Storing up a problem for the future.
Posted by: Mick P on 02 March 2010
Chaps
I am 61 and like most men of my age have a final salary pension that serves me quite well.
I am a member of UNITE which is a Post Office/ BT pensioners club and they have come up with a worrying statistic.
Most companies have closed their final salary schemes and now you have to contribute in a scheme where your pension is dependant totally on the value of the stock market on the day you retire.
This is a figure they quote
Someone saving £100 per month into a pension for 20 years would have received a pension of £9000 pa in 2000. Today the pension would only be £2500 due to the long term falls in the world markets.
This means that when these people retire, they will be on the verge of starvation. They cannot all sell their houses because there are enough of them to precipitate a price crash, they will not be able to refinance their house due to low values and the government will not be in a position to bale them out.
Surely the only way out is to make high level pension contributions compulsory.
I am currently working for a company where nearly everyone has opted out of the pension or at best are just paying in 6%. These people are going to have to work until they drop which is surely plain inhumane.
I have enjoyed my career but the time has come to retire and travel the world and you need a decent index linked pension to do that.
So what is the answer?
Having a nation full of skint pensioners will do no one any good.
Regards
Mick
I am 61 and like most men of my age have a final salary pension that serves me quite well.
I am a member of UNITE which is a Post Office/ BT pensioners club and they have come up with a worrying statistic.
Most companies have closed their final salary schemes and now you have to contribute in a scheme where your pension is dependant totally on the value of the stock market on the day you retire.
This is a figure they quote
Someone saving £100 per month into a pension for 20 years would have received a pension of £9000 pa in 2000. Today the pension would only be £2500 due to the long term falls in the world markets.
This means that when these people retire, they will be on the verge of starvation. They cannot all sell their houses because there are enough of them to precipitate a price crash, they will not be able to refinance their house due to low values and the government will not be in a position to bale them out.
Surely the only way out is to make high level pension contributions compulsory.
I am currently working for a company where nearly everyone has opted out of the pension or at best are just paying in 6%. These people are going to have to work until they drop which is surely plain inhumane.
I have enjoyed my career but the time has come to retire and travel the world and you need a decent index linked pension to do that.
So what is the answer?
Having a nation full of skint pensioners will do no one any good.
Regards
Mick
Posted on: 03 March 2010 by Mick P
Bob
That just proves my point, most people are totally unconcerned about providing a decent pension and will probably spend the last twenty years of their life in comparitive poverty.
Regards
Mick
That just proves my point, most people are totally unconcerned about providing a decent pension and will probably spend the last twenty years of their life in comparitive poverty.
Regards
Mick
Posted on: 03 March 2010 by shoot6x7
In Canada, the Defined Benefit Plan, sounds similar to what Mick described is becoming very scarce.
The reality is that corporations are having to pay in millions of dollars into these schemes to keep them upto their expected levels. So they are now switching to group registered retirement savings plans.
Most of my retirement funds are based on market performance which is piss poor. Everyone here hopes that their homes will be paid for when they retire which they can sell (downsize) and raise capital.
Otherwise I may have to hope the money my parents leave me will go to boost my savings.
It sucks large, but I'm sure the fund managers who are shrinking the values of my holdings are sitting pretty ...
The reality is that corporations are having to pay in millions of dollars into these schemes to keep them upto their expected levels. So they are now switching to group registered retirement savings plans.
Most of my retirement funds are based on market performance which is piss poor. Everyone here hopes that their homes will be paid for when they retire which they can sell (downsize) and raise capital.
Otherwise I may have to hope the money my parents leave me will go to boost my savings.
It sucks large, but I'm sure the fund managers who are shrinking the values of my holdings are sitting pretty ...
Posted on: 04 March 2010 by Mick P
shoot6x7
The Defined Benefit Plan is what we often refer to as the Final Salary Scheme, in other words, you can calculate your pension to the penny as long as you know your final salary and length of qualifying service in the plan.
These plans were set up in the fifties and worked well because people then had "jobs for life" and tended to work for the same employer. They retired and usually died within ten years and hence the entire scheme was manageable. A lot of employers stopped contributing during the seventies because the funds were awash with money.
