Taxpayers May Have To Dig Deep For Miners' Pensions

[interestrateripoff]

http://www.telegraph.co.uk/money/main.jhtm.../05/ccom105.xml

With a combined 350,000 members and £27bn of assets, the Mineworkers Pension Scheme and British Coal Staff Superannuation Scheme are among the largest pension funds in the country.

They are also underwritten by the likes of you and me.

Under a deal signed when British Coal was privatised in 1994, the Government guaranteed the schemes' payments, along with inflation-linked increases. In return for this guarantee, the Government receives 50pc of any surpluses (with the schemes' members sharing the rest in the form of an annual "bonus").

It's a bizarre deal - with inherent conflicts of interest - that would no doubt be rejected out of hand by the Pensions Regulator if it were proposed by a private sector company today.

But for the schemes' members and this cash-strapped Labour administration it has proved to be a very lucrative arrangement.

In the past two years, the Government has received £1bn in surpluses (bringing the total pay-out since 1997 to £3.5bn).

Thanks to a string of freedom of information requests by John Ralfe, the independent pensions consultant, we now know a lot more about the two schemes, their liabilities and exactly how the Government calculates the schemes' surpluses.

Ralfe's findings do not make pleasant reading. The surplus that has helped to boost the Government's coffers is based on calculations by the government actuary (the same actuary that continues to underestimate the real cost of MPs' generous final salary pension scheme and that was heavily criticised by the Parliamentary Ombudsman in its recent report on Equitable Life).

The schemes currently have a combined £1.9bn surplus - based on an "expected return on assets" calculation by the actuary. But, on the basis of the index-linked gilt rate, that surplus becomes a £900m deficit. The payments, Ralfe argues, are being made from "fictitious surpluses". And it's not just the calculation of the surpluses that he argues we should be worried about. Despite being mature schemes, with the vast majority of members collecting their pension, 70pc of the funds' assets are held in equities.

A similar private sector scheme would be invested 100pc in bonds, but the Government it seems is prepared to gamble on the equity markets. Not that the schemes' current members are likely to complain, given that the actuary's optimistic assumptions have delivered such generous bonuses in recent years. The Government itself is also unlikely to lobby for a more conservative calculation of liabilities, given how desperate it is to prop up its battered balance sheet.

But, if the actuary's assumptions prove to be overly generous - as Ralfe expects they will - future taxpayers will be forced to pick up the tab and honour the Government's promise.

More cooking of the books and yet another stupid govt mistake that the taxpayer will have to pick the bill up for.

Good job we aren't heading into a recession.

[patprimer74]

More cooking of the books and yet another stupid govt mistake that the taxpayer will have to pick the bill up for.

Bearing in mind that you and I, 'the tax payer', have already received £3.5bn from the funds and only face the possibility of a shortfall of £900m, then we seem to have done very well out of the deal. What are you and The Torygraph complaining about? We're in profit to the tune of about £2.6bn ffs !!

p

[Injin]

Bearing in mind that you and I, 'the tax payer', have already received £3.5bn from the funds and only face the possibility of a shortfall of £900m, then we seem to have done very well out of the deal. What are you and The Torygraph complaining about? We're in profit to the tune of about £2.6bn ffs !!

p

Of course "we" are.

Did you get your share in tenners or twenties?

Oh no, wait. Labour bought bombs and murdered children in Iraq with it instead.

Can I ask why you support such vile, evil scum?

[RufflesTheGuineaPig]

It's nothing... a few tens of billions at the most.

The outstanding unfunded civil service pension bill is over a trillion... and index linked.

Add in NI and SERPS based pension liabilities... say a couple of trillion more.

[Injin]

It's nothing... a few tens of billions at the most.

The outstanding unfunded civil service pension bill is over a trillion... and index linked.

Add in NI and SERPS based pension liabilities... say a couple of trillion more.

£1TN

Sorted.

[interestrateripoff]

Bearing in mind that you and I, 'the tax payer', have already received £3.5bn from the funds and only face the possibility of a shortfall of £900m, then we seem to have done very well out of the deal. What are you and The Torygraph complaining about? We're in profit to the tune of about £2.6bn ffs !!

p

The money has been squandered, given the current economic situation that possibility is likely to become a racing certainty. Remember everything to do with govt figures is always wrong, I'd predict that figure will balloon at least 3 or 4 times. The Olympics haven't come in at what it was costed and I certainly don't trust that shortfall of £900m.

How I read the article that £3.5bn isn't real and in fact will end up disappearing back to where it came from ie given back to the pension scheme + another £900m. So we got £3.5 but need to give back £4.4bn. Or am I reading too much into what was written?

[RufflesTheGuineaPig]

£1TN

Sorted.

Back of an envelope....

Assume unfunded state pension liabilities total £3trn.... probably a bit low with rapidly rising life expectancies for the older generations.

thats 3,000,000,000,000 divided amongst the working population... roughly 50% of the UKs 60m people are eligable to work and pay income tax.... so 30,000,000 workers. That's assuming women don't take time off work to have a family.

