Privatizing the pension system

It's certainly true of stakeholder pensions (for all the use they are!) as confirmed in the following statement from the OPRA website -

"management charges in each year must not amount to more than 1% of the total value of the fund and are taken from the fund"

I'm not aware of any limit on other 'free market' schemes, but I'm no pensions expert, just an interested bystander since my only substantial pension entitlement got wiped out by a recent scheme insolvency

quote:

---

Originally posted by Jim Lawson:
In the 12/17 NY Times, Paul Krugman makes the following statement about the British experience of privatizing the pension system:

"In Britain, which has had a privatized system since the days of Margaret Thatcher, alarm over the large fees charged by some investment companies eventually led government regulators to impose a 'charge cap.'"

Is this accurate ?

Thanks
Jim

---

The statement is confused, rather than inaccurate.

The private sector in the UK has pension funds worth around £1,100 BILLION - which is more than the rest of Europe combined. There have been private pensions for about 100 years, S226 policies, top hat schemes etc. The charges that once where taken by providers gave very poor value for people who did not stay the course, but with decades of rising stockmarkets this actually did not matter as investment returns where so good for so long.

The "Stakeholder" regime has been very succesful in that the cahrges taken by providers have been substantially reduced, thus giving better value to investors. This is a double edged sword: as margins have been driven down, the commissions avaiable to salesmen have likewise been reduced and there is little to no incentive to sell pensions to those that need them most - it is just not worth most advisors time and effort to sell a £100pm - £200pm policy. So the "poor" will have vanishingly little pensions provision and have to rely on the State - even if they do make some arrangements, Means Testing hits them hard - savings of up to £50,000 are deducted from State Benefits and so there is actually no point in saving. Cheers HMG.

Thinner margins also makes it harder for insurance companies to make money and in the medium/long term they may pull out of the UK pensions industry - why stay if you cannot make money? Thanks again, HMG.

Stakeholder as a product has been a disaster. The average *scheme* take up - when employers set up a Stakeholder scheme - is around 0.9 lives.

Governmental meddling is destroying the industry. You the public will pay the cost.

Interesting Point No. 1: The Inland Revenue set limits on maximum benefits that can accrue under pensions schemes: the one exception to this is.... The MPs Pension Scheme

Interesting Point No. 2: Hansard records the MP who complained about the worsening of terms in said scheme. They went from 1/60ths to 1/40ths.

These are the people running the country.

Regards

Mike

Spending money I don't have on things I don't need.

Patrick's right, pensions havn't really been privatised as such. What has happened is that occupational Final Salary pension schemes, where the employer carried the funding risk have, at least in the private sector, been replaced by Money Purchase schemes where the major part of the risk is transferred to the individual.

In the public sector, generous Final Salary schemes persist for the time being, all funded by the long-suffering taxpayer through income tax and local council tax. Patrick rightly points out that our MPs recently voted themselves a very substantial pension increase which we will continue to fund through our taxes for the foreseeable future.

All this comes at a time when an estimated 65,000 people in the UK have lost all or a major part of their occupational pensions through fund insolvency, or financial skullduggery on the part of sponsoring employers.

Successive governments have introduced legislation which failed to adequately protect pension schemes and undermined peoples confidence in other savings vehicles. On top of that, Gordon Brown has seen fit to rob pension funds of £5bn a year by the removal of dividend tax relief. All in all, to describe the UK pension situation as an unmitigated disaster would be to seriously understate the problem.

David

quote:

---

Interesting Point No. 1: The Inland Revenue set limits on maximum benefits that can accrue under pensions schemes: the one exception to this is.... The MPs Pension Scheme

---

To that I think you can add the senior Judges (thanks to Tony's ex flatmate Charlie!) and top civil servants, who of course have to be looked after as they look after the politicians.

quote:

---

Originally posted by David Stewart:

Successive governments have introduced legislation which failed to adequately protect pension schemes and undermined peoples confidence in other savings vehicles. On top of that, Gordon Brown has seen fit to rob pension funds of £5bn a year by the removal of dividend tax relief. All in all, to describe the UK pension situation as an unmitigated disaster would be to seriously understate the problem.

