Tata pension - change from RPI to CPI and maybe more

kidmugsy

uk1 wrote: »

As you wish. Here are laws (Bills) passed each day.

http://www.legislation.gov.uk/new/2016-05-25

If you read carefully you will find that almost all enhance, change or revoke an existing law.

Jeff

And which one do you point at as being retrospective or retroactive?

uk1

kidmugsy wrote: »

And which one do you point at as being retrospective or retroactive?

Life is too short. I thought you'd ask that. Believe what you wish.

Jeff

PensionTech

Because the alternative is the PPF or perhaps the pension getting ownership of the company and all of its loss-making assets and having to try to operate the business. Either seems likely to be a worse outcome than a change to inflation linking measure.

Yes - but you could say the same about any scheme at risk. Moreover it could lead to schemes intentionally being put at risk just so that the inflation protection can be downgraded.

I've now read the consultation and can see that they are indeed proposing to name this one scheme but I don't see what would stop them from then naming any other scheme as and when. Once that floodgate has been opened, any employer on the rocks with a DB scheme could appeal for the same treatment to be given to them, and there wouldn't be much of an argument to deny it, as there's nothing particularly special about Tata that doesn't apply to any other employer.

Even if nothing else - even if they change the law for this one particular scheme just because nobody fancies buying the pension liabilities, but then it never happens for any other employer ever again - it will at the very least hugely undermine public trust in pensions, which I think you'll agree is pretty low already. The average consumer will look at this and say "the government changed the law and took away some of these people's benefits". That's not a good thing.

I know it will be a better outcome for the Tata members. But I think it leaves the door open to cause real detriment to thousands - millions - of others, and to me, that's more significant.

Malthusian

Not ones which are the only suppliers of UK steel for its defence industry.

Losing the UK capability for manufacturing plate for its battleships or nuclear submarines (for instance) could be considered quite important (for some).

If British Steel is vitally important for our national defence - if it is essential for our national security that we have British plants producing steel for the Government even if they can't do it on commercially competitive terms - then it should be nationalised. It isn't and we aren't going to.

This has nothing to do with national security and nothing to do with the government. I have little to say because PensionTech has already put it beautifully.

Shedman

PensionTech wrote: »

Even if nothing else - even if they change the law for this one particular scheme just because nobody fancies buying the pension liabilities, but then it never happens for any other employer ever again - it will at the very least hugely undermine public trust in pensions, which I think you'll agree is pretty low already. The average consumer will look at this and say "the government changed the law and took away some of these people's benefits". That's not a good thing.

I know it will be a better outcome for the Tata members. But I think it leaves the door open to cause real detriment to thousands - millions - of others, and to me, that's more significant.

I know I haven't read through this issue in as much detail as clearly you and others have, but I am struggling to see why this is such a contentious issue when other private schemes (such as the one I was in) have already made similar such changes (and presumably other ones could make changes in the future regardless of this proposed change in law)? Clearly there are nuances to this I am not getting?

Obviously we would all love our pension arrangements to remain as generous as initially set out but when circumstances change and it's a case of relunctantly accept some adverse changes in order to either keep the scheme going or in this case sell the business and keep your job then surely that makes sense.

uk1

I agree with the general tone of your post but disagree with the degree of risk. I diagree that it is a "huge" risk to public trust. In fact it may have the long term effect of increasing trust and confidence.

Firstly this only effects DB schemes and not DC schemes and the erosion of trust is moot for pretty much all future people considering joining schemes for the first time as the vast majority will be joining DC schemes.

Secondly it only effects DB schemes with very specific RPI increase clauses which would be far from all schemes.

Thirdly if another scheme was in an identical situation to Tata then I agree that it would make sense for them to be considered in exactly the same way. But I do not see this as "floodgates" as it would have to be a DB scheme, with RPI increases obligations in a failing corporation amd then also show the same criteria and not simply that whilst it had the capability to fund the pension fund deficit, but that it simply didn't fancy doing so. I think that difference would be obvious. Presumably the ultimate threat of the corporation would be admission to PPF but then their (PPF) powers of investigation would still exist as backstop protection.

So for the removal of doubt, I feel tremendous sympathy for those involved, and I do agree that this is a part of the general trend of eroding trust in all financial products, providers and government actions. I just disagree that it is as huge an issue as you believe. The ironic outcome is that many others might feel relieved that "a way through" has been found that has prevented it going into PPF. That increases confidence for those - who are the majority of public not losing anything by this issue. It also avoids what I feel is a future inevitable risk for the stability of PPF and that is an increasing number of really huge unfundable schemes - many often larger than their corporations - being taken into PPF and PPF therefore needing increasing levels of support from taxpayers the majority of whom will be funding schemes that they can only dream about, as more default into PPF who is then defaulting. That might be a bigger domino effect/factor in eroding trust than allowing the comparitively smaller action of allowing certain pension schemes in genuine danger to change the increase calculation.

Jeff

PensionTech wrote: »

Yes - but you could say the same about any scheme at risk. Moreover it could lead to schemes intentionally being put at risk just so that the inflation protection can be downgraded.

I've now read the consultation and can see that they are indeed proposing to name this one scheme but I don't see what would stop them from then naming any other scheme as and when. Once that floodgate has been opened, any employer on the rocks with a DB scheme could appeal for the same treatment to be given to them, and there wouldn't be much of an argument to deny it, as there's nothing particularly special about Tata that doesn't apply to any other employer.

Even if nothing else - even if they change the law for this one particular scheme just because nobody fancies buying the pension liabilities, but then it never happens for any other employer ever again - it will at the very least hugely undermine public trust in pensions, which I think you'll agree is pretty low already. The average consumer will look at this and say "the government changed the law and took away some of these people's benefits". That's not a good thing.

