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Retrospective Private Pensions Cut Will Hammer Millions

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Webb's remarks in the last paragraph should read: "we intend to create the conditions for them to rob people, but victims must blame them should they choose to steal their money."

http://www.express.co.uk/posts/view/202574/Pensions-cut-will-hammer-millions

PENSIONS CUT WILL HAMMER MILLIONS

Thursday September 30,2010

By Sarah O'Grady, Social Affairs Correspondent

A NEW pensions bombshell threatens the retirement incomes of millions.

The rules on how inflation is calculated for private pensions are set to be rewritten in a move that will cost workers and those already retired thousands of pounds a year.

More than 12 million people stand to be affected by the controversial Government policy proposal, described by one critic as a “hot potato”.

It would enable firms to go back on their promises that company pensions would be raised in line with the most generous measure of inflation, the Retail Prices Index, and instead allow them to use the lower Consumer Prices Index.

The proposal was immediately condemned by pension experts.

Bob Bullivant, of Annuity Direct, described it as a “jab behind the kneecap coming from left field”.

He said: “Why should diligent savers bail out the Government with their retirement funds? Workers are encouraged to squirrel away their hard-earned money to support themselves in old age, only to be told that someone is re-writing the rules halfway through the game.”

Historically, the CPI has climbed much less steeply than the RPI, so it would give pension fund members much less protection against inflation.

Experts believe the change could save businesses £100billion.

But the impact on pension recipients could be huge because of the power of compound interest – the interest earned on interest over many years.

A 40-year-old with a promised £10,000-a-year pension would, by the age of 90, be receiving £56,000 if his benefits were raised by the RPI, but only £39,000 if raised by the CPI.

RPI typically rises by 0.7 per cent to 0.8 per cent a year more than CPI, which excludes housing costs.

The new proposal would apply even where RPI has been explicitly spelt out in pension scheme rules or a trust deed, the legal document governing each pension fund.

Steve Webb, the Pensions Minister, confirmed for the first time that he is considering legislation to allow the change in a letter to a senior pensions consultant.

Mr Webb wrote: “The Government is aware there are schemes that have RPI increases written in to their scheme rules and we are considering whether there is a case for using legislation to make it easier for these schemes to adopt CPI if they want to.”

Experts expressed scepticism about legislation, saying it would be challenged in the courts as there is strong precedent preventing the State from interfering in private contracts.

Making the inflation link watertight is crucial both for members of schemes who have already retired and for those who have left their employer but still have valuable accrued benefits, so-called deferred members.

While workers paying into private sector defined benefit pension schemes have dwindled to about 2.6 million, there are still 4.5 million already retired pensioner members of such schemes and a further 5.3 million “deferreds”. A large proportion of these schemes have RPI explicitly named in their rules.

Mr Webb wrote on September 11 to Dawid Konotey-Ahulu, chief executive of pensions consultants Redington. Mr Konotey-Ahulu said: “It would seem to set a precedent. Legislation to over-ride a contractual agreement is something you do very, very rarely.

“This could turn into a seriously hot potato, not least because any such move would be retrospective because it would affect benefits already accrued for past service.”

The Government previously announ ced plans to use CPI, not RPI, for public-sector pensions, a move expected to meet resistance from trade unions.

Yesterday Mr Webb said: “We’re not going to force any private pension scheme to change to CPI – legislation sets the minimum, and schemes will continue to be free to pay more.”

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If pensions were linked to RPI (including housing costs) whilst HPI was raging, then it is surely be better - from the employers' point of view - to continue to use it during the coming HPC, when the RPI could well turn negative.

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"The new proposal would apply even where RPI has been explicitly spelt out in pension scheme rules or a trust deed, the legal document governing each pension fund."

Any decent govt. would protect legal contracts, this one is shitting all over them. Bunch of crooks, no better than Liebour.

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"The new proposal would apply even where RPI has been explicitly spelt out in pension scheme rules or a trust deed, the legal document governing each pension fund."

Any decent govt. would protect legal contracts, this one is shitting all over them. Bunch of crooks, no better than Liebour.

When you use the same retrospective rule changes and fiddling with the figures (the crap price index where any old crap is thrown in a substituted to bring the guidleline number down) does indeed make you no better than the previous incumbents.

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This is really bad. I stayed with my chosen employer for many years (the BBC) when I was offered larger sums to work elsewhere.

