Thursday, July 8, 2010

Pensions down and Mortgage Interest Rates Up

Millions to see private sector pensions reduced

Millions of people with private sector pensions are likely to see them reduced by as much as 25 per cent after the Government announced plans to change the way they are calculated. The Government plans to link pensions to the lower Consumer Prices Index instead of the Retail Prices Index which includes housing costs such as mortgage interest payments.

Posted by enuii @ 07:25 PM (2158 views)
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11 thoughts on “Pensions down and Mortgage Interest Rates Up

  • This ladies and gentlemen, is inter-generational daylight robbery.

    How can the Bank of England keep up this pollyannaish pretence of ignoring inflation?

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  • Thin end of the wedge, wait until the measure is changed from prices (however calculated) to average wages, that is when rampant inflation
    is anticipated or planned by boy george and his fellows from the bullingham.

    testate having

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  • montesquieu says:

    Hmmm … there is some sense in this, should we really expect pensioners still to be paying mortgages?

    Ooops silly question of course they do, from 50-something serial MEWers to as-yet-unmortgaged 20 and 30 somethings who will need 50-year inter-generational mortgages a la Japonaise to fund their slave boxes.

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  • tenyearstogetmymoneyback says:

    Interesting that the example shows someone retiring at 60. yet the Government is talking about increasing the
    retirement age beyond 65.

    IMHO (especially having seen people start drawing their pensions in their early 50s) all pensions for the under
    65s should be taken from a completely different fund to the propper over 65 pensioners. Doing this would stop
    firms from funding redundancies (which are often disguised as early retirements) from the Pension Funds.

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  • I don’t see how this can affect private sector pension funds. Surely the benefits package is decided by the individual scheme?

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  • mark wadsworth says:

    What Cyril says.

    As a matter of maths and logic, any form of employer backed final salary is complete nonsense – far better to pay better salaries and have done with it.

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  • fallingbuzzard says:

    If you’ve already bought a rising annuity, then you’re unaffected. If you buy a rising annuity in the future, then the initial payment will be higher if the growth rate is lower (CPI rather than RPI). Of course, CPI might be higher in future.

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  • No worries, afterall my pension fund is social security benefits!!!!!!!!!!!!!

    Let’s spend all our money before retirement and rely on public purse.

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  • tenyearstogetmymoneyback says:

    I’m not sure if Mark wadsworth is talking about for the employer or the employees.

    However, at work we have predicted for years that if they got rid of the Final Salary Pension Scheme
    the place would quickly empty. Put the employee contributions up to over 12% (as has happened)
    and instead of moaning everyone just says “well at least they have kept the scheme.

    What is a nonsense is a Private Pension which is really no different from an endowment mortgage.
    I say that despite putting £80 a month into two of those. Whether I will get any money from them is
    as predictable as whether my endowment will pay out in a years time. Dare I say people would (have)
    been better off “investing” in Buy to let.

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  • mark wadsworth says:

    @ tenyears, it’s nonsense for both. It’s all smoke and mirrors. It is surely far better to pay proper salaries.

    If nothing else, the employee applies a higher discount rate to future pensions income (because he worries it will be less) and employer applies lower discount rate (because he fears it will be more), so it destroys present wealth, even if fully funded. The £1m assets in the scheme are valued by employee at £800,000 and the £1m liabilties in the scheme are valued by employer at £1.2m, so there’s a loss of £400,000 floating about which could go either way.

    It’s a bit like the observation that buying people presents is a negative sum game – the present is worth less to the recipient (because he or she has to pretend to like it even if he or she doesn’t, and it places a reciprocal burden on recipient to buy the donor a present for his next birthday etc) than it costs the donor (in cash and in time and hassle choosing), which is why I usually give people gift vouchers or cash and i tell people not to bother buying me presents because I am old and wealthy and have everything I need.

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  • tenyearstogetmymoneyback says:

    Thanks for the answer Mark.

    Regarding the first point I can think of one person (possibly one of the ones I mentioned in Post 4) who retired not bceause
    they disliked their job but because they didn’t trust the company with the pension scheme and wanted to lock in their pension.

    I would be interested in what you would suggest as an alternative (and don’t say Dignitas). It has sometimes been suggested that
    “a Pension is insurance against growing old”. As with any insurance scheme the risk of that happening is spread over a large number
    of people, so people only need to make an average contribution. If that wasn’t the case you would have to assume the best / worst case
    and plan for funding yourself well into your 90s.

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