David

---

The Press have a large part to play in the undermining of confidence in the Industry. As I said above, we have more money in private pensions than the rest of Europe combined.

Every article you read saying "pensions are a rip-off" a bit of it sinks in.

Like I said, the Public will pay the cost - when people retire in penury they will not be able to go to, say, the Daily Mail and sue them because they told them not to invest in pensions.

The sin of ommission has replaced the sin of commission.

Regards

Mike

Spending money I don't have on things I don't need.

I think the main problem here though is that mortgage endowment policies sold to us as a good thing in the eighties are now underperforming badly. They are dependant on the stock market performance.

Then they sold us pension schemes as we had to invest in our future. And where is a large percentage of pension money invested? The stock market!

I have continued to invest in both more in hope than expectation. I have looked into selling the endowment policy but it doesn't seem worth the hassle as the money offered was not huge and I'd need extra life insurance to cover that bit of the mortgage anyway (not cheap at my age and with my health record).

Did I read somewhere that the Govt were thinking or slapping a tax on any profits made by endowment holders? Mine is going to pay out a lot more than I have/will invest but not to the level it was originally predicted. So if Gordon Brown imposed a tax on it the shortfall would be even bigger.

And if you thought there was a guardian of pensions matters to will look after your interests - there is not

the guardian organisation is understaffed, is either reluctant to make decisions that support the "screwed pensioner" because the employers will use the courts to reverse the decision, or will take an inordinately long time to investigate the claim and ignore information provided by the complainant.

A lot of pension promise by the employer is not written down, it has been based on promises on "getting one of the best pension schemes so you get a reduced salary now" type of words, times change - the salary was kept down and the pension scheme objectives evaporate away.

I feel sorry for all you 30 something year old idealists that voted for Tony B Liar in 97, you and your children have been royally screwed - your pension prospects have been significantly reduced, your chldren are being conned into taking on massive debts to get a training that for perhaps 50% of them is not required by the economy of the country. All they have acheived is reduced the youth unemployment figures.

Derek

<< >>

Mike,
I'm no expert, just one of the 65,000 victims of pension scheme failure, but I wonder if the relatively high level of funds in UK private pension schemes can fairly be compared with the continent, where I don't believe the same kind of structural changes have taken place. Because of that, many European Governments have enormous future pension commitments which they have little or no hope of meeting.

There are all kinds of crap deals going around.

1. Final Salary schemes in the not too distant past had large surpluses; large lumps of cash over and above the funds required to pay all promised benefits. Many schemes gave these surpluses to... the employer.... and no doubt many of these schemes are now underfunded with no hope of additional contributions from the employer.

2. There is a case going on right now: an underfunded scheme had the retirement age reduced from 65 to 75. This means that the liability of the scheme was far less than it was previously - if you retire at 75, you will not be a pensioner as long as if you retired at 65 so you need less fund to be paid out. This resulted in a surplus within the scheme.

THAT MONTH two directors retired earlier than 75, and because the Scheme now had a surplus, that surplus was used to pay full pensions to the directors concerned. The next month the Retirement age was reduced back to 65 - the scheme is now massively underfunded - ie the workers have been shafted and they will *not* get a full pension.

3. If somebody was persuaded to leave eg. the Sainsbuty's Final salary scheme and to take out a personal pension, then ( and quite rightly ) this has nearly always been a misselling case and the persoal pension provider has to make good. Lets say that the member was out of the scheme for three years. To me, the obvious answer would be for the provider to pay the three years Funding to the scheme - say 15% pa, and the member rejoins the Scheme. Not the case: Trustees are not obliged to re-admit leavers ( why? ) and so the provider has to pay the entire lifetime pension cost of the scheme benefits. This is clearly inequitable. They should be allowed to rejoin the scheme and a back payment made by the misselling provider.

Regards

Mike

Spending money I don't have on things I don't need.

Dont even start me on THAT bad boy.....

Regards

Mike

Spending money I don't have on things I don't need.