One of the major reasons to stick where I was being the pension scheme.

I've moaned about this before on here, and been shot down in flames, but to me this is no different to them asking for money back that you've already been paid.

It's not as if the scheme was even voluntary.

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Menawhile the Bankrupt of England are not even targetting the FAKE CPI index.

Ring-a-King-a-Posens,

A pocket full of Beans;

atishoo, atishoo

We all fall down

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I'm a trustee for our company pension scheme and we've discussed this in detail with our lawyers and actuaries. The general conclusion is that it's a storm in a teacup that's been whipped up by the media, at least as far as retrospective legislation covering private pensions.

There are multiple hurdles before this could ever see the light of day, not least is that it would certainly be challenged in the courts, and the courts have a long history of preventing government meddling in private contracts.

Never gonna happen.

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That is true - rpi could easily fall below cpi in the future. They are taking on a big risk with this change.

I've got a solution for them though. As rpi is just a human construct - they could just change the way it is calculated (happens all the time anyway) so that it simply comes up with the same number as cpi...or even lower. Surely that has got to be easier than being dragged through the courts for years.

My deferred final salary pension is increasing at a fixed, unconditional 5% printed in big letters on the documentation :D .

I know the inflationists on here will cry foul - that will be worthless in 10 years etc.

But imagine what it will be like if the deflationists are right.

Anyway for the last 5 years it has kept well ahead and by retirement it looks like it will be rivalling a modest IT salary which are very much withering on the vine at the moment.

Someone made a really stupid decision on deferred pensions in our scheme - probably when hardly anyone was leaving the company.

I'm glad they did but I do feel sorry for recent/existing members who are having their benefits cut to meet this promise.

Its so expensive I am half expecting them to try to strike a deal, some sort of payoff akin to being 'made redundant' from my pension.

The sad thing is that the parent company is a massive global player more than able to pay all these promises and maintain the benefits for existing employees.

But they just seem obsessed with spending the minimun they can and driving the workforce and pensioners down to some sort of international lowest common denominator.

Edited by xux42

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I don't entirely understand this article.

A couple of points, Steve Webb is a Lib Dem and a well known leftie so he's not going to be doing something that detrimental to the workers. Second, from this Guardian interview it seems that the any change is voluntary and a company would still have to go through a formal procedure with their staff to make a change.

Q: What effect will CPI indexation have on people in private occupational schemes?
A: What we do – and the only thing that we do – is we set a floor. We say that pensions in payment have to go up by a minimum amount. We've said we will define that in terms of CPI not RPI. But that does not prevent any scheme from paying more than that if they want to, or if they have scheme rules saying they will link by RPI and they decide not to change.

http://www.guardian.co.uk/politics/2010/sep/17/steve-webb-conservatives-kneejerk-reactions

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I'm a trustee for our company pension scheme and we've discussed this in detail with our lawyers and actuaries. The general conclusion is that it's a storm in a teacup that's been whipped up by the media, at least as far as retrospective legislation covering private pensions.

There are multiple hurdles before this could ever see the light of day, not least is that it would certainly be challenged in the courts, and the courts have a long history of preventing government meddling in private contracts.

Never gonna happen.

This change clearly doesnt mean very much. FWIW I expect CPI to jump ahead of RPI.

The big problem with private pensions though, is the sheer cost of them, and the way they are handled when the scheme goes bust with no solvent employer behind it. There is this crazy rule that those who are retired, are protected in full first. Everyone else in the scheme, has to take a proportionately bigger haircut. This in the past has led to some scheme members being wiped out just before retirement.

As a sticking plaster, Labour came up with the Pension Protection Fund monstrosity, which is basically a tax on pension funds to bail out the failures. Good pension schemes have to pay for the bad ones, moral hazard once again.

If the government want to help private pensions, change the law so that if a scheme is failing, then all members of the scheme, including those retired, take a proportionate cut in their benefits. After all, if some people have say a 20% cut in the pension they are receiving, they arent going do suffer particularly, given they have a state pension on top. Whereas wiping people out is just wrong. All the current ruling does is turn pension schemes into pyramid/ponzi schemes, with those unlucky enough to be working, carrying the can when it all blows up.

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That's b*llocks! - for me, they are limiting inflation adjustments to CPI or 2.5% whichever is the higher (effectively a 2.5% cap!) ..That is VERY SIGNIFICANT. That basically robs me of half my pension. I'm fuming. This is a retrospecive change that means in 25 years I will not get what I thought I was buying. DISGUSTED.