That works out at £100,000 a person... INDEX LINKED TO RPI.

So every person in the UK with a job needs to find £100k

Your average person in the UK will have to work at least 5 years of their life just to pay for the pension promises their parents made. With people on the dole/DLA and women taking long carrear breaks to have children it's closer to 10 years.

And all that is without actually receiving any government services themselves, paying rent/mortgage, utility bills, food etc.

Edited August 5, 2008 by TaxAbuserOfTheWeek

[Injin]

Back of an envelope....

Assume unfunded state pension liabilities total £3trn.... probably a bit low with rapidly rising life expectancies for the older generations.

thats 3,000,000,000,000 divided amongst the working population... roughly 50% of the UKs 60m people are eligable to work and pay income tax.... so 30,000,000 workers. That's assuming women don't take time off work to have a family.

That works out at £100,000 a person... INDEX LINKED TO RPI.

So every person in the UK with a job needs to find £100k

Not gonna happen.

Hyperinflation, default and state failure is where this goes.

100% guaranteed.

[downandout]

Bearing in mind that you and I, 'the tax payer', have already received £3.5bn from the funds and only face the possibility of a shortfall of £900m, then we seem to have done very well out of the deal. What are you and The Torygraph complaining about? We're in profit to the tune of about £2.6bn ffs !!

p

Of course we have to deduct the money that the Government threw at idiots like this:

http://www.telegraph.co.uk/news/uknews/154...ick-miners.html

[Optimuswolf]

Actually spending on state pensions will remain a roughly stable proportion of GDP, which is what you should be looking at with a PAYG system. Talking about liabilities in £TRNs as some are can be very misleading.

Public sector pensions are a different matter however, and the lack of reform in this area when the state pension age is being raised to 68 for today's youngsters is extremely disappointing.

Basically, many of todays workers simply haven't been saving enough for their retirement, whether because the incentives haven't been right, they are myopic or inert, or perhaps that the average Joe can't comprehend the chances of him living to age 90.

[interestrateripoff]

http://www.cepr.org/PRESS/LM3502_Miles.htm

Many proponents of pensions reform argue that by switching from unfunded pay-as-you-go state schemes to a fully funded scheme that takes advantage of the high return on assets such as equities, the solvency of the state scheme could be restored at little or no financial burden to current taxpayers. Speaking at a CEPR/Royal Economic Society public discussion meeting on Thursday 3 February, Professor David Miles of Imperial College, London, and CEPR showed that this is mistaken for two reasons:

*

First, making the transition is itself costly. Unless this cost is substantially financed by debt, it will fall on current generations, which are therefore likely to oppose the reform.

*

Second, potentially higher returns are accompanied by significantly higher risk. Miles explained how an insurance scheme could be designed to mitigate both risk and moral hazard.

Miles noted that the solvency of unfunded state pension schemes is threatened by population ageing. Although the problem has been evident for some time, politicians with short time horizons have faced understandable temptations to leave it to their successors. Now that the issue is on the political agenda, we can take it for granted that its economic significance has already grown to substantial proportions.

http://www.banque-france.fr/gb/publications/ner/1-119.htm

Working paper n°119

Pension Schemes and Falling Birth-rates: Change in Customs or Microeconomic Optimization?

Claire Loupias and Bertrand Wigniolle

December 2004

Abstract

In this paper, we develop an overlapping generations model where fertility is endogenous. The utility of the parents is a function of the number of their children, and each child implies two types of fixed costs: the financial cost and the cost in terms of time. A "pay-as-you-go" pension scheme introduces an externality in that the number of children will be fewer than optimal because their favorable impact on the level of pension income is not taken into account.

First, we define the competitive equilibrium dynamics and the steady state. This allows comparisons with the optimal stationary state, a notion which generalizes the golden rule. Two instruments, pensions and child benefits, are necessary to decentralize the optimal state.

Next, we compare the scenario depicted by the model with historical fact. Variations in welfare allowances may explain the entire decrease in fertility rates.

[Injin]

Actually spending on state pensions will remain a roughly stable proportion of GDP, which is what you should be looking at with a PAYG system. Talking about liabilities in £TRNs as some are can be very misleading.

Public sector pensions are a different matter however, and the lack of reform in this area when the state pension age is being raised to 68 for today's youngsters is extremely disappointing.

Basically, many of todays workers simply haven't been saving enough for their retirement, whether because the incentives haven't been right, they are myopic or inert, or perhaps that the average Joe can't comprehend the chances of him living to age 90.

No no .

it's impossible for pensions to be paid in equivalent value because of the way they are supposed to be funded.

That is, you are supposed to take money from one person (who is working) to give to someone else (who isn't) when there is nothing at all in it for the worker.

Other people's grandkids will never fund retirements on any widespread basis at the cost of their own consumption for very long, the idea is completely mad.

