Query about existing pension rumours

Sapphire

I've been reading the odd article in the media about private pension payments being reduced to those who have built up pensions over many years.

I am unclear about this. Are they talking about reducing pensions that people are already taking? Were that to be the case, it would make saving up for a pension pointless. I thought pensions that are already being paid out, past the retirement age, are pretty much inviolate?

Or have I got the wrong end of the stick entirely (quite possible)? :j

kidmugsy

It seems to be what the government is considering for the pension scheme at Tata, the on-the-rocks steelmaker: in particular they seem to be considering reducing the inflation-protection for people who have already retired. I suspect it's the government playing to the gallery before the referendum, and that they'll drop the foolish idea afterwards, whatever the referendum result. There is, however, a recent thread full of people who think the government should crack ahead with the plan. They remind me of the purported German dictum that the worst sort of officer is one who is energetic and stupid.

Sapphire

kidmugsy wrote: »

It seems to be what the government is considering for the pension scheme at Tata, the on-the-rocks steelmaker: in particular they seem to be considering reducing the inflation-protection for people who have already retired. I suspect it's the government playing to the gallery before the referendum, and that they'll drop the foolish idea afterwards, whatever the referendum result. There is, however, a recent thread full of people who think the government should crack ahead with the plan. They remind me of the purported German dictum that the worst sort of officer is one who is energetic and stupid.

Thanks very much for the response. I thought I saw another article somewhere in which Frank Fields was suggesting a similar thing with other pensions as well, but I read the article quite quickly, so may be mistaken (it may have been in The Times).

Seems to me that it would set a very, very bad precedent. I don't think people who are already taking pensions should have their pensions tampered with in any way. I suppose it could be justified with truly massive pensions, like those of banksters, in order to help society, for example, but of course such people would not be touched by moves like this.

PeacefulWaters

Sapphire wrote: »

I don't think people who are already taking pensions should have their pensions tampered with in any way.

While I tend to agree, and there is legislation to protect them to a point, if there's no money in the pot who do you think should honour them?

Equally, if you've left a defined benefit scheme, there is legislation in place to protect the value of your pension against the impact of inflation.

Meanwhile, if you remain an active member within such a scheme then you're fair game to have the value of your pension destroyed by your employer because the categories of scheme member above are protected. Ordinary employees of big banks being among those who have suffered.

That's hardly fair either.

gadgetmind

The OP mentioned private pensions as opposed to company DB ones.

PensionTech

The OP mentioned private pensions as opposed to company DB ones.

The antonym to private pensions is public sector or state pensions; company pensions are in contrast with personal pensions. (In the general sense, anyway - let's not get into GPPPs and the like.)

I think the OP may wish to note that the proposed changes don't (directly) set a precedent for actually reducing accrued benefits. The idea is instead to cut future increases to accrued benefits, either to a lower inflation measure or to 0%. So even if this were to affect you, which is probably unlikely at least in the short term, your current pension would not be touched but next year's pension may not increase by as much as you had previously been told.

Malthusian

PeacefulWaters wrote:

While I tend to agree, and there is legislation to protect them to a point, if there's no money in the pot who do you think should honour them?

In the case of British Steel, the Pension Protection Fund. It's what it's for.

Meanwhile, if you remain an active member within such a scheme then you're fair game to have the value of your pension destroyed by your employer because the categories of scheme member above are protected. Ordinary employees of big banks being among those who have suffered.

The benefits they've already purchased are protected, same as those who are retired. It is the benefits they were planning on purchasing with their future contributions which can be changed (sometimes very unfavourably as we've seen in the thread re bank schemes and the cap on increases).

While this may seem unfair (pretty much everything can seem unfair if you want it to), it's essentially the same thing that happens when a pub which used to charge you £2.50 for a pint of beer now charges you £3.20. If you don't like the new terms you're free to go elsewhere. What they can't do is retrospectively demand you pay them an extra 70p for all the pints you previously bought for £2.50.

gadgetmind

I guess something has to be done about affordability or most of these pensions would hit PPF as the companies were dragged down by the costs.

PensionTech

I guess something has to be done about affordability or most of these pensions would hit PPF as the companies were dragged down by the costs.

You might be interested in TPR's most recent funding statement, which states that most employers' profits are better now than they were at the last scheme valuation, most employers declaring a profit could increase contributions and still pay less than before as a percentage of current profits, and most of the rest could increase contributions and still pay roughly the same or still only a small affordable proportion of profits as contributions. It also notes that in the last five years, the median proportion of deficit reduction contributions to dividends in the sample (FTSE 350) has reduced from 17% to 10%. So in 2010, companies were paying 6x as much to their shareholders as to their pension schemes; now it's 10x. The clear message from them is that many employers can afford to fund their schemes better than they are currently doing.

gadgetmind

This one?

http://www.thepensionsregulator.gov.uk/doc-library/statements.aspx

Plenty of bad news and risks flagged there too.

PensionTech

Yes, though that tends to be investment and cashflow risk for trustees to consider rather than affordability risk for employers. This isn't me cherry-picking (though you could argue that me focusing on TPR's statements at all is cherry-picking, which would be fair). TPR have been rather strong in expressing their opinions regarding employers: http://www.thepensionsregulator.gov.uk/press/pn16-24.aspx.

You can, however, see which way the wind is blowing from Frank Field's recent statement on the upcoming "major inquiry" into the general state of DB in the UK. It's by no means a one-sided argument - but I think it would be too easy to dismiss DB schemes as "unaffordable" without examining whether many companies, such as BHS, are simply being too complacent and not bothering to put in money that they could afford.