However during the nineties, three things happened.
1. People starting switching jobs and jumped in and out of pension schemes.
2. They started to retire earlier and lived longer.
3. The stock markets failed to deliver the necessary growth.
Basically these funds are now draining the employers finances and the only way to stop the debt escallating is to either stop the plan, increase the contributions, make the employee work until later in life or reduce the benefits such as annual cost of living increases.
The reality is that most people of my age are ok because we are retiring and there are funds to pay us till we die. The problem is with the younger element, ie those who are 50 and younger.
They seem to have lost confidence in pensions and a high percentage are either opting out or paying the minimum amount possible. This is going to store up a massive problem.
The most common quote you hear is "I can always sell my house and use the money" as a form of pension.
That just will not work. They will need to rent and if you assume an average rental of £500.00pm, that means £120,000.00 will be spent on rent over a 20 year period and their pensions and savings will just not cope with that.
The result is hoing to be terrible hardship or state baleouts of massive proportions.
Something needs to be done and done fast and everyone from the government down to the individual citizen is looking the other way hoping that something will come up. It won't and that is the problem.
Regards
Mick
The Defined Benefit Plan is what we often refer to as the Final Salary Scheme, in other words, you can calculate your pension to the penny as long as you know your final salary and length of qualifying service in the plan.
These plans were set up in the fifties and worked well because people then had "jobs for life" and tended to work for the same employer. They retired and usually died within ten years and hence the entire scheme was manageable. A lot of employers stopped contributing during the seventies because the funds were awash with money.
However during the nineties, three things happened.
1. People starting switching jobs and jumped in and out of pension schemes.
2. They started to retire earlier and lived longer.
3. The stock markets failed to deliver the necessary growth.
Basically these funds are now draining the employers finances and the only way to stop the debt escallating is to either stop the plan, increase the contributions, make the employee work until later in life or reduce the benefits such as annual cost of living increases.
The reality is that most people of my age are ok because we are retiring and there are funds to pay us till we die. The problem is with the younger element, ie those who are 50 and younger.
They seem to have lost confidence in pensions and a high percentage are either opting out or paying the minimum amount possible. This is going to store up a massive problem.
The most common quote you hear is "I can always sell my house and use the money" as a form of pension.
That just will not work. They will need to rent and if you assume an average rental of £500.00pm, that means £120,000.00 will be spent on rent over a 20 year period and their pensions and savings will just not cope with that.
The result is hoing to be terrible hardship or state baleouts of massive proportions.
Something needs to be done and done fast and everyone from the government down to the individual citizen is looking the other way hoping that something will come up. It won't and that is the problem.
Regards
Mick
Posted on: 04 March 2010 by Bob McC
Mick
You fail to mention two other significant factors in the decline of final salary pension funds
1. The payment holidays employers were allowed to take when due to apparent massive surpluses they stopped contributing their agreed contributions
and
2. The companies that considered their pension funds had massive surpluses and divied them out to the shareholders.
You fail to mention two other significant factors in the decline of final salary pension funds
1. The payment holidays employers were allowed to take when due to apparent massive surpluses they stopped contributing their agreed contributions
and
2. The companies that considered their pension funds had massive surpluses and divied them out to the shareholders.
Posted on: 04 March 2010 by Mick P
Bob
I did mention that employer stopped paying.
Quote
These plans were set up in the fifties and worked well because people then had "jobs for life" and tended to work for the same employer. They retired and usually died within ten years and hence the entire scheme was manageable. A lot of employers stopped contributing during the seventies because the funds were awash with money.
To be fair very few companies actually raided pension funds, Maxwell actually broke the law in doing what he did.
The main point is that we need to look forward and decide what should be done and we appear to be doing bugger all.
Regards
Mick
I did mention that employer stopped paying.
Quote
These plans were set up in the fifties and worked well because people then had "jobs for life" and tended to work for the same employer. They retired and usually died within ten years and hence the entire scheme was manageable. A lot of employers stopped contributing during the seventies because the funds were awash with money.
To be fair very few companies actually raided pension funds, Maxwell actually broke the law in doing what he did.
The main point is that we need to look forward and decide what should be done and we appear to be doing bugger all.
