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Local Council Pension Schemes


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In the last few months I have become aware of how this Financial Junk has been spread far and wide CDO, SIVs etc etc.

Does anybody have any definitive information on how this impacts on UK Local Council Pension Schemes etc in this country I know that in Australia and USA there is litigation in progress against those that sliced and diced etc Bonds etc to pension funds etc.

Had a look at my local council's pension scheme and sure enough theres Overseas Bonds in it, thats what they term them as, sounds like it could be junk to me.

Does any body have any info.

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In the last few months I have become aware of how this Financial Junk has been spread far and wide CDO, SIVs etc etc.

Does anybody have any definitive information on how this impacts on UK Local Council Pension Schemes etc in this country I know that in Australia and USA there is litigation in progress against those that sliced and diced etc Bonds etc to pension funds etc.

Had a look at my local council's pension scheme and sure enough theres Overseas Bonds in it, thats what they term them as, sounds like it could be junk to me.

Does any body have any info.

The schemes are administered separately by each authority (usually at County level). Go to your local county council website, the data is regularly published (required by act of parliament to be published annually). The data shows what investments have been made, and what returns they make and what level of debt-funding is permitted to carry as well as future projections. As with all pension schemes funded from investment (employer and employee contributions), local government pensions are not immune to market fluctuations and some are performing better than others. Some also have separate schemes for other public-sector workers.

Central government pensions are funded differently - from general taxation.

Under John Major's administration debt levels / underfunding was permitted to rise quite significantly as the poll tax fiasco meant that collection rates were so low that this was the only practical way to overcome the massive loss to the local exchequer. Since Major introduced Council Tax the level of collection steadily improved. Most schemes are now back at or above their pre poll tax levels.

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In the last few months I have become aware of how this Financial Junk has been spread far and wide CDO, SIVs etc etc.

Does anybody have any definitive information on how this impacts on UK Local Council Pension Schemes etc in this country I know that in Australia and USA there is litigation in progress against those that sliced and diced etc Bonds etc to pension funds etc.

Had a look at my local council's pension scheme and sure enough theres Overseas Bonds in it, thats what they term them as, sounds like it could be junk to me.

Does any body have any info.

As I understand it, the index-linked pensions of council workers are underwritten by the local taxpayers, so, er, nothing to worry about then.

:ph34r:

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yes, I would be more interested in how they are buffered during bad times. it isn't enough to study the figures. BBC pensions for example at around very roughly 7 Billion for 18,000 employees, are covered by schemes whereby the shortfall from investments and the final pensions are covered by taking money from the licence fee.

The coverage is up to 8-10% loss on the pension fund being taken out of licence fees so employee payments stay the same and the buffer covers the loss. Those outside public sector may see this as a bit unfair.

Edited by maxwell
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UK Pension Schemes generally have very little exposure to CDOs or SIVs. Most of the bonds invested in are Government bonds (which have done very well over the last 6 months) with perhaps some corporates, but not very large as a proportion of the whole. Biggest impact on pension funds is declining stock markets, particularly the UK since most have a UK equity bias. Owners of CDOs and SIVs are mostly the banks and some hedge funds (which again UK pension funds have little exposure to).

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Article Here

I was told by a local council employee that some councils are as high as 60% and the problem gets worse with time !

Buckers

The budgets for parking etc. are not going to be used to top up under-performing pension funds though; current conditions are that central govt. policy commitments and new responsibilities mean council's are facing deficits as it is, and will be punished severely if they increase Council tax significantly about RPI (5%). So one of the last things they are going to 'prop up' any further is the pension funds; they are too worried about front line services now, quite rightly.

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First up I'm not in Local Government Pension scheme.

My concern is that my local council like a lot of other councils has made all kinds of promises about what its going to provide new this new that borrow to build new schools etc by PFIs, borrow in commercial markets to build new care homes etc etc.

If "Overseas Bonds" turn out to be junk and get marked to market Hey Presto black hole appears that councils are obliged to fill, thus scuppering borrowings etc,its worth noting tight credit markets and ability to actually borrow in commercial markets etc.

All happening perhaps in a recession with falling tax revenues etc, Cue real and deep cuts in services

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The budgets for parking etc. are not going to be used to top up under-performing pension funds though; current conditions are that central govt. policy commitments and new responsibilities mean council's are facing deficits as it is, and will be punished severely if they increase Council tax significantly about RPI (5%). So one of the last things they are going to 'prop up' any further is the pension funds; they are too worried about front line services now, quite rightly.

Do you have any evidence of this? I ask because it appears to contradict someone who appears to have some expertise in the matter (quoting from buckers's Telegraph article):

The calculations were made by Douglas Anderson, a partner at the actuaries Hymans Robertson who is one of the country's leading experts on public sector pensions.

(snip)

"We calculate some 26 per cent of council tax receipts go towards public sector pensions. There's every possibility this figure will rise over the next five years as age-related costs continue to feed in."