[sossij]

Confiscate all bankster bonuses from the last 5 years at gunpoint (just for Injin ) and pay it to the miners instead. Problem solved. Then force said banksters down the mines (again at gunpoint) and begin a new golden age of coal-based energy independence.

[Optimuswolf]

The first article is 8 years old - the pensions system has changed markedly since then - yearly expenditure is forecast to remain a stable if slightly increasing proportion of GDP.

I haven't read the second theoretical piece, but in my experience OLG models do a very poor job of characterising lifecycle savings and expenditure.

Anyways, the state pension liabilities aren't too much of a problem on their own. It is the lack of private sector saving that is the big concern for policy makers.

[patprimer74]

Or am I reading too much into what was written?

Got it in one, Ripoff! Took your time, though.

p

[SHERWICK]

No no .

The idea is completely mad.

Sensible policies for a happier Britain!

[interestrateripoff]

It could be worse we could be in China where they've actually created a huge population time bomb with 1 child per family and an increasing male/female imbalance.

The PAYG scheme was a stupid idea but that's what short termist politics gets you. Don't think long term think what might be popular with the voters now and sod the consequences because you won't have to foot the bill or pick up the pieces.

[patprimer74]

Did you get your share in tenners or twenties?

Neither; I got it as a 'free' operation from the NHS and a further reduction in the standard rate of income tax.

You spend your share on murdering children in Iraq, if that's your thing; I'll use mine sensibly.

p

[Jadoube]

Under a deal signed when British Coal was privatised in 1994

The"stupid govt" that made the mistake was Tory. The Telegraph must be pretty desperate trying to palm that off on Brown

[Optimuswolf]

No no .

it's impossible for pensions to be paid in equivalent value because of the way they are supposed to be funded.

That is, you are supposed to take money from one person (who is working) to give to someone else (who isn't) when there is nothing at all in it for the worker.

Other people's grandkids will never fund retirements on any widespread basis at the cost of their own consumption for very long, the idea is completely mad.

ALL pensions involve a transfer from a working generation to a non-working generation. In the case of a 'funded' pension someone must buy these assets off the pensioners. In the PAYG system it is based on an implicit societal contract, enforced by the government.

I know you're a headcase when it comes to this stuff, but your anti-society nonsense doesn't wash. There are no serious fiscal pressures in the UK state pension system. The problem will more likely be a load of unhappy pensioners who aren't as well off as they mistakenly believed they would be. Now what the government of the future does about that is a good question.

[right_freds_dead]

I know you're a headcase when it comes to this stuff, but your anti-society nonsense doesn't wash.

i think it does wash.

sometimes i try really hard to steer away from doom saying etc as it can have a negative influence on daily life.

so i then go to rightmove and think about moving forward with my life.

and then the doom saying begins again.

[right_freds_dead]

perhaps only topped off by a property developer passing by in a new audi and perhaps some spinned information about another massive taxpayer bailout on the ten oclock news. grey skies and more rain as a cctv camera follows me to a very costly petrol station. -a perfect uk day,

[lets get it right]

Basically, many of todays workers simply haven't been saving enough for their retirement, whether because the incentives haven't been right, they are myopic or inert, or perhaps that the average Joe can't comprehend the chances of him living to age 90.

Or maybe, just FU**ING MAYBE, they have not had enough money to fund their pensions by the time they have paid for:

Income tax

National Insurance

Council Tax

VAT on much of what they buy

Housing

Food

Clothes

Car

Car Tax

Car Insurance

MOT

Servicing

Petrol

Phone

Electricity

Gas

Travelling to work

Buildings insurrance (and the tax on it of course)

Contents insurance

And, of course, CHILDREN! Expensive hobbies children. Hundreds of thousands on them!

There are a lot of other things you could spend money on too - if you can afford it. Denplan perhaps - seeing as national health service dentists (who were trained courtesy of our tax) are as rare as rocking horse SH!T. Or car recovery insurance etc. etc. etc. etc. etc.

Or all the other things a prudent person is often reminded to spend money on - how about mortgage protection insurance, private medical insurance perhaps (because, despite the FU**ING BILLIONS put into the Health Service, they still can't keep the FU**ING hospitals clean enough to eradicate MRSA)

The list goes on and on and on and on and on and on.

Where is the average, myopic, inert JOE supposed to get the FU**ING money for a pension as well.

Eh?

Edited August 5, 2008 by Lets' get it right

[Injin]

Neither; I got it as a 'free' operation from the NHS and a further reduction in the standard rate of income tax.

You spend your share on murdering children in Iraq, if that's your thing; I'll use mine sensibly.

p

Tax reduction isn't a benefit, it's just less stolen from you. (And the difference was more than made up in inflation and stealth taxes by the crazy fascists who run labour.)

And if you are earning, why ask others to pay for your operation?

[lets get it right]

Neither; I got it as a 'free' operation from the NHS and a further reduction in the standard rate of income tax.

You spend your share on murdering children in Iraq, if that's your thing; I'll use mine sensibly.

p

Operations on the NHS aren't free.

I've been paying all my life.