Tata pension - change from RPI to CPI and maybe more

PensionTech

What do you see as a better alternative?

Renationalisation. Dropping into the PPF. The first won't happen and the second is worse for those members. But it is what thousands of other people have had to do when their employer fails, it's not the end of the world, and it protects everyone else from worse things happening in the future.

I accept your points; I do understand that you generally agree and see my side of the argument. I think where we disagree is that I'd rather be unfair - if you can call it that - to the Tata members than tear apart the law for everyone else. It's pragmatic to change laws when the environment changes, but a law protecting your contractual rights is not an outmoded one.

uk1

But do you agree that the probable repurcussions of your preference is that PPF will itself eventually become unsustainable and that a new (or change) to current law will mean that PPF will have to be funded by all taxpayers?

Do you believe that that outcome is a fairer one?

Jeff

PensionTech wrote: »

Renationalisation. Dropping into the PPF. The first won't happen and the second is worse for those members. But it is what thousands of other people have had to do when their employer fails, it's not the end of the world, and it protects everyone else from worse things happening in the future.

I accept your points; I do understand that you generally agree and see my side of the argument. I think where we disagree is that I'd rather be unfair - if you can call it that - to the Tata members than tear apart the law for everyone else. It's pragmatic to change laws when the environment changes, but a law protecting your contractual rights is not an outmoded one.

PensionTech

But do you agree that the probable repurcussions of your preference is that PPF will itself eventually become unsustainable and that a new (or change) to current law will mean that PPF will have to be funded by all taxpayers?

No, I don't, to be honest. The PPF has not been doing too badly. We would have plenty of notice if it looked like the proverbial was going to hit the fan, and perhaps that would be the time to consider detrimental modifications. Perhaps.

I also don't think the PPF levy would become a general tax/bailed out by the government. I believe there are measures in place for the PPF which mean that if it were to fall short, the level of compensation would be reduced. I could be misremembering that, of course - PPF legislation is not my forte.

uk1

The PPF hasn't been doing too badly lately but the concern is the future and in the context of this thread, ignoring the impact of your preference for Tata being taken into the scheme is I think the core of the issue.

The current PPF surplus is £3.6bn. BA's deficit for example on it's two schemes alone is £3.7bn. One corporation's pension deficits and as you know BA are in constant war about RPI v CPI increases with it's trustees. So one fund alone sinks the PPF fund. This is the latest PPF report which I think shows the potential hazard of a domino effect.

May 2016 Update
Highlights

• The aggregate deficit of the 5,945 schemes in the PPF 7800 Index is estimated to have decreased over the month to £270.2 billion at the end of April 2016, from a deficit of £302.1 billion at the end of March 2016.
• The funding ratio improved from 81.0 per cent to 82.6 per cent.
• Total assets were £1,280.0 billion and total liabilities were £1,550.2 billion.
• There were 4,804 schemes in deficit and 1,141 schemes in surplus

We need to recognise that the £270bn is a net figure ie taking all the surpluses off of the deficits. So the deficit of those schemes in deficit ie those schemes at more risk is considerably higher.

My fear is that not confronting the issue now will if you had your way potentially place the current deficit over time into becoming a public liability. The spectre of the public not only picking up the cost of all public sector pensions is bad enough but the idea that they also take up the slack of all the legacy private DB schemes I think is frightening. Far more frightening than the change from RPI to CPI for TATA initially.

Jeff

Andy_L

Isn't the Government/taxpayer ultimately on the hook for any PPF shortfall if it gets that bad?

uk1

Andy_L wrote: »

Isn't the Government/taxpayer ultimately on the hook for any PPF shortfall if it gets that bad?

At the moment it is funded by DB schemes. Effectively if sufficient DB schemes jump on board and add to the deficit and at the same time stop making payments into PPF then the government will be faced with letting it fail or bailing it out.

PensionTech

You seem to be assuming that the PPF plans to always be funded by DB schemes. It does not; it plans to be self-sufficient within the next 14 years, and it appears to be on track for that.