Personally I expect we will eventually see defaults on these gold-plated pensions. I think it will come down to a choice of default, or destroying the local tax base through bankruptcy and abandonment, but I find it hard to imagine that this is within the realm of the thinkable for people currently administering the pensions.

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Guest grumpy-old-man

I would say look to the US to see what might/will happen wrt this subject.

They were having problems paying the Uk equivalent of wages let alone the pensions in Q4 2007 iirc...

the UK is in far, far worse shape than the US imo, so what chance do you think UK pensions will have, even the traditional safe ones. :ph34r:

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Council workers have the most protected pensions. The Councils will simply increase council tax and car parking charges.

Is that a view from inside or outside? They have things called 'reorganisations' in which staff get made redundant, often older staff, so their pensions are reduced. A few months later money mysteriously is found to take on new young staff to replace the sacked older ones. Local authorities are as unscrupulous as the private sector when it comes to personnel, they are just more subtle about it.

Where does all the local government money go, then? I think the answer could be found in all the consultants and experts that are called in to tell the management either A) what they want to hear, or B) what they should be able to work out for themselves.

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http://www.thisismoney.co.uk/tax-advice/co...mp;in_a_source=

....But the Local Government Association, which represents all town halls, today said that although pensions costs were too high, they were nowhere near as expensive as claimed.

Sir Sandy Bruce-Lockhart, chairman of the LGA and leader of Kent county council, said in his own authority only 15 per cent went on the wage bill and just a fifth of that covered pensions.

However, he conceded: "Council taxpayers are paying too much in council tax to cover pensions. We want staff to pay higher pension contributions."

Contributions are up, conditions/benefits are heading down, and yes there will be deficits and the pension schemes long term are under threat but to state blithely that pensions will be topped up automatically from revenue is incorrect. Priorities really are elsewhere now;

http://www.timesonline.co.uk/tol/news/poli...icle3118850.ece

And the schemes will suffer and be downgraded over time, that's a given and all the talk inside local govt. (from what I've heard) is of job cuts and potential service cuts, along with increased pension contributions. As Dave Prentis general secretary of Unison (admittedly a vested interest) during the last row said;

"These essential workers have had enough of being told they are to blame for rising council tax increases. Local government pensions cost just 2.7p of the council tax pound, so don’t be fooled into believing that these people are to blame.

"It is simply immoral that the employer’s association doesn’t come clean and admit that they have already spent the pension funds paid in good faith by scheme members. This is a pensions con."

Pension funds have been raided by LGA employees already and the vast majority of benificiaries are low paid staff contributing usefully to society; one of the only plus points of local govt. work historically has been a relatively good and 'safe' retirement compared to the better wages in the private sector. Anyway let's not get into that, main thing is the real issues are inadequate local govt. funding, excessive central diktats, unrealistic policy expectations and mismanaged pensions. Immediately jumping all over staff contributing to pensions in good faith seems misanthropic to me is all. It's blaming the wrong thing.

I'm with Sir Sandy though, the thing needs reforming and rebalancing of contributions/conditions, but it's just NOT going to be about bleeding revenues any further, that just won't wash any more! (and the governement has council tax capping powers they happily use to ensure it). As for 'car parking' fines etc. these are effectively finite and too vanishingly small to contribute to the problem (anyway they've been humming along happily accruing revenue to fill the funding gap for ages).

http://www.timesonline.co.uk/article/0,,2-2087501,00.html

Sir Sandy Bruce-Lockhart, chairman of the Local Government Association, said:

"The council taxpayer simply cannot pay more. The employee staff contribution compared to the employer council tax contributions are currently not balanced and this must be addressed.

"The changes to local government staff pensions are both needed and necessary. Most local government staff currently retire at 65 compared to the rest of the public sector at 60. Unless action is taken in the very near future, the cost to individual council tax payers and local government because people are living longer will continue to rise.

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A third of Council Tax in England & Wales goes solely towards topping up the pension schemes of the Council workers.

Source? (I doubt it as its ********)

LG / NHS / Teachers pay in 6% with employee contributions at 8.4%. Therefore the proportion of tax paid into the fund cannot exceed 8.4% of the organisations wage bill. So if the wage bill is half a councils costs then 4% of revenue goes into the pension fund.

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Source? (I doubt it as its ********)

LG / NHS / Teachers pay in 6% with employee contributions at 8.4%. Therefore the proportion of tax paid into the fund cannot exceed 8.4% of the organisations wage bill. So if the wage bill is half a councils costs then 4% of revenue goes into the pension fund.

It depends on whether the top-up means adding to the fund itself, or topping up payments where the fund is inadequate to meet the pension obligations.

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Source? (I doubt it as its ********)

LG / NHS / Teachers pay in 6% with employee contributions at 8.4%. Therefore the proportion of tax paid into the fund cannot exceed 8.4% of the organisations wage bill. So if the wage bill is half a councils costs then 4% of revenue goes into the pension fund.