Looks like we're mostly agreed on one thing - It's in a mess! The question is, what can be done about it?

HMG have succesfully kicked the whole problem into the long grass until after the next election, when they'll probably somehow manage to sideline it once again.

Now the MPs have been bought off, few of them will have any interest in making life difficult for this or any other government over this particular issue.

MPs' income is a scandal generally.
An MP of my personal aquaintance earns his full-time salary as an MP (superannuable), plus expenses which pays for his wife (superannuable), plus his full-time salary as a GP (superannuable), plus payment for one day a week as a clinical tutor(superannuable).
He is actually quite a nice bloke, and works fairly hard, but I don't think he loses much sleep worrying about how he is going to manage in retirement.

How can a GP find time to be an MP or vice versa?

How does he do his turn on over night standby?

Derek

<< >>

I read somewhere that the effect of mis-selling pensions was greater than the combined effect of Maxwell and BCCI . Or perhaps I'm confusing it with mis-sold endowment policies - isn't capitalism wonderful?
A useful tip if you are short of funds for your pension is to create an early retirement scheme for all staff but then divert the proceeds into paying off directors . I work for a charity and this has happened twice - I've had enough of it and have resigned . Anyone know a record shop looking for a 44 year old trainee?
Cheers
Glenda

Chaps

I have retired early on a decent pension, fully indexed (gloat gloat gloat) but between the ages of 22 to 33, I paid 6% of my salary and from then on I paid 10.85%.

Most of you pay around 5% and it is simply not enough.

Do not complain about an inadequate pension. You cannot pay 5% for 30 years and expect to be paid a decent pension until you are 80 plus, the maths do not add up.

Regards

Mick

Just the sort of tactless, misinformed, ill considered post I would have expected from you Mick, particularly on a subject you clearly know little or nothing about.

Over 65,000 ordinary working people in this country have lost ALL or MOST of their occupational pensions through circumstances totally outside and beyond their control and all you can do is gloat about your good fortune.

Your attitude makes me despair sometimes

David

Please think before you write, I was not gloating at the people who have lost their pensions, that must be a nightmare situation for anyone.

I was making the point that most people expect too much from their pensions, paying in 5% for say 30 years, is an inadequate amount when we are now living to past 80. The maths do not add up.

Regards

Mick

Mick,
I'll do that if you agree to read before you write. The subject of this thread was pensions policy and legislation, not the amount that people put into their pension schemes which varies tremendously according to their own personal circumstances, not to mention the generosity of their employers!

It matters not a jot, how much money you put into a pension scheme if the fund gets wound up due to insolvency or financial malpractice. You could still end up with next to nothing!!

Pensions law as currently drafted provides inadequate protection and even offers opportunities for unscrupulous employers to manipulate pension funds for their own ends and to the detriment of their deferred pensioners.

In your fortunate position, as an ex-public sector worker, you may not have to concern yourself with this, but to anyone working in the private sector it will remain a largely unquantifiable risk for the foreseeable future!

David

One of the major concerns about pensions is just how little is being paid into them and this coupled with longevity is the cause of a justifiable concern for society in the longer term.

Most public sector workers walk out with say 30 or 40 years pension but because their salaries are lower than in the private sector, means that even they are not that well off.

You raised the point

"Pensions law as currently drafted provides inadequate protection and even offers opportunities for unscrupulous employers to manipulate pension funds for their own ends and to the detriment of their deferred pensioners.

The easy way out of this is to make the Trustees earn their money. At present, they are paid a generous fee for very little accountibility.

The Trustees of the Daily Mirror fund should have been accountable and found guilty of negligence. They knew what was going on during the last 12 months but kept quiet because of the remuneration.

There is a good case for taking them to court.

I do not think the tax payer should foot the bill for this because that effectively makes us the underwriters which is taking the risk without a fee.

Possibly some sort of slush fund similar to motor insurance could be used but the real answer is greater transparancy coupled with making the Trustees really acountable.

Regards

Mick

Trustee accountability is largely an urban myth. In reality a board of trustees is usually made up from people who have little or no pensions expertise and rely for this on outside agencies, who may or may not advise them well.

