Pension protection fund

chiefie

I've got this worry that if something big happens they just won't have the money to bail out schemes.

I have looked at the transfer value of one of my DB pensions and I would prefer it to be in my hands than at risk of the markets and a black swan event.

I don't believe any IFA would take this into account when recommending what to do. It's just my gut - I'd prefer my money in my hands than in a scheme that is 74% funded.

Any thoughts - am I being irrational ?

dunstonh

I've got this worry that if something big happens they just won't have the money to bail out schemes.

If that happens then you really wouldnt care. You would be too busy stacking up on water and beans and finding weapons to protect yourself.

I don't believe any IFA would take this into account when recommending what to do. It's just my gut - I'd prefer my money in my hands than in a scheme that is 74% funded.

It is taken into account but the reasoning has to rational. Worrying about failure of a protected defined benefit scheme but not worrying about what would happen to an equity based investment during the same period is irrational.

If the reasons are good and the figures stack up then its not an issue. Statistically, the odds are against that being the case though.

hyubh

chiefie wrote: »

I don't believe any IFA would take this into account when recommending what to do. It's just my gut - I'd prefer my money in my hands than in a scheme that is 74% funded.

You're not talking about your LGPS pension I hope...

woolly_wombat

hyubh wrote: »

You're not talking about your LGPS pension I hope...

What type of protection is afforded to the LGPS?

Eligibility for PPF?

Crown guarantee?

mania112

woolly_wombat wrote: »

What type of protection is afforded to the LGPS?

Eligibility for PPF?

Crown guarantee?

The LGPS is exempt from the PPF as it is a statutory public service.

Bad things would have to happen in the world for your LGPS to not be paid

kidmugsy

chiefie wrote: »

I'd prefer my money in my hands than in a scheme that is 74% funded.

From a comments thread here
http://www.timworstall.com/2016/03/07/ritchie-really-is-a-knob-isnt-he/#comments


"When I was with the PPF (more than 2 years ago now) they had around £15bn to play with. This was the money needed to provide pensions for people in the schemes that had already fallen into the PPF as well as a little contingency for new schemes falling in.

In contrast, the total deficits of all DB pensions that could fall into the PPF is estimated at over £300bn at Feb 2016. A few of these are really big, but if enough of the small ones fell in it would still be quite bad.

It’s not necessarily all doom and gloom mind – they only need the cash to pay the benefits due now, so even if they had a big one fall in they’d be fine for a few years, and they were doing really well with their investments last I heard ..."

hyubh

woolly_wombat wrote: »

What type of protection is afforded to the LGPS?

Eligibility for PPF?

No. LGPS funds - or as the legislation that set up the PPF puts them, 'a scheme which is made under section 7 of the Superannuation Act 1972(1) (superannuation of persons employed in local government service etc) which provides pensions to persons employed in local government service' - are expressly excluded: http://www.legislation.gov.uk/uksi/2005/590/regulation/2/made

Crown guarantee?

Usual phrase is 'statutory guarantee', but the details are murky - see p.10 of this:

http://www.lgpsboard.org/images/PDF/Publications/QCOpinionJan2015.pdf

Looking at things from another direction however, the power of an administrating authority to get an appropriate level of contributions from employers (and when an employer exits, enforce a closing valuation, which by convention is done on a tough, quasi-buy out basis) is generally strong, indeed strengthened a bit in the last set of scheme regulations. Bond requirements for new admission bodies were also tightened a few years back.

As such, insofar as there is the possibility of an individual employer going bust, an LGPS fund should be able (and probably expected) to act as its own 'PPF', in effect. (Cf. http://feweek.co.uk/2015/06/26/pensions-write-off-in-efa-deal-to-shed-cash-strapped-college/)

hyubh

kidmugsy wrote: »

From a comments thread here
http://www.timworstall.com/2016/03/07/ritchie-really-is-a-knob-isnt-he/#comments

Trying to make Phillip Green out as some kind of hero for suddenly acknowledging the BHS pension deficit when put under pressure by the PPF makes Worstall a bit of a tit in my book.

In contrast, the total deficits of all DB pensions that could fall into the PPF is estimated at over £300bn at Feb 2016. A few of these are really big, but if enough of the small ones fell in it would still be quite bad.

The fact a scheme is in deficit doesn't mean it will go into the PPF at some point - it means the sponsoring employer has a duty to continue to put more money in it. Even if one thinks it prudent to believe sponsoring employers will go bust en masse, what's the solution? Scrap the PPF and go back to the situation in the so-called heyday of final salary pensions where there was no sort of guarantor at all? Fund it out of general taxation? Plant some magic money trees? Pretend final salary pensions never existed...?

woolly_wombat

hyubh wrote: »

Usual phrase is 'statutory guarantee', but the details are murky - see p.10 of this:

http://www.lgpsboard.org/images/PDF/Publications/QCOpinionJan2015.pdf

'Interesting'.

woolly_wombat

hyubh wrote: »

Usual phrase is 'statutory guarantee', but the details are murky

So other public sector pensions such as, for example the NHS scheme, are inherently less likely to fail their members than LGPS because, paradoxically, they aren't backed by any actual funds (which could be in deficit)?

Malthusian

Tim_Worstall_via_kidmugsy wrote:

"When I was with the PPF (more than 2 years ago now) they had around £15bn to play with...
In contrast, the total deficits of all DB pensions that could fall into the PPF is estimated at over £300bn at Feb 2016.

Hyubh has already said it but these two figures are completely irrelevant to each other. If every single company that backs a pension scheme in deficit is unable to do so and goes bust then we are back in tinned beans and shotguns territory.

A pension scheme with a £1bn deficit could be less likely to fall into the PPF than one with a £1bn surplus. If the former is backed by a rock-solid multinational company while the latter is backed by a company on the verge of bankruptcy. After an adverse market movement and an increase in longevity, the former pension fund would simply suck up more of its parent company's money while the latter would go under.

woolly_wombat wrote:

So other public sector pensions such as, for example the NHS scheme, are inherently less likely to fail their members than LGPS because, paradoxically, they aren't backed by any actual funds (which could be in deficit)?

The NHS scheme is backed by a standing army of a few hundred thousand plus high tech weaponry, drones, battleships etc and all the machinery of the State.