Posts Tagged ‘Pensions Reform’

Kevin Burge

Well, according to Michael Johnson a research fellow at the think tank the Centre for Policy Studies pensions will cease to exist by 2050.

His argument seems to be based around the fact that pensions are a long term investment and as such young people cannot connect with them. He goes onto say that the 24 to 35 year olds should be encouraged to invest into ISA’s and then can dip into them when they need some cash. Read more »

Neil Copeland

1988 and all that

1988. Lawrie Sanchez scored the winner as the Wimbledon Crazy Gang beat the then League Champions Liverpool in the FA Cup final, Phil Collins topped the charts with A Groovy Kind of Love and teenage boys everywhere were confused by their adolescent hormones generating an unhealthy interest in a cartoon Rabbit called Jessica. It was indeed the best of times and it was indeed the worst of times.

The Tories were in power, then as now, and believed in individual freedom and individual choice. You could choose to buy your council house, choose to get on your bike and, thanks to a reform introduced that year, choose not to join your employers pension scheme and instead take out a bright new shiny personal pension. Read more »

David Davison

I was kindly introduced to the word scotoma last week. The dictionary definition is ‘a mental blind spot; inability to understand or perceive certain matters.’ I would have found it difficult to find a better word to describe the on-going debate, and I use that word very loosely in this case, in respect of public sector pensions culminating in the strikes on 30th November.

Things have been moving at such a speed it’s hard to keep up and to pick out the fact from the rhetoric. The week of the strike began with a bit of school yard name calling as trade union Unite issued their “Dossier of hypocrisy” exposing the extent of cabinet minister’s pension entitlements. All that did was make the case that those particular public sector pensions need to be reformed as much as, if not more than, all the rest. Read more »

John Griffin

1 October 2012 may seem like a long way away, but it is a date that should be etched in the calendar of employers of all sizes. From that date, employers will begin to be obliged to automatically enrol their eligible workers into a workplace pension arrangement.

The first employers to be affected will be the largest employers (those with at least 120,00 workers) but this will relatively quickly taper down to medium-sized employers so that, by October 2013, employers with only 800 workers will be obliged to comply with the new requirements.

Some of the issues employers will need to face include:

  • Associated increased costs
  • The position of existing pension arrangements or schemes
  • Views on different arrangements for different grades of workers
  • Comparing their overall remuneration package with that of competitors
  • The views of owners or shareholders

Combined with the reduction of the Annual Allowance from £255,000 to £50,000 from 6 April 2011, this makes it vital for all employers to review their pension arrangements.

Any employers ready to meet this challenge should contact Spence & Partners, whose consultants are highly qualified and proficient at providing advice and solutions to all pensions-related challenges that employers may face.  Working with the employer, we will be able to construct a plan which is fit for purpose and will ensure compliance with the new requirements.

In the first instance, you should contact Alan Collins, head of employer advisory services on 0141 331 9970 or email alan_collins@spenceandparnters.co.uk

Alan Collins

If asked about my political views, liberal is not a word that would ever feature in my response. No subscription to the Guardian newspaper here.

However, on reading the discussion paper from Philip Booth and Corin Taylor for the Institute of Economic Affairs (IEA) on “How the older generation should suffer its share of the cuts”, I have had to reassess my thoughts on the virtues of beard growing and sandals.

In short, the paper recommends the abolition of a number of benefits currently provided to older people, namely

  • Certain non-cash benefits (free bus travel, free TV licences and the winter fuel allowance);
  • Married couples allowance for older people;
  • The age adjusted tax-free income allowance; and
  • The earnings link to state pensions (which hasn’t even been re-introduced yet!);

The paper also recommends the state pension age is increased to 66 in 2015, a reduction in public sector pension contributions and an accrual rate of 1/45th for future build up of state pension entitlement. Wow – don’t hold back now guys, say what you really think!

Given the need to reduce the national debt, it is right that ancillary benefits paid to pensioners such as free bus travel and free TV licences come under scrutiny. However, it is unlikely that a government of any persuasion is likely to threaten the winter fuel allowance.

I welcomed the proposal in October 2010 to consider a universal state pension of around £140 per week and so would view the proposed use of an accrual system to be a retrograde step.