I know it will be a better outcome for the Tata members. But I think it leaves the door open to cause real detriment to thousands - millions - of others, and to me, that's more significant.

PensionTech

Clearly there are nuances to this I am not getting?

Yes, there are.

When you build up a pension benefit, nobody is allowed to come in and change it. If you've paid into a DB scheme that gives you 1/60 salary for each year, and you've paid into it for 20 years, nobody can come and say "actually we only want to give you 1/80 for those years, so instead of 20/60 of your salary, your pension is now 20/80 of your salary". You have a right to the benefits you accrued on the basis under which you accrued them.

The general change from RPI to CPI in 2011 was an interesting one, because it did affect accrued rights - it reduced the value of accrued rights, which would normally not be allowed. But the people whose benefits did get moved from RPI-linkage to CPI-linkage actually were never entitled to RPI in the first place - they were entitled to "the general level of inflation" or some such wording, which means that if the general level of inflation is now measured with respect to CPI rather than RPI, then that's what you get. So nobody actually changed the rules of the scheme to give you lower benefits - the rules of the scheme just meant something different now. (It's worth pointing out that your benefits were still RPI-linked for the whole time up to 2011, if they were in payment or deferred until then; the change only affected the inflationary increases/revaluation applied since 2011.)

What the government is proposing to do is essentially saying "we don't want to pay you RPI-linked benefits even though you are legally and contractually entitled to them; there isn't enough money, so we want to give you CPI-linked benefits". This violates the entire principle that your rights to your accrued pension are inalienable. So the government could also, if it wanted, come in and say "we don't want to pay you 20/60 of your salary even though you are legally and contractually entitled to it; there isn't enough money, so we want to give you 20/80 of your salary". And that would override your right to your own accrued property. That's a pretty extreme example and I don't think it would ever materialise but it might help to illustrate the point.

The argument being made is that the British Steel scheme is likely to fail altogether, and if it fails, it gets picked up by the PPF - the "lifeboat" - which provides the absolute legal minimum - which is CPI on some benefits, 0% (in payment) on other benefits, a cap on the overall pension, etc. That is worse for the Tata employees than just changing it from RPI to CPI. But allowing a pension promise to be removed by law means that in the future, other changes could be made, employers could wilfully abuse their pension schemes just to get the cost of the liabilities down, etc.

In short, it paves the way for the government to legally remove your property. Which is pretty dangerous.

Andy_L

Shedman wrote: »

I am struggling to see why this is such a contentious issue when other private schemes (such as the one I was in) have already made similar such changes (and presumably other ones could make changes in the future regardless of this proposed change in law)? Clearly there are nuances to this I am not getting?

The proposal on the table is to change to CPI for accrued rights as well as future accrual, ie back date the changes.

"Tata and the BSPS trustees have asked the Government to legislate to allow them to amend the scheme rules in order to reduce the levels of indexation and revaluation payable on future payment of accrued pension rights. The trustees would reduce indexation and revaluation to the minimum level required by law. [ie CPI]"

https://www.bspensions.com/media/userfiles/files/british-steel-pension-scheme-consultation.pdf

Tata need the law changed in order to allow them to breach a contract with no penalty, which sets a dangerous presidence.

If the offer is better than the alternative of going into the PPF then that should be an easy sell to the members which doesn't need the government to interfere in a private contract.

PensionTech

Firstly this only effects DB schemes and not DC schemes and the erosion of trust is moot for pretty much all future people considering joining schemes for the first time as the vast majority will be joining DC schemes.

Ask five people on the street whether they're in a DC scheme or a DB scheme. See if they can tell you the difference. See if they can explain that government meddling in the value of BSPS pensions doesn't mean that the government can meddle in the value of their pensions. An awful lot of people already say they don't save into pensions because they don't trust the government to pay it to them when they retire (comments like that have been made on this forum). The Daily Mail plastering "NOW THE GOVERNMENT CAN TAKE AWAY YOUR PENSION" or some such rubbish* on the front page, which will inevitably happen, will be all that is needed to reinforce and spread that view.

Secondly it only effects DB schemes with very specific RPI increase clauses which would be far from all schemes.

Sure - now. What about, for instance, pre-97 benefits being index-linked in payment? Not legally required but a lot of schemes (in fact every scheme I've ever worked on) have it written into their rules, and that's also something not covered by the PPF. What stops the government from saying "there's still not enough money, so now we're going to take away your pre-97 increases?" How can you say "well RPI to CPI is ok, but any other type of modification isn't allowed?" That's not a particularly solid legal principle.

And what stops an employer (think a future BHS) from saying "I can't really be bothered with the pension scheme, it's pretty expensive, so instead of paying more contributions, I'll sell off a load of assets until it's circling the drain, and then plead for special dispensation to erode the pension benefits"?

*Edit: I say rubbish, because I despise the DM. But actually they wouldn't be far off the mark with that headline. Where it would become rubbish is when they would fail to explain that this won't affect DC savers.

uk1

That's not a particularly solid legal principle.

You may find this difficult to believe but I agreed with everything in your post. The point we diverge on is that my acceptance (as I get older) that poo does happen and that these schemes were always going to be unsustainable and in particular after Brown. I think it wrong that these changes are made and I do not like it either. Where we part is that I believe that making laws is sometimes simply a pragmatic response to emerging new situations and those laws are sometimes unfair. That is the sole point of where I believe we disagree.

I agree with your priniples, but what do you see as the pragmatics? What do you see as a better alternative?

Jeff