THe Private Sector, along with the Public Sector, needs to learn that Defined Benefit Pension Schemes are reckless in the extreme.

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Does this apply to the index linking of annuities that have already been purchased?

I very much doubt it. I think it's about people waking up to the folly of defined benefit schemes.

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Not reckless. Just mathematically impossible.

True.

The Private Sector, along with the Public Sector, needs to learn that Defined Benefit Pension Schemes are mathematically impossible and thus reckless in the extreme.

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This change clearly doesnt mean very much. FWIW I expect CPI to jump ahead of RPI.

For the next 40 years?

Don't be ridiculous.

They wouldn't even be bothering considering doing this if the Tories didn't want to steal the money to give to Fatby Jones and his corporate chums in pretend higher profits so they can pay themselves nice fat bonuses today.

It's a scam. CPI's a scam. Just like Gordon and his 20% div. relief.

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True.

The Private Sector, along with the Public Sector, needs to learn that Defined Benefit Pension Schemes are mathematically impossible and thus reckless in the extreme.

Not impossible, just increasingly unfair.

My fund has about £1bn in it.

Thus paying the reckless promise they made to existing and deferred pensioners is completely affordable.

However, pretty soon the younger members in employment and the employer will be making contributions and most of the money will go to paying existing obligations and building up very little entitlement for the current employees.

I think you are suggesting that they won't be very happy about the situation.

The pensioners on the other hand will be very happy finding themselves with spending money in an otherwise cash strapped society, so its an ill wind...

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Not impossible, just increasingly unfair.

My fund has about £1bn in it.

Thus paying the reckless promise they made to existing and deferred pensioners is completely affordable.

However, pretty soon the younger members in employment and the employer will be making contributions and most of the money will go to paying existing obligations and building up very little entitlement for the current employees.

I think you are suggesting that they won't be very happy about the situation.

The pensioners on the other hand will be very happy finding themselves with spending money in an otherwise cash strapped society, so its an ill wind...

Defined Benefit Pension schemes are a scam, both in the private and public sectors.

How on earth can a company or government GUARANTEE future payments to a particular person before knowing what's paid in by said person?

Under Defined Benefit schemes, the amounts paid out are not related to the monies paid in.

Defined Benefit Pension schemes are like putting £100 a year under your mattess for 50 years and then finding out it's magically grown by 50% to become £7500.

The amount paid to someone via a pension should be based on the contributions they've made to their pension - nothing more, nothing less.

(I.e. a Defined Contribution Pension).

You get out what you've paid in.

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Not impossible, just increasingly unfair.

My fund has about £1bn in it.

Thus paying the reckless promise they made to existing and deferred pensioners is completely affordable.

However, pretty soon the younger members in employment and the employer will be making contributions and most of the money will go to paying existing obligations and building up very little entitlement for the current employees.

I think you are suggesting that they won't be very happy about the situation.

The pensioners on the other hand will be very happy finding themselves with spending money in an otherwise cash strapped society, so its an ill wind...

Well thats 1 Bn today based on current asset price valuations at the bottom of an interest rate cycle and corresponding debt cycle peak. Good luck with it being fully funded at some point in the future

Edited by Tamara De Lempicka

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a generation of people born since 1975 are turning into tory voters out of gratitude

I can only surmise that mentally unstable people came up with the idea of Defined Benefit schemes.

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I can only surmise that mentally unstable people came up with the idea of Defined Benefit schemes.

I think, in the white heat of post war modernism, they sounded sensible, but times change, law of unintended consequnces

don't forget, in the 1950s right thru tothe mid 1970s, the balance of opinion, both tory and labour, was the post war keynsian concensus, free marets and responsibility only became prmoted from Calaghan and then, more seriously, Thatcher.

thsi ind of thing was simply the concensus at the time

Edited by Si1

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I think, in the white heat of post war modernism, they sounded sensible, but times change, law of unintended consequnces

don't forget, in the 1950s right thru tothe mid 1970s, the balance of opinion, both tory and labour, was the post war keynsian concensus, free marets and responsibility only became prmoted from Calaghan and then, more seriously, Thatcher.

thsi ind of thing was simply the concensus at the time

Well said. Mass delusion or the madness of crowds are to blame.

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