Percentage effect reduction over 25 years.

hugheskevi

I doubt I will make anyone at the company I left change their minds but I would be very interested in knowing what percentage of organisation took advantage of the legislation not to pay staff an annual increase and what percentage did not. Is there an organisation that holds such data?

See page 20 of this Pension Regulator research document.

DBdoobydoo

I was shocked when I discovered that my pretty decent DB pension was not indexed. The original company always used to give regular increases but these were apparently discretionary & after that company was taken over & in turn that company taken over by a third company the DB scheme has been closed & there have been no more discretionary increases. It's particularly galling when I recall that the original company took contribution holidays for years in the 1980s as the scheme was so well funded.

Apparently it's only a tiny percentage of DB schemes that have no index linking.

jamesd

BML wrote: »

I'm unable to calculate what my ignorance has cost me

Nothing.

The scheme pays what it pays and that's decided by the scheme and sponsoring company.

Unless they have made a mistake in the calculation, like using years without mandatory increases when you were employed during mandatory years.

BML

I simply can't understand why the legislation was created in such a manner as to discriminate against those such as myself. I have attempted to find out what percentage of companies took advantage of this legislation to discriminate against some of the members of their pensions scheme. The other company that I worked for covering that period certainly do make an annual increase although the legislation does not force them to.

zagfles

BML wrote: »

I simply can't understand why the legislation was created in such a manner as to discriminate against those such as myself. I have attempted to find out what percentage of companies took advantage of this legislation to discriminate against some of the members of their pensions scheme. The other company that I worked for covering that period certainly do make an annual increase although the legislation does not force them to.

Because decades ago companies didn't need to offer a pension at all, and if they did, they could offer them under whatever terms they chose.

A lot of companies used pensions as "golden handcuffs" to keep their staff, as your pension would become worthless if you left, in the days before any statutory revaluation and high inflation. Some companies could take your pension off you for disciplinary reasons.
So loads of legistlation was introduced. Statutory revaluation, statutoty indexation, must offer to all eg part timers, must pay into the pension protection fund etc.

This plus increasing life expectancy, reducing annuity rates, tax changes etc started making pensions very expensive to provide, so guess what. The vast majority of the private sector now no longer offer DB pensions. They've been legislated out of existance.

So if all these rules about indexation had been in place back then, this company might not have provided a pension at all. Or it might the sort of vastly inferior DC or "money purchase" scheme most private sector employers offer these days.

BML

Many thanks for your analysis but I'm rather confused as to how the comparatively small English company that I worked for does give an annual increase to my pension and the Massive American company does not. With your permission I think I have had more than my fair share of your time and maybe its time to end this post.

hugheskevi

Many thanks for your analysis but I'm rather confused as to how the comparatively small English company that I worked for does give an annual increase to my pension and the Massive American company does not.

It is all about what (a) the government mandates must be offered and (b) what individual schemes wish to offer.

Given a company used to be free to offer no pension at all, it is a very reasonable argument that should a company decide to offer a pension it isn't the government's business to determine exactly what they must offer, given they could offer nothing at all.

Hence legislation was primarily around ensuring that what was offered was delivered to the member, ie, contract enforcement.

Many years ago, even if an employer offered a pension, if a member left service before retirement they didn't even have to be given a pension at all if that what was what the rules said.

Over time rules changed on this point, ensuring members had a pension if they left after 5 years, and then later after 2 years of service.

Similarly with revaluation of the pension once a member had left there used to be no rules. Then a minimum amount was introduced for pension accrued after 1987 (from memory, might be a bit wrong). But that only applied to pension accrued after a particular point. Similar changes applied to pension indexation after 1995.

The indexation point in particular was important. It used to be common for schemes to operate discretionary increases. This was a key way they controlled costs. If assets performed well, members may be given an above inflation increase. If assets performed badly pensions may get no increase at all. It wasn't uncommon for a few years of no increases to be followed by a big increase.

Tighter legislation on this removed this flexibility, and when large pension deficits emerged companies generally moved to close their Defined Benefit schemes (there were many other reasons for closing too).

The presence of deficits and getting desire for profits has led to an increasing number of schemes not applying any indexation where it is discretionary. But if the pension scheme rules require indexation they do not have this option and must provide indexation.

I think I have had more than my fair share of your time and maybe its time to end this post.

It is a very reasonable question, which at face value appears strange.

It has to be viewed in a historical context to be understood, so I think it is useful to other readers too.

DBdoobydoo

BML wrote: »

Many thanks for your analysis but I'm rather confused as to how the comparatively small English company that I worked for does give an annual increase to my pension and the Massive American company does not. With your permission I think I have had more than my fair share of your time and maybe its time to end this post.

I worked for a massive American company (Digital Equipment Corporation aka DEC) & left in 1997. They were pretty paternalistic & looked after their employees & pensioners well. The final salary pension scheme was not index linked but the company paid annual discretionary increases. They also took years & years of contribution holidays because the pension scheme was allegedly in surplus.

Roll forward twenty years & DEC is no more as it was initially acquired by Compaq who in turn were acquired by HP. The final salary scheme was closed & HP doesn't give a !!!!!! about DEC pensioners. There is a tiny GMP element to my pension so since I turned 65 my £10K pension has increased by just £90 per year.

Only a tiny, tiny fraction of final salary schemes are not index linked. I suspect that it was always assumed that as in DEC's case the company would do the right thing not realising that corporate sharks who only see employees & pensioners as "human resources" will only do what they are legally obliged to do

hugheskevi

I suspect that it was always assumed that as in DEC's case the company would do the right thing not realising that corporate sharks who only see employees & pensioners as "human resources" will only do what they are legally obliged to do

This reminds me of a time, about 10 years ago, when I was involved with looking through the Trust Deeds and rules of a variety of companies.

We were surprised that in several cases the Trust Deeds massively limited Trustee powers, really limiting their powers on a surprisingly large number of areas of seemingly minor issues.

The reason was that it was a defence to take-over. The companies and Trustees feared the pension scheme could make the company vulnerable to take-over, with the new purchaser extracting surplus from the the pension scheme by only providing the absolute minimum pension they had to under law and scheme rules. Hence the Trust Deeds and scheme rules were written to try to avoid this possibility by ensuring there were no areas of discretion in scheme benefits.

AlanP_2

Another ex-DEC employee here that will be in the same boat once (if) I start drawing the pension.

Current thinking is i will take the CETV as a lump sum.