17bn deficit in academia pension fund

[VeryMeanReversion]

11 hours ago, MrXxx said:

.Does anyone know how DB or DC pensions are protected?..are they protected like the first £85k savings are?.

I looked into this before stashing lots in my DC scheme and its not easy to find out.

If you pension is held in cash, then only £85K per institution is backed by the government.

Funds are supposedly protected.

I spend a lot of time reading up on the nature of the protection but still came away confused (too many weasel words mean I don't think there really is much protection).

 

My pension had been with Standard Life and Scottish life and I was getting more and more concerned that this sort of arrangement would not be paid out in future if an Equitable Life situation happened. I had one experience where their so-called sterling fund had been invested in Mortgage Backed Securities rather than £/bonds as they claimed and they applied a "Market Value Adjustment" to it.  I managed to get this reversed but the lesson had been learned.  The lessons were complexity and counterparty risk.

So I moved it to a Hargreaves Lansdown, buying mostly individual equities and the odd bit of platinum. Basically, they just do the paperwork to hold things on my behalf. They have no debt and no liability to support their other customers at my expense.  Its the only way I know to minimise the risk of confiscation or any more "market value adjustments" which funnily enough, never seem to go my way,

I have a pension through work that just goes into a cash fund but that is just a feeder into my SIPP so I can keep the company contributions. There are no limits to partial transfers.

DB funds go into the pension protection fund if they fail.  On first look, you get 90% of the promised payout but the increases/benefits aren't as good. I've read reports that in some cases, its equivalent to only 50% protection.

The money involved in pensions is so huge, the potential for skimmers,  fraud and dilution of promises is enormous.  By the time you realise you have been done, it's usually too late.

 

[Guest]

I will be watching this story and seeing how it progresses with a lot of interest. I can see why so many people feel aggrieved and are anxious, it isn't fair.

But!

I sense a little mischief making here. Normally something like this is brought to our attention, and the solution is always the young are then  again clobbered in the futute  more so than they already are. I think this story coming out like it has done is making the point enough is enough, I can already see the anger errupting should they put student fees up again or something similar, that also "isn't fair"

This is systematic of what has been happening in the UK the past 15 odd years, time and time again there is a large majority of the home owning baby boomers whose every concern is   adresseded at the cost of the younger generation everytime. I am not including every baby boomer, of course some have and are still having a bad time, more so if they say rent their home, when was the last time you heard a politician mention "the hard working property renter" whose problems in life are not only as difficult as homeownes, I would say worse.

The old woman in a 5 bedroomed home in a posh part of London, your Joan Bakewells of this world, discussing "the injustice" of being economically pressured to move on from their huge family homes, that gets prime time BBC coverage, or the worry of house prices dropping, again BBC coverage, the wonderful pensions out there that we will never see, you dare touch them again BBC prime time coverage.

There are millions of under 40's out there bein g totally ignored while an older generation is wrapped in cotton wool, I sense we are on the eve of this ending.

 

[winkie]

There are still plenty of the better off pensions about and more coming into the pipeline, they will be the ones with the money to spend and time on their hands to spend it especially if have a house to sell, quite a few will sell on retirement, they'll be better off financially if no or few children or children that are independent and self sufficient.......compare that with the thousands with no pensions or few very small private pensions that will probably be cashed in, the people that are using their savings to pay the rent.....when all pension and savings spent and gone who will pay their rents?

[MrXxx]

I agree Wotsthat...it seems strange that the only Press covering this seem to be the BBC and the FT (the original article)...in IT searches the BBC seem to be continually running with it...something to do with 'Corbyns promise'?...The BBC...a fine, upstanding, independent broadcaster!

[Kosmin]

18 hours ago, nightowl said:

I wonder how many other pension funds fundamentally have the same problem but is hidden by accounting jargon, and the implementation of auto enrollment was to help their cash flow as the boomers retire.....

 

I thought all auto enrolment was defined contributions. I wouldn't have thought this would make any difference to existing schemes.