The comments on the triple lock of increases applying to the state pension seem flawed. Firstly, the price inflation element of the lock changes to CPI from 2012, which is expected to be less valuable than RPI. This fact seems to have been missed, though it does not appear to affect the estimated cost saving.

The estimated cost saving on excluding the link to earnings also assumes wage growth of 2.5% per annum above inflation, which is certainly higher than I would expect – therefore the saving is likely to be significantly less than the reported £5.6 billion per annum.

Some of the other figures seemed to have been produced like a rabbit out of a hat. For example, apparently a conservative estimate of the annual saving on increasing the state pension age to 66 by 2015 would be about £5 billion – this figure is provided without any justification.

The paper does make some bold suggestions in the pensions arena which are certainly worthy of further consideration. Firstly that the full costs of all pension promises should be revealed. I agree that the current cost is being pulled down by over optimistic assumptions about future investment return and await with interest the release of Lord Hutton’s report on 10 March. The removal of final salary linkage is not enough to stem the tide of rising costs and any move to Career Average accrual is only postponing more difficult decisions for a later date.

Secondly, the paper recommends that individual organisations and councils are allowed to negotiate individual pension arrangements with their employees. This would certainly test the value of pension provision – how much more salary would a public sector employer be prepared to offer in return for lower pension contributions? If NEST is enough, then why shouldn’t organisations be allowed to offer more salary in return for lower pension contributions?

In times of economic difficulty, it would seem that suggestions on how to save money are becoming more aggressive. And I am all for a bit of debate, I just think the debates surrounding some of the more outlandish ideas contained here are likely to be short.

David Davison

It is interesting to note, as we await the content of Lord Hutton’s report on public sector pensions, the amount of speculative material that is being produced on the subject.  It is already possible to discern that views and arguments are becoming to polarised and we have even had suggestions of a National strike over the matter.

Deputy PM Nick Clegg summarised the problem as a consequence of  the persistent under-estimatation of the value of the pensions promise  due to inappropriate funding methodologies and increasing longevity which in turn have given rise to insufficient contribution rates over an extended period of time.

A helpful contribution to the debate Read more »

David Davison

Recently attended an excellent pension conference hosted by Baker Tilly in the wonderfully opulent surroundings of the Banqueting House in Whitehall Place. A high tech voting system, video screens and a procession of the great and the good (or just those who could attend) helped the attendees focus their minds on the major pension issues with which we’re faced.

The highlights of the day for me were a humorous exchange between Robin Ellison and Peter Haskins over whose fault the pensions crisis was (a slight points victory to Robin on that one) and Robin having to admit that he hadn’t managed to get approval for the new 4th force in politics, the U Party , in time for the general election – but at least it’ll be ready for the next one in 6 months time!!

There was some consensus on the need for future change focussed on:-

• Reform of the state pension with the removal of the means test
• A better balance of provision between public and private sector
• Scrap NEST – Steve Mingle’s presentation was excellent
• Consider increasing state pension retirement age and linking it to mortality

Other areas considered included the move to a single regulator with a greater focus on policing abuse and less on producing regulation, a focus on scheme data quality, a minimum standard of regulation for professional trustees, the use of liability management exercises by employers and a need for much higher quality communication material.

There was even some agreement that perhaps contract based solutions were not a panacea for DC pensions but that trust based solutions may be making a comeback.

All lead me to the conclusion – pensions are dead, long live pensions!!

Neil Copeland

Some of you may be familiar with Schrodinger’s Cat  . In feline terms it’s probably not as famous as McCavity, or even Mrs Slocombe’s pussy, but a couple of recent pension articles put me in mind of it.

I can’t pretend to understand the philosophical basis behind Schrodinger’s thought experiment – Descartes lost me at  “I think therefore I am”, but a tabloid summary would be as follows:-

Page 3 lovely,  Angie, 19,  from Ilfracombe,  says “A cat, along with a flask containing a poison, is placed in a sealed box shielded against environmentally induced quantum decoherence. If an internal Geiger counter detects radiation, the flask is shattered, releasing the poison that kills the cat. The Copenhagen interpretation of quantum mechanics implies that after a while, the cat is simultaneously dead and alive. Yet, when we look in the box, we see the cat either alive or dead, not a mixture of alive and dead. Poor little kitty.”

I don’t know what you make of that, but what it says to me is that Read more »

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