Another Government Pension Cut – responses invited to DWP by 15th November

SilverScooby

The Government is proposing to cut the amount Pension providers have to index final salary pension by from 5% to 2.5%. This will affect anyone who leaves a final salary scheme before retirement age, eg anyone who has to leave the pension scheme because they change employers.

I was alerted to this by Hargreaves Lansdown:
http://www.h-l.co.uk/news_and_expert_views/expert_views/articles/1094/rq/article.hl

Full details are here:
http://www.dwp.gov.uk/mediacentre/pressreleases/2007/oct/pens043-221007.asp

It strikes me as a really sneaky way of New Labour stealing people’s pensions:

Stage 1 was when Gordon Brown took away the dividend tax credit which threw the Pension Funds into deficit so final salary schemes are closing to new members.

This is stage 2 where the Government let the Pension Funds cut benefits to workers so they can stay solvent despite the deficits caused by the loss of dividend tax credit.

Clever, that. They’ll say it’s the Pension Funds choice to cut benefits, nothing to do with the Government.

I’ll be responding to[EMAIL="adelphi.deregulatoryreview@dwp.gsi.gov.uk"]adelphi.deregulatoryreview@dwp.gsi.gov.uk[/EMAIL] once I’ve calmed down abit!

Milarky

It is actually unfair even to limit deferred pension rights to 'inflation' and not 'earnings' growth instead. That's because benefits accrue in proportion to time spent with an employer yet the funds contributed in respect of these (later periods of) earnings are held for proportionately shorter periods of time. The only way the ongoing rights of stayers can be funded in practice is by taking value already present in the funds of leavers (deferred members) I can see this, you can see this, anyone can see this yet the government doesn't seem to understand that there was already a inequitable redistribution going on - and by further negating the rights of deferred members through this proposal they are simply making DB schemes more and more resemble Ponzi schemes.

Instead of this step (hoping that deferred pensioners are just grateful to be receiving anything) the correct way to proceed is to uprate ALL members equally at all times - but with the proviso that the defined benefits may need to be paired retrospectively. This leads to existing workers with a guaranteed share of a non guaranteed pension fund - they might get 100% (for service) of 60% (what proportion of 'promises' the fund can now meet) only of what they signed on for - yet the deferred pensioners could get a larger guaranteed share than they would have got - they might be on 40% (for proportional service up until leaving) of 60% as it were rather than only 20% of 100% (24% instead of 20%)

The figures are a bit contrived but the principle is there - everyone gets a proportionate share of the 'profits' but those profits are indicative and can not be guaranteed. When something has to 'give' then ALL members of the scheme (past and present) should be called on to sacrifice equally. This would still be better for stayers than going to 'money purchase'.

DavidLaGuardia

I beg to differ with the first post. Unlike Labour's raid on claiming back corp tax on dividiends the reduction in valuation is HARDLY the government stealing (the treasury does not get a direct benefit from this.)

Many companies are moving away from the unknown liabilities that final salary schemes present them with. The idea of this reduction is to prevent som from making this decision, which is a good thing for active and new scheme members.

DavidLaGuardia

Milarky wrote: »

Instead of this step (hoping that deferred pensioners are just grateful to be receiving anything) the correct way to proceed is to uprate ALL members equally at all times - but with the proviso that the defined benefits may need to be paired retrospectively. This leads to existing workers with a guaranteed share of a non guaranteed pension fund - they might get 100% (for service) of 60% (what proportion of 'promises' the fund can now meet) only of what they signed on for - yet the deferred pensioners could get a larger guaranteed share than they would have got - they might be on 40% (for proportional service up until leaving) of 60% as it were rather than only 20% of 100% (24% instead of 20%)

The figures are a bit contrived but the principle is there - everyone gets a proportionate share of the 'profits' but those profits are indicative and can not be guaranteed. When something has to 'give' then ALL members of the scheme (past and present) should be called on to sacrifice equally. This would still be better for stayers than going to 'money purchase'.

The principle here (if not the figures) is an excellent idea, sadly too sensible for those in Whitehall to consider.

Dustangle

SilverScooby wrote: »

It strikes me as a really sneaky way of New Labour stealing people’s pensions:

You seem to have a wider agenda than objecting to this proposal, which as another poster points out would have no effect on government revenues. The purported motivation for such a change is to encourage employers to keep final salary pensions, rather than ditch them for defined benefit schemes. I doubt if such a move would achieve this effect, but what is your opinion on this - or are you just trying to use this forum to attack Labour?

Dustangle

Tumbleweed blows gently through the thread.