[Kosmin]

3 hours ago, winkie said:

There are still plenty of the better off pensions about and more coming into the pipeline, they will be the ones with the money to spend and time on their hands to spend it especially if have a house to sell, quite a few will sell on retirement, they'll be better off financially if no or few children or children that are independent and self sufficient.......compare that with the thousands with no pensions or few very small private pensions that will probably be cashed in, the people that are using their savings to pay the rent.....when all pension and savings spent and gone who will pay their rents?

Their children

[kzb]

USS was changed from final-salary to capped CARE scheme some years ago.  The CARE element is capped; above the cap it is a DC scheme.

As a model of workplace pensions I thought this was ideal.  The DB liability is capped but persons have a minimum pension guarantee in effect.

It makes me wonder what has been going on, because the contributions base has been growing over time, not shrinking as in other public sector areas.  Although, I DO remember a redundancy scheme back in the 1990's where academics were offered retirement at age 43......

[Warwick-Watcher]

On ‎30‎/‎07‎/‎2017 at 0:00 AM, Sancho Panza said:

Google is your friend

https://www.ft.com/content/914d9cba-7232-11e7-aca6-c6bd07df1a3c

'The Universities Superannuation Scheme — which provides pensions for academics and has more than 390,000 members — recorded retirement liabilities of £77.5bn at March 31, dwarfing its assets of £60bn. '

 

oh dear!

According to their website the current accrual rate is 1/75 of salary plus 3/75 as a lump sum. Members contribute 8% of salary and the employer (taxpayers) contribute 18%. That must add up to quite a bit of money with vice-chancellors reportedly earning GBP 400k p.a.+

[winkie]

3 hours ago, Kosmin said:

Their children

....like father like son.

 

Edited July 31, 2017 by winkie

[kzb]

18 minutes ago, Warwick-Watcher said:

According to their website the current accrual rate is 1/75 of salary plus 3/75 as a lump sum. Members contribute 8% of salary and the employer (taxpayers) contribute 18%. That must add up to quite a bit of money with vice-chancellors reportedly earning GBP 400k p.a.+

But that's a total contribution rate of 26%.

What is more, the contributor population has been growing.

Even with flat population and zero real fund growth, the working-age contributors can support about half their number of pensioners on half earnings.  Something funny is happening here.

[nightowl]

My concern was if a defined benefit fund cannot pay out it would then have to 'borrow' that shortfall from the undefined schemes by an accounting slight of hand (assuming its the same company/fund management operates both).  Its not as if they are going to publicise the problem, nor the government/regulator either....  the taxpayer doesnt wants to hear about another bail-out!

[Talking Monkey]

7 hours ago, wotsthat said:

I will be watching this story and seeing how it progresses with a lot of interest. I can see why so many people feel aggrieved and are anxious, it isn't fair.

But!

I sense a little mischief making here. Normally something like this is brought to our attention, and the solution is always the young are then  again clobbered in the futute  more so than they already are. I think this story coming out like it has done is making the point enough is enough, I can already see the anger errupting should they put student fees up again or something similar, that also "isn't fair"

This is systematic of what has been happening in the UK the past 15 odd years, time and time again there is a large majority of the home owning baby boomers whose every concern is   adresseded at the cost of the younger generation everytime. I am not including every baby boomer, of course some have and are still having a bad time, more so if they say rent their home, when was the last time you heard a politician mention "the hard working property renter" whose problems in life are not only as difficult as homeownes, I would say worse.

The old woman in a 5 bedroomed home in a posh part of London, your Joan Bakewells of this world, discussing "the injustice" of being economically pressured to move on from their huge family homes, that gets prime time BBC coverage, or the worry of house prices dropping, again BBC coverage, the wonderful pensions out there that we will never see, you dare touch them again BBC prime time coverage.

There are millions of under 40's out there bein g totally ignored while an older generation is wrapped in cotton wool, I sense we are on the eve of this ending.

 

It has to end at some point as there is no more to take from the young. Free university education taken, retirement age pushed back, end of DB schemes, Private pensions can only be accessed later, tax free pension allowance decreased, no job security, as it stands a lot of youngish people in their early 30s are going to be bewildered in 25 years when they see what they have to show for a working life

[spyguy]

33 minutes ago, Talking Monkey said:

It has to end at some point as there is no more to take from the young. Free university education taken, retirement age pushed back, end of DB schemes, Private pensions can only be accessed later, tax free pension allowance decreased, no job security, as it stands a lot of youngish people in their early 30s are going to be bewildered in 25 years when they see what they have to show for a working life

The pyramid flips - no more hge base of tax payers funding a small peak of OAPs.

