The Times - Labour Plans Pension Raid

Cyberman60

redux wrote: »

Maybe one reason that Gordon Brown thought company pension schemes were in surplus by 1997 was that through the mid 1990s you could read company annual reports boasting of the fact, and that their actuaries had advised that no contributions were needed this year. Some companies did this several years in a row.

Basically more or less all the pension actuaries in both public and private sectors got things wrong.

No Brown got it wrong with his 7 Billion a year tax raid !! Final Salary Pensions would still be fine now but for that stupid man. :mad:

hyubh

Cyberman60 wrote: »

things that have worked superbly for years (ie: final salary pensions)

That's just not true - final salary pensions, in hindsight, weren't fit for purpose, for a variety of reasons. Employers understated their costs and employees undervalued their benefits - not a good combination. They also greatly favoured only a small subset of the working population, at least by contemporary standards - part timers and people who didn't have single-company careers were either excluded completely or could only build up benefits of significantly lower value. While over time these negatives were lessened, that was only with government meddling, not of its own accord.

hugheskevi

It's a lot more than 50 Billion, but regardless, this 'theft' which GB was warned about, decimated final salary pensions and meant that many had to close or be frozen.

All serious studies of the decline of Defined Benefit schemes conclude there were a variety of reasons, of which the changes around Dividend Tax Credit were just one factor. By 1997 the decline of membership of private sector final salary schemes had already been taking place for 30 years after peaking in the late 1960s, and had already recently accelerated.

Hence it is utterly misleading to attribute the decline of DB schemes only to this one factor.

Hugheskevi, you show complete ignorance as RPI/CPI is the rate applied to pensions to counter inflation each year on PAYMENT of pensions, and has nothing to do with what is paid into pension schemes. For instance my pension is uprated by RPI each year or 3% whichever is the higher. I despair at the ignorance of some posters.

Sticks and stones may break my bones, ranting fools such as yourself just make me grin

How do you think private pension DB schemes (and funded public sector schemes, notably Local Government) fund themselves? They estimate future liabilities, current assets, expected growth and that determines employer contributions. Any deficit recovery is factored into the required payment, usually over a 10-15 period.

Clearly if future liabilities are lower due to lower revaluation/indexation that directly leads to lower funding requirements, ie the amount paid into pension schemes.

It is different in the unfunded public sector pensions, where the savings accrue over a longer period of time given there is no funding requirement beyond meeting expenditure as it falls due.

You'll no doubt find that the 200 Billion is the reduction in payments to pensions calculated over a number of years due to the change of downrating from the higher RPI to lower CPI due to the governments need to save money thanks to Labour's 160 Billion annual deficit legacy, while also ensuring that pension schemes decimated by Labour would still have sufficient funds to pay pensions for longer into the future.

£200bn is indeed the discounted net present value of future pension payments, £120bn of which applies to public sector pensions and £80bn private sector.

The £120bn however only accrues over a long period of time, so doesn't help address the deficit much at the current time.

As to the motivation, the reason is that the opinion of the Government is that CPI is a better measure of inflation than RPI - the Secretary of State for DWP could not take into account factors such as you outline above, legislation requires that he must use a figure which in his opinion best reflects the change in prices.

redux

Cyberman60 wrote: »

No Brown got it wrong with his 7 Billion a year tax raid !! Final Salary Pensions would still be fine now but for that stupid man. :mad:

At the time of the changes, two pension fund administrators offered the opinion that the effect would be pretty small in their schemes, about 0.1% a year. One recent statement shows it slightly under that, well under the fund management and admin fees.

If your pension manager is charging fees of 1% a year - and there were some in 1990s charging much more - that is a larger reduction of yield effect than dividend taxation.

When I started those pensions, I occasionally bought a magazine intended for financial advisers, when it had a review of pension schemes. On the worst schemes the effect of management charges could amount to reducing the potential fund by 40% or 50% or more in a 25 year period. On mine it was about 8%.

So don't be entirely convinced by the protests of pension managers about Gordon Brown.

Oh, and by the way, Brown simultaneously cut the basic rate of tax on dividends to 10%. Not many people have ever complained about this

jamesd

spartacus173500 wrote: »

I've seen the headline in The Times but cannot read the article ...

As our host observed, Labour’s plan to cut tuition fees to £6,000 is a financially illiterate policy that will help those who go on to be well off but not those who are poor before starting. Maybe the party will decide that helping well off graduates by harming those trying to provide for their retirements isn't good politics.

spartacus173500 wrote: »

I am 59 and, after being encouraged by many threads in this forum, planning to 'retire' end March 15 and was considering 25% cash free sum sometime later in year. Savings and maybe some part time working making access not an immediate priority.

Personally I'd go with starting capped income drawdown as soon as possible before 5 April 2015. This is because you can recycle the income into more pension contributions and get more tax relief, not cutting your annual contribution limit from 40k to 10k as long as you don't take out more than the GAD limit each year.

If applicable you could also start doing some VCT buying if you like the idea of reducing your income tax bill in retirement and if you have both a suitable risk tolerance and sufficient assets.

Given your impending retirement this is the year to ensure that you contribute the maximum amount to pensions that will qualify for tax relief. The lower of your whole earned income or the annual 40k limit plus any available carry over from the last three years.

wessy53

Cyberman60 wrote: »

The crash was partially their fault by GB removing the vigilance of the Bank of England regulation and handing it to the FSA.

The 160 Billion deficit was 100% Labour's fault through not saving for a rainy day and continuing to be spendthrift. All Osborne has been doing is trying to rectify that deficit, and has done a pretty good job so far reducing annual spending by 60 Billion while Labour have resisted every cut. Still a long way to go though. :T

Spendthrift on things like the NHS, Education & Policing all things this government said would not be affected by austerity cuts. (wrong / lies you choose)

Funny that Osborne ridiculed Darlings plan to half the deficit, Insisting he would reduce it altogether by 2015 all at the cost to the most vulnerable.
Yet now he along with your good self applaud the fact that he failed miserably and achieved exactly what most people advised in the first place a slower paced reduction. Labours job is to oppose things that the government get wrong is it not.

I guess austerity is fine has long as it doesn't impact on those that wont feel the pain. People perhaps that can afford to plan for retirement and invest perhaps.

RobStaffs

zagfles wrote: »

We had a worse recession than most other countries, now we're doing better than most other countries. So don't try to make political points then. Pot kettle anyone?

I would say we we where protected from the worst of the financial crash by the decision of the Labour Govt to effectively nationalize the banking system and not allowing a proper market correction. I am not saying this was the wrong strategy but what it effectively means is a japan like emergence from recession which will take decades whereas the US have a quicker exit from recession.

kidmugsy

You're drifting off topic chaps. The headline was "Labour Plans Pension Raid" to which the answer is that of course it does, but who knows which of the different candidate raids it will adopt?

Andy_L

Cyberman60 wrote: »

The company final salary pension schemes were doing well before 1997. That persuaded GB to tax and kill them from 1997 by removing dividend tax credits. :mad:

but Major & Lamont both cut dividend tax credits when they were in No.11. Brown just continued a Tory policy to its logical conclusion

Spidernick

Andy_L wrote: »

but Major & Lamont both cut dividend tax credits when they were in No.11. Brown just continued a Tory policy to its logical conclusion

Sorry, but you won't get probably the most blinkered poster on these boards to accept that the Tories can be wrong and Labour right. He lives in a world of his own!