Query about existing pension rumours

gadgetmind

The report does show how hard it is for trustees to plan ahead given how gilt yields have behaved exactly how no-one predicted they would. You point about the huge sums spent trying to plug pension deficits versus dividends is well made, but dividends have often been recovery from cuts/rebasing, so I suspect we're just getting back to historic norms. And if companies don't pay dividends, then it's often pension funds that will suffer anyway!

BTW, I hadn't realised how many schemes had hit the PPF.
http://www.pensionprotectionfund.org.uk/TransferredSchemes/Pages/AllTransferredSchemes.aspx

If instead of trying to fund DB schemes, the same money had been paid into DC funds, then I suspect employees might be better off, or at least more in control.

PensionTech

If instead of trying to fund DB schemes, the same money had been paid into DC funds, then I suspect employees might be better off, or at least more in control.

With the benefit of hindsight I'd have gone for a CDC framework, probably back in the 90s (ignoring that I was in primary school during the 90s and therefore not much interested in pensions), instead of either DB or DC. DC doesn't have enough pull to get people to save adequately for retirement, and DB is repenting at leisure. CDC would allow us to actually do what is being proposed for British Steel, and strike a good balance between member expectations and sponsor affordability. But we are not in a situation where we can now just pick and choose our pensions system with no regard to how it will affect those who have already accrued pensions, or those who desperately need to start one but are being nudged farther and farther away.

kidmugsy

PensionTech wrote: »

With the benefit of hindsight I'd have gone for a CDC framework

Would you explain what that is, please?

jamesd

CDC is Collective Defined Contributions. It's a setup that removes the benefit of the employer backing the plan but still says that there will be some defined benefit payment. The employees do not have individual pension pots and do not have pension flexibility rights to their money. There is no assurance of any inflation linking or any particular payment level and payments can be reduced at any time. In effect it's the employer saying "here's a fake defined benefit pension, we're rid of the liabilities we'd have if it was a real one".

These schemes are pretty much the worst of both worlds and it's likely that I would suggest that anyone offered such a scheme complain to their employer and not contribute to it, instead using a personal pension, or just pick a different employer if that's a better option. There's not much of a "take the employer's money" benefit for these because the employer matching doesn't go to the employee but to the scheme for collective benefits.

If the Tata plan was CDC there would be no need of a consultation because the benefits to the members could just be cut without any need for a change in the law. Also no liability for Tata to the scheme, so the business would be more stable, a benefit that is normally provided via a proper DC scheme with individual pots.

jamesd

Sapphire wrote: »

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).

There was discussion of allowing all schemes to change from RPI to CPI at the time the public sector pensions and private sector pensions that didn't specify RPI were broadly being moved to CPI. In the case of the ones that specified RPI it would have taken a change in the law to allow the change.

In the Tata steel case it's being initially considered to allow it for just that named scheme because of the judgement that this would produce the least bad result, generally better than the company failing and the scheme entering the PPF, which uses CPI but also cuts pensions as well. Changing it for future years would be a sort of half way house, with no past benefits reduced.

There's some logic in broadening the law because in effect what happened was a lottery based on details of scheme rules. There's some logic in opposing it for contributions in past years because that would be changing benefits that have already been paid for. That's something that has happened quite a bit in other cases, not least those schemes with the flexible wording that changed to CPI.

Sapphire wrote: »

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.

That's that the PPF would do if it was involved. In general members are likely to be better off as a result of moves that keep their schemes out of the PPF.

atush

gadgetmind wrote: »

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.

Exacty, and if you could mange affordability, would BHS been able to be sold? Steel companies?

It is pensions that are crippling companies that are making thse companies fail. I guess you have to decide what is more important, having jobs remain, and companies remain solvent (or saleable) or not?

I dont see how companies falling into PPF help anyone.

kidmugsy

atush wrote: »

It is pensions that are crippling companies that are making thse companies fail.

Oh, atush. Steel companies are failing because there's massive overcapacity in the world, particularly in China; because blast furnaces are becoming redundant as more and more steel is recycled; and because lame-brained British governments have been forcing up energy costs in the UK, in the name of being "green". Of course the pension deficit is another burden, but a healthy company would cope.

BHS: slow-motion retail disaster. Whether a solvent pension scheme would have saved them from insolvency at the hands of the two twerps involved, Lord knows. It's not obvious that it would have done.

uk1

kidmugsy wrote: »

Oh, atush. Steel companies are failing because there's massive overcapacity in the world, particularly in China; because blast furnaces are becoming redundant as more and more steel is recycled; and because lame-brained British governments have been forcing up energy costs in the UK, in the name of being "green". Of course the pension deficit is another burden, but a healthy company would cope.

BHS: slow-motion retail disaster. Whether a solvent pension scheme would have saved them from insolvency at the hands of the two twerps involved, Lord knows. It's not obvious that it would have done.

You are correct ..... sadly.

BHS for example had far too many shops and failed to build any sort of niche in the market. You cannot sustain that size of business on a decent lighting department.



Jeff

Thrugelmir

kidmugsy wrote: »

Oh, atush. Steel companies are failing because there's massive overcapacity in the world, particularly in China; because blast furnaces are becoming redundant as more and more steel is recycled; and because lame-brained British governments have been forcing up energy costs in the UK, in the name of being "green". Of course the pension deficit is another burden, but a healthy company would cope.

Tata bought BS primarily to obtain the technology and understand the manufacturing processes. Likewise China has been buying into commodities since the 60's (such as started buying up rubber plantations in Malaysia) and from the early 90's technology. The UK only has itself to blame.

gadgetmind

PensionTech wrote: »

I was in primary school during the 90s and therefore not much interested in pensions), instead of either DB or DC.

I left university in the early 80s and by the mid 80s was saving hard in DC pensions and (later on) PEPs.

DC doesn't have enough pull to get people to save adequately for retirement

It did for me and still does.

But we are not in a situation where we can now just pick and choose our pensions system with no regard to how it will affect those who have already accrued pensions

That will need a delicate touch.

or those who desperately need to start one but are being nudged farther and farther away.

That's easier. No more DB from now on, whether private sector or public sector. It's a promise that can't be met, so sorry, you get a contribution to your fund, you get to add more tax free, you choose how to invest (attitude to risk, yadda, yadda) and you get to decide what to draw and when.