We are moving to a demograpahic square now.

Its doesnt help that the half-witted 'migration fix' policy has seen the UK try and prop up the pyramid by bringing in loads of migrants who sit around on benefits.

Its not 'young' people needed to keep it going, its ' young, working, net tax payers' thats needed

[Dorkins]

4 hours ago, Warwick-Watcher said:

According to their website the current accrual rate is 1/75 of salary plus 3/75 as a lump sum. Members contribute 8% of salary and the employer (taxpayers) contribute 18%. That must add up to quite a bit of money with vice-chancellors reportedly earning GBP 400k p.a.+

Can't put more than £40k pa and £1m in a lifetime into pension wrappers.

[Talking Monkey]

45 minutes ago, spyguy said:

The pyramid flips - no more hge base of tax payers funding a small peak of OAPs.

We are moving to a demograpahic square now.

Its doesnt help that the half-witted 'migration fix' policy has seen the UK try and prop up the pyramid by bringing in loads of migrants who sit around on benefits.

Its not 'young' people needed to keep it going, its ' young, working, net tax payers' thats needed

Aye that's a more accurate way of putting it young, working, net taxpayers

[kzb]

35 minutes ago, Dorkins said:

Can't put more than £40k pa and £1m in a lifetime into pension wrappers.

AND, if salaries have increased in real terms as time goes on, as alleged here, that HELPS the situation as 26% of a lot is more than 26% of a little.

The DB element of the USS pension is capped.  The VC on £400k, his or her pension contributions will be mostly DC.

[Sterling Loss]

5 hours ago, nightowl said:

My concern was if a defined benefit fund cannot pay out it would then have to 'borrow' that shortfall from the undefined schemes by an accounting slight of hand (assuming its the same company/fund management operates both).  Its not as if they are going to publicise the problem, nor the government/regulator either....  the taxpayer doesnt wants to hear about another bail-out!

No danger of that happening IMO.  Defined benefit and defined contribution schemes are approved under different legislation and assets have to be kept separate. The main risks are  investment performance, and charges/fees in defined contribution.  Modern Bob Maxwells will steal pension assets if they can. 'Sir' Philip Green types will syphon off company assets for £100m yachts so a company has no resources to fund a scheme. 

There will always be some cross subsidy between generations in defined benefit schemes, because if you're fixing the benefits, the contributions will vary.  If a DB scheme is underfunded and the employer isn't going to make it good, there's a hierarchy of who gets priority in the scheme rules,  pensions in payment are at the top.  Trustees are supposed to represent scheme members' interests at all times, but I wonder if DB schemes are vulnerable to abuse at a time when helping yourself to other people's money is just what everyone does if they can

[spyguy]

4 minutes ago, Sterling Loss said:

No danger of that happening IMO.  Defined benefit and defined contribution schemes are approved under different legislation and assets have to be kept separate. The main risks are  investment performance, and charges/fees in defined contribution.  Modern Bob Maxwells will steal pension assets if they can. 'Sir' Philip Green types will syphon off company assets for £100m yachts so a company has no resources to fund a scheme. 

There will always be some cross subsidy between generations in defined benefit schemes, because if you're fixing the benefits, the contributions will vary.  If a DB scheme is underfunded and the employer isn't going to make it good, there's a hierarchy of who gets priority in the scheme rules,  pensions in payment are at the top.  Trustees are supposed to represent scheme members' interests at all times, but I wonder if DB schemes are vulnerable to abuse at a time when helping yourself to other people's money is just what everyone does if they can

Most of the DB sub was from people who only worked a short time yo the long sayers. And from people who earning rose a lot towards the end from those whos salary stayed the same.

[doomed]

lol pensions

[Sterling Loss]

6 minutes ago, spyguy said:

Most of the DB sub was from people who only worked a short time yo the long sayers. And from people who earning rose a lot towards the end from those whos salary stayed the same.

