation and I cannot accept that she would damage it by making unfounded statements.

You might not but I already have found her damaging her reputation with me by making bogus claims. Too much of what she writes has turned out to be wrong - perhaps recycling of old stuff without updates needed to make it accurate - so these days I simply do not take anything she says at face value without checking her claims. That's sad.

Just look at the list for an example. The date is "Saturday, 23 August 2014" yet she writes about "Plunging stock markets" as if we're still in late 2008, not at a time when the world's biggest stock markets, some 55% of total global stock market value, have been regularly hitting record highs. Her claim is completely out of touch with reality. Unless, as a joke, some old presentation of hers was used. Like one from six years ago, maybe.

It didn't even try to be particularly accurate, not even mentioning the cuts in corporation tax that allowed companies to substantially increase the dividend payouts using the money that used to go on the tax. She'd have received a considerably better response from me to that piece if she hadn't been completely out of touch with stock markets and had discussed the value of the changes and the value of the reduced corporation tax in increasing the ability to pay dividends.

I do, however, agree with her statement that "The Press have been trying to blame Gordon Brown's removal of Advanced Corporation Tax (ACT) relief in 1997 for the problems, but this is simply not true."

BobQ wrote: »

Those employed had an employment package that was based on their employer making contributions to THEIR pension scheme. You can justify why the employers dipped into the employees pensions in any way you choose

I've no interest in justifying criminal actions by employers and I welcome the banning of such nonsense and increased protection of scheme members, including requirements for employers to fund pensions.

I do have an interest in accurate and reasonably rounded discussion of pension issues, not the one-sided level of discussion in the header to that list - "how our pension funds have been raided since the 1980s by successive governments seeking taxes, and by employers taking "contribution holidays" and legally diverting money from the staff pension funds into their companies", not written by Altmann - when what she was really doing was in large part explaining the many types of improved protection for employees and accounting changes that are more likely factors in most private sector schemes of that type being closed to new members.

zagfles

BobQ wrote: »

I agree. The point I was making was that this is something she has been saying for years and not some trivial text to support a Guardian strip cartoon.

Was that cartoon really from the Guardian? I thought they'd moved on from the "fat cats smoking cigars towering over little people" class-war rubbish. It certainly doesn't sum up what Ms Altman was saying.

zagfles

Linton wrote: »

The main rate reduction of 2% is on the total company profit. The 20% is on that part of the company's profit that went into those dividends that were paid into pension schemes. Companies may have only paid a small amount of profits as dividends and many of those dividends would have been paid to people not eligible for ACT relief. So the 2% and 20% are percentages of totally different numbers and arent comparable.

So how then do you come to the conclusion that the impact was "tax neutral"?

See here for some further partly relevant discussion.

Which does not say or imply the impact was neutral.

zagfles

jamesd wrote: »

That paper does not say that the cost is 7 billion.

Nor does it say the cost is zero.