The PPF is there for schemes going bust. Tata is going bust. I think your panic is premature, to say the least, and I don't think there's a compelling argument to let some fairly vague and unfounded concerns about the future of the PPF set a precedent for demolishing fundamental rights to property simply because the Business Secretary is having a knee-jerk reaction to pressure for failing to regulate or support the steel industry.

uk1

You said previously that you didn't understand much about the PPF and when I pointed out factually what the specific numbers are they they are risking you choose to say vaguely that my concerns are vague and unfounded. I couldn't have been more detailed and more specific.

The general direction of legacy DB schemes is that the schemes are becoming bigger than the companies attempting to continue funding them. Many of these companies make little or no profit with which to make payments to reduce their DB pension deficits. Very few have sufficient hope of making enough profit to fund these schemes. Most of the schemes were offered pre-Brown. None or few have been offered post-Brown because they cannot be affordable. I cannot see how these concerns are vague and I disagree that the fears are unfounded.

It is frankly rediculous to characterise these issues as vague and unfounded and be so dismissive when the BA programme entering PPF alone would require PPF to request government support even without the TATA load.

It is simply because that you are unwilling to acknowledge the risk I have outlined very specifically and it is because they contradict your opinion that TATA should be taken into PPF. So you have simply avoided dealing with it by dismissing it.

You clearly haven't thought through the potential repercussions of that route and will continue to refuse to do so - and all I have done is fleshed out exactly why it is potentially a far worst option long-term of two horrible ones.



Jeff

PensionTech wrote: »

You seem to be assuming that the PPF plans to always be funded by DB schemes. It does not; it plans to be self-sufficient within the next 14 years, and it appears to be on track for that.

The PPF is there for schemes going bust. Tata is going bust. I think your panic is premature, to say the least, and I don't think there's a compelling argument to let some fairly vague and unfounded concerns about the future of the PPF set a precedent for demolishing fundamental rights to property simply because the Business Secretary is having a knee-jerk reaction to pressure for failing to regulate or support the steel industry.

wakeupalarm

ATM the PPF protects pensions already currently in payment, and 90% upto £30,000, those with more then £30,000 lose out.

I've seen reports of 15% lower pension in total as a result of a switch to CPI as opposed to 10% drop if less then £30,000.

If they propose changing RPI to CPI and saving the scheme entering the PPF, does that mean that those with more the £30,000 are protected on their full pension less 15% whilst those below £30,000 lose out more then being in the PPF?

PensionTech

No; I simply disagree that the PPF is in trouble. All you have highlighted is the collective deficit of all DB pension schemes in the UK (and you have cherry-picked your info somewhat by not highlighting the quite substantial 1-month improvement also noted in those figures, although short-term fluctuations are admittedly meaningless). That does not mean that all schemes are going into the PPF and that failing to disapply section 67 to the BSPS means that we will all have to cover £270bn straight away. I have also explained that the PPF does not rely totally on DB schemes and in future it will not rely on DB schemes at all, so it is far from inevitable that all DB schemes will fail within a timeframe that would push the PPF into crisis. I would also suggest that the PPF themselves probably understand more about their funding and the general state of DB schemes in the UK than you or I, and no forecasts made by them have been anywhere near as dire as the ones you predict. (Indeed this would give them a good reason to push up their levies.)

I do admit, and have admitted, that I am hazy on what happens if the PPF goes bust (different from saying I don't know much about the PPF - I know a great deal more than the average person, and quite a lot less than a PPF expert, and I suspect you are similarly somewhere in the middle); do you have anything to back up your own take on this?

Your argument started off with asserting that public confidence in pensions would actually be boosted by this move, and that it would only ever be able to be used for a change from RPI to CPI. You seem to have dropped both of those fairly hastily after being challenged and have instead taken up this PPF argument, which to be honest seems to rely just on "aren't these numbers big". I regret to be so blunt as I think this has, for the most part, been a fairly interesting debate.

I am happy to say that we have a difference of opinion over whether the outcome of the Tata members is more important than the ramifications for all other members; it isn't necessary for us to agree, so I am not sure why you are so frustrated.