If an employer increases salaries for some people just before retirement, it's either funded from surplus (lol) or the employer has to contribute more. Those whose salaries remain the same aren't adversely affected, they get what they were promised. It's unlikely a scheme surplus would be used to uplift benefits, the employer can take a refund, so no need for subterfuge here at  least. 

Short termers have been much better protected for a long time, it's only people who've been in a scheme for a very short time who lose out and the justification is that their benefits would be trivial. 

 

14 minutes ago, doomed said:

lol pensions

Yep. All the complexity intended to protect people has resulted in employers ditching serious pension provision. 

[debtlessmanc]

11 hours ago, kzb said:

USS was changed from final-salary to capped CARE scheme some years ago.  The CARE element is capped; above the cap it is a DC scheme.

As a model of workplace pensions I thought this was ideal.  The DB liability is capped but persons have a minimum pension guarantee in effect.

It makes me wonder what has been going on, because the contributions base has been growing over time, not shrinking as in other public sector areas.  Although, I DO remember a redundancy scheme back in the 1990's where academics were offered retirement at age 43......

I am in this scheme, the worrying thing here is that it is well run, the vice chancellors actually suggested a pension holiday in the late 90's as they thought there was too much in it! fortunately the USS ignored them.

Whats the problem, well as you say it was way too generous in the the 1990's allowing people at 51 to retire for example (never heard of 43)

secondly elderly professors live for ever, they also have a habit of marrying much younger women who get widows pensions for even longer

finally as has been said, the expansion of the sector in a period were the finances should have been changed but were only far too late.

what gauls me is that ex-wife has 50% of the best part of mine

[kzb]

11 hours ago, Sterling Loss said:

If an employer increases salaries for some people just before retirement, it's either funded from surplus (lol) or the employer has to contribute more.

Just to ensure people on here have it straight, the USS has not been a final salary pension for some years.

It was changed to CARE, i.e based on Career Average salary.  So increasing someone's salary just before retirement would have only a small effect on the average.

[kzb]

10 hours ago, debtlessmanc said:

I am in this scheme, the worrying thing here is that it is well run, the vice chancellors actually suggested a pension holiday in the late 90's as they thought there was too much in it! fortunately the USS ignored them.

Whats the problem, well as you say it was way too generous in the the 1990's allowing people at 51 to retire for example (never heard of 43)

secondly elderly professors live for ever, they also have a habit of marrying much younger women who get widows pensions for even longer

finally as has been said, the expansion of the sector in a period were the finances should have been changed but were only far too late.

what gauls me is that ex-wife has 50% of the best part of mine

Yes I am sure what you say has a lot of truth in it.  I do remember a few male academics trading in their wives for younger models.

But don't the ex-wives have to take it as an annuity (perhaps lump sum now), not an on-going pension as such?

[debtlessmanc]

2 hours ago, kzb said:

Yes I am sure what you say has a lot of truth in it.  I do remember a few male academics trading in their wives for younger models.

But don't the ex-wives have to take it as an annuity (perhaps lump sum now), not an on-going pension as such?

no - widows pension, my boss is about to retire at 69 and is about to marry his 45 year old (long term) partner so that she will get the widows pension.

Edited August 1, 2017 by debtlessmanc

[kzb]

30 minutes ago, debtlessmanc said:

no - widows pension, my boss is about to retire at 69 and is about to marry his 45 year old (long term) partner so that she will get the widows pension.

That's true if they can be defined as a widow (is it necessary for them to be actually married anymore?)

But EX-wives, i.e they are divorced and not living as a household, I don't think they get a widows pension?

A relative of mine, on divorce, had to convert part of his final salary pension entitlement into a lump sum, which (at the time) had to be converted to an annuity.

Possibly it does not need to be converted to an annuity now, with the changes to pension rules (but still a lump sum).

People also forget the rules for paying DB pensions are stricter than for DC.  To benefit from a dead person's DB pension you need to be a dependant, and a dependant is strictly defined.  You can't leave your DB pension to anyone you choose.

Edited August 1, 2017 by kzb