Presume that's employer contributions at 8.4%?

It would be absolutely spiffing if 6% + 8.4% bought you a gold plated pension at 60, or earlier for firefighters etc... but this fairly authoratative study confirms a figure of 26% of council tax, or £5bn/yr through direct taxation, and bound to be rising rapidly, though there is the issue of how much spending comes from council tax v central government.

http://www.telegraph.co.uk/news/main.jhtml...1/22/ntax22.xml

Local government suffers the same disease as the rest of the economy - centralisation, management by metrics and the explosion in highly paid managers, who chew a disproportionate amount of the resources. If the schemes are heavily subsidised (which seems to be proven) then the better paid are subsidised more by council tax payers.

It is about time they started capping benefits for the better paid, or better still disposing with the suits, laptops, blackberries, strategic frameworks, KPI and performance metrics and got with what they are suppose to be doing!

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It depends on whether the top-up means adding to the fund itself, or topping up payments where the fund is inadequate to meet the pension obligations.

Of course when a council / NHS trust / whatever goes through yet another reorganisation so the CEO can justify his salary and uses early retirement as a means by which to facilitate this - well yes they have to top up. Thats no different from any private or public sector scheme.

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It depends on whether the top-up means adding to the fund itself, or topping up payments where the fund is inadequate to meet the pension obligations.

Councils / NHS trust etc may use early retirement as an easy means by which to achieve this weeks reorganisation. Naturally as is the case with any pension if they choose to do this top up funds have to be added. Thats not actually a problem with the pension scheme itself but an issue for the employer.

The pension formula itself is sound. The reason public sector funds havent failed is because the unions have ensured that the employers do not take payment breaks. Contrast that with the private sector where in the good years compaanies took payment breaks year in year out.

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Presume that's employer contributions at 8.4%?

It would be absolutely spiffing if 6% + 8.4% bought you a gold plated pension at 60, or earlier for firefighters etc... but this fairly authoratative study confirms a figure of 26% of council tax, or £5bn/yr through direct taxation, and bound to be rising rapidly, though there is the issue of how much spending comes from council tax v central government.

http://www.telegraph.co.uk/news/main.jhtml...1/22/ntax22.xml

Local government suffers the same disease as the rest of the economy - centralisation, management by metrics and the explosion in highly paid managers, who chew a disproportionate amount of the resources. If the schemes are heavily subsidised (which seems to be proven) then the better paid are subsidised more by council tax payers.

It is about time they started capping benefits for the better paid, or better still disposing with the suits, laptops, blackberries, strategic frameworks, KPI and performance metrics and got with what they are suppose to be doing!

This not a dispute about whether or not public money is wasted or that Govt is too large - that is generally accepted. However at the same point most of us probably accept that some form of Govt is needed and therefore will need employees.

Example - a guy starts in the NHS aged 21 on a salary of £20,000. He works 40 years and finishes at 61 on a final salary of £41000. Assuming his average salary over that period is £30,500 then the total of contributions will be £73,200 and £102,480 from the employer. Assuming it is invested at a rate of reurn of 6% after costs and inflation this will leave a pension pot of £572,700

He will get a pension of £20,500 per annum and a lump sum of £61500. Im fairly certain a pension pot of £511000 can support a pension of £20,500 per annum for life.

The formula is sound - its the missuse of early retirement that is the problem.

I agree entirely with your last statement 'strategic frameworks' etc.....

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It depends on whether the top-up means adding to the fund itself, or topping up payments where the fund is inadequate to meet the pension obligations.

Typical town hall situation described below:

Gary Bob and Joe no longer fit into the organisation after this weeks strategic review. In order to avoid the enevitable unfair dismissal cases the CEO offers G,B & J early retirement as a sweetener. The current fund would only pay x amount for their given ages so the organisation has to make up the difference and buy additional years pension to make the deal acceptable to G,B &J.

The fund is always adequate if one works on the presumption of 40 years service for a pension of half your final salary. However if you have only put in 30 years and the CEO wants to retire you off with 40 years service the organisation has to make up the difference.

The above situation occurs in the private sector everyday aswell.

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The pension formula itself is sound. The reason public sector funds havent failed is because the unions have ensured that the employers do not take payment breaks. Contrast that with the private sector where in the good years compaanies took payment breaks year in year out.

My concern is that index-linked pensions have been planned and funded on economic assumptions that were valid in the past and still seem valid to many now, but that I don't believe will hold in future. Non-index-linked pensions will self-adjust to new economic realities (possibly leaving the pensioner in penury along with the rest of society). Holders of index-linked pensions will (attempt to) be insulated from what's happening to everyone else -- and that is neither fair nor sustainable. One way or another, the pensions will default.

Example: what happens if taxpayers are required to underwrite index-linked pensions in a time of hyperinflation. Or just a very high inflation caused by spiralling energy costs. It's a ticking time bomb, it just hasn't gone off yet.

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  • 441 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


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