DWP Consultation - Pension Schemes permitted to remove indexation

jamesd

kidmugsy wrote: »

Does the Green Paper say that it expects members to get a vote on the decision? Because otherwise it's all just about violating contracts.

"Dear members, please vote on whether you would like to be made redundant and have your future pension benefits cut to PPF levels or whether you would instead prefer to have your inflation linking changed from RPI to 'inflation', currently normally measured by CPI."

The Tata scheme members recently told us what the outcome of such a vote will be, because the scheme members know that PPF or PPF and no job is worse. So they voted to close the DB scheme and switch to DC and hopefully keep their jobs.

PPF is CPI from 1997 and nothing at all before that. Even voted on just by those no longer working in the business they are likely to recognise that CPI beats PPF.

PeacefulWaters

It's a misleading thread title to say the least.

kidmugsy

jamesd wrote: »

The Tata scheme members recently told us what the outcome of such a vote will be, because the scheme members know that PPF or PPF and no job is worse.

Ah, the old "no need to vote because I know what the outcome would be" ruse.

If you are confident about how the troops will vote, what serious objection could you have to their having a vote?

brewerdave

Personally, I feel that neither RPI or CPI is appropriate! As a pensioner for several years,I keep a record of my living costs - many of these are increasing at much higher rates than either measure ! eg various insurances,utilities,telecom costs,council tax,car servicing etc -true ,I don't have a mortgage but my net income is "losing ground" vs our outgoings. Currently the average increase in costs in my spreadsheet is 6.2%!!!

jamesd

kidmugsy wrote: »

If you are confident about how the troops will vote, what serious objection could you have to their having a vote?

If a scheme is going to enter the PPF and anything that pays more than the PPF is offered I think that the result is obvious. I don't object to a vote in that situation, it just seems likely to waste some money.

More generally, though, moral hazard means that a vote would not necessarily be a good idea. If offered a vote I expect that members of schemes which have been well funded by the employer would be more likely to vote against than those in less well funded schemes. That both penalises employers who have done the right thing on funding and gives employers further incentives to underfund, harming the interest of pensioners in schemes overall.

That would also add to the ongoing pressure to close the few remaining private sector defined benefit schemes to further accrual.

Instead of encouraging underfunding it might well be better to use the law to standardise the inflation measure. Which is one of the things the consultation is asking about.

PensionTech

One measure being considered isn't stopping indexation forever. It's allowing a change from the inappropriate RPI to CPI.

Actually, stopping indexation forever is being considered, because one of the consultation questions refers to statutory indexation rather than CPI. The importance of this is outlined in the consultation itself. The statutory minimum increase for pre-97 excess is nil. Yet 79% of schemes pay increases of some form on pre-97 excess, whether those are RPI, CPI or some fixed rate. The estimated saving from switching RPI indexation to CPI on benefits is 5-10%; the estimated saving from switching down to statutory, including nil on pre-97, is 15-20%.

atush

kidmugsy wrote: »

Does the Green Paper say that it expects members to get a vote on the decision? Because otherwise it's all just about violating contracts.

I dont think it is all about violating contracts.

I think it is about keeping pensions from sinking companies that might otherwise trade on (or be sold- some sales dont go thru due to underfunded pensions).

I would not expect average joe to understand that the lower indexing might save their DB pensions, or even their employer. And their subsequent vote against the change in indexing could send their DB pension or even company into failure.

atush

brewerdave wrote: »

Personally, I feel that neither RPI or CPI is appropriate! As a pensioner for several years,I keep a record of my living costs - many of these are increasing at much higher rates than either measure ! eg various insurances,utilities,telecom costs,council tax,car servicing etc -true ,I don't have a mortgage but my net income is "losing ground" vs our outgoings. Currently the average increase in costs in my spreadsheet is 6.2%!!!

What age did you retire at? Can you go back to work now to save more?

Linton

brewerdave wrote: »

Personally, I feel that neither RPI or CPI is appropriate! As a pensioner for several years,I keep a record of my living costs - many of these are increasing at much higher rates than either measure ! eg various insurances,utilities,telecom costs,council tax,car servicing etc -true ,I don't have a mortgage but my net income is "losing ground" vs our outgoings. Currently the average increase in costs in my spreadsheet is 6.2%!!!

Strange, I have full data going back to 1999.

Looking at the items you identify, compared with 10 years ago when my "basic" costs were less than 10% lower than this past year.:
Insurance - House doubled, car much the same
Utilities - Water halved: meter plus decrease due to water company now responsible for sewer pump. Gas much the same, perhaps due to replacement of boiler. Elestricity up a bit. A change in tariff helped.
Telecoms/internet - slight decrease though better facilities
council tax - up by 16%
car servicing - halved, due to more reliable car with less servicing requirement

If your 6% figure was right for me the total costs would have been up by 80%. One cant just compare costs then and now, as my example shows, changes in lifestyle and the way one manages one's life without reduction in standard of living can have a major effect.

kidmugsy

atush wrote: »

I dont think it is all about violating contracts.

It is, you know. Violating contracts is the proposed means of achieving the ends you list.