In the final analysis if the trustees do screw up, the fund will be unable to secure the under-funding by sueing the trustees anyway.

Also it's not unknown for companies to bring influence to bear on boards of trustees to behave in a way which is not in the best interests of the companies pensioners. It shouldn't happen but it does!

It's interesting to see that you don't believe the taxpayer you should underwrite the cost of underfunded schemes. Presumably you're happy then to extend that principal to the public sector and accept a reduction in your inflation proofed pension in order to prevent taxes from rising further.

David

Yes trustees tend to know little about pensions which is a good case for employing professionals who know what they are doing.

The Post Office pension scheme is and always has been self financing and is not a drain on the tax payer. Therefore you are not paying for my pension, I funded it by paying 10.80%.

As regards to the Civil Service, they pay either 7% or zero depending on types of pay. In the main, they are self financing. The current payers support the pensioners as well as the admin costs. Therefore, if say the pension bill is £1 bn pa, you are not paying it, the Civil servants are. Their scheme was subsidised by the tax payer in the late 70's and early 80's where inflation was high. Today I am sure they are self financing and despite recent falls in the values of share, have not needed the tax payers money to sort them out.

I do not believe that the tax payer should underright failed pension schemes. What you are suggesting is that the tax payer has to support mis run schemes and will be constantly shelling out. The insurance industry should look after itself and ensuring that the books are open for all to see and transparency tends to ensure well run organisations.

The current problem is that some pension companies act like they are a law unto themselves and that is were the problem lies.

Regards

Mick

quote:

---

Originally posted by Mick Parry:
. The insurance industry should look after itself and ensuring that the books are open for all to see and transparency tends to ensure well run organisations.

The current problem is that some pension companies act like they are a law unto themselves and that is were the problem lies.

Regards

Mick

---

Sorry Mick but the problem does not lie with Insurance Companies. Schemes that do not have enough assets to meet their liabilities ( and by definition this has to be Final Salary schemes - money purchase is "what you see is what you get" ) get into that position today because of a combination of factors: stock markets have fallen ( although this is almost certainly a short term blip ): we as a nation are living longer ( so need more fund from which to draw a pension ) and we want to retire early. A Scheme Actuary will recommend an increase in the funding rate: the Principal Employer will not want to cough up any more cash ( even if they had taken a refund of surplus a few years back ) and they will ask the Actuary to look at reducing accrual. This means less pension. If the employer is insolvent at the same time as the Scheme is underfunded then the pension fund, as an unsecured creditor,loses out. This trickles down to the individual member.

The bottom line is that most scheme failures are linked to the misfortunes of the Principle Employer. The Pensions Protection fund will go some way to alleviate this: but why should employer A bail out insolvent employer B?

As someone mentioned above, and as I have detailed, Directors tend to look after themselves in such cases. Even when members have to contribute, these contributions just go into a common Trust fund and are not earmarked for the contributor. If the Trustees decide to use these contributions to pay an undiscounted early retirement pension to one of the Big Kahunas, they can do so with impugnity.

If the Mirror Group Newspapers pension scheme ( ie Maxwell ) had been an Insured Scheme, the Trustees would *not* have been able to lend scheme assets in the manner they did ( as the only asset they could get their hands on is the Policy Document - value: £Nil ) and the Scheme would not have collapsed.

Matters are getting better, but not fast enough.

Regards

Mike

Spending money I don't have on things I don't need.

Patrick

Basically I agree with everything you say.

I still contend that that tax payer should not bail out failed pension funds, better to pay social security benefits to those on the breadline if need be.

Regards

Mick

quote:

---

Originally posted by Derek Wright:
How can a GP find time to be an MP or vice versa?

How does he do his turn on over night standby?

Derek

<< >>

---

My point is exactly that, being an MP affords enough free time to work as a GP. His partners complain a bit, but I don't think anyone else does.

As for nights and weekends. From today, GPs have NO responsibility for "out of hours" provision. Yippee! . It now rests with your Primary Care Trust, and the best of luck to you.