Regards
Mick
Posted on: 04 March 2010 by Bob McC
For the 45% of those between 41 and 60 who haven't made any pension provision it is probably too late anyway.
Posted on: 04 March 2010 by Mick P
Bob
If anyone over say 50 hasn't made any pension provision, then they must be mad.
I still think that some sort of compulsion is the only answer and for the unfortunates you mentioned, I can only use the expression, "damage limitation."
Regards
Mick
If anyone over say 50 hasn't made any pension provision, then they must be mad.
I still think that some sort of compulsion is the only answer and for the unfortunates you mentioned, I can only use the expression, "damage limitation."
Regards
Mick
Posted on: 04 March 2010 by OscillateWildly
Oh to be young and burdened with the debt caused by an incompetent and greedy government, and the avarice of enough lenders, ratings agencies and borrowers - the cherry on top of the pension deficit.
Cheers,
OW
Cheers,
OW
Posted on: 04 March 2010 by Mick P
OW
You are a young man, now that you have had your moan, do you intend to pro actively fund your pension?
Regards
Mick
You are a young man, now that you have had your moan, do you intend to pro actively fund your pension?
Regards
Mick
Posted on: 04 March 2010 by OscillateWildly
quote:Originally posted by Mick Parry:
OW
You are a young man, now that you have had your moan, do you intend to pro actively fund your pension?
Regards
Mick
Hello Mick,
No, I'm not young. The post is a comment on the elder generations* dumping their load on the younger generation.
*I am within this group.
As to my finances - I have a company pension from my time working for a pensions company, and currently do not want another pension - preferring to use other investments (not property).
General outlook - if I don't have the money, I can't have it.
Cheers,
OW
Posted on: 04 March 2010 by Mick P
OW
Please remember that most annuities pay out at around 5% if you retire at 65 and have a fixed income for life.
Therefore if someone retired today on his/her 65th birthday, they would need approx £400k to produce a £20k pa fixed pension. If you want it indexed linked, you will need a lot more.
So please ensure your pot is adequate or you will suffer deprivation and misery in your later years.
Living your final days on bread and dripping will be most unpleasant.
Regards
Mick
Please remember that most annuities pay out at around 5% if you retire at 65 and have a fixed income for life.
Therefore if someone retired today on his/her 65th birthday, they would need approx £400k to produce a £20k pa fixed pension. If you want it indexed linked, you will need a lot more.
So please ensure your pot is adequate or you will suffer deprivation and misery in your later years.
Living your final days on bread and dripping will be most unpleasant.
Regards
Mick
Posted on: 04 March 2010 by Phil Barry
Mick,
You start by saying most men your age have final salary/defined benefit pensions. That's certainly untrue for the US, and I expect it's untrue for other developed countries.
What are the mean and median family incomes in GB? In the US, the average worker has to choose between food, shelter, medical care, higher education for the kids, and saving for the future - there isn't enough income to meet all the needs.
One of the recommendations for retirees is to do volunteer work.
Phil Barry
You start by saying most men your age have final salary/defined benefit pensions. That's certainly untrue for the US, and I expect it's untrue for other developed countries.
What are the mean and median family incomes in GB? In the US, the average worker has to choose between food, shelter, medical care, higher education for the kids, and saving for the future - there isn't enough income to meet all the needs.
One of the recommendations for retirees is to do volunteer work.
Phil Barry
Posted on: 05 March 2010 by Mick P
Phil
The average salary for the UK in Dec 2009 was £24,470. It would be slightly higher for men than for women.
The UK state pension appears to be around £105pw, but I could be slightly out on that.
I think your statement about prioritising costs is a bit weak. Everyone in America and in the UK has enjoyed a significant increase in their standard of living over the last twenty years. The high streets have enjoyed a consumer boom has never before.
People always spend to their salary and the truth is that pensions are boring and it is all too easy to delay doing something until next year.
If we continue to ignore the problem, the social consequences will be severe.
The time for excuses is over, in the UK we need to put away about 18% of our salary each and every month without fail or pay more taxes to fund an improved state system.
Regards
Mick
The average salary for the UK in Dec 2009 was £24,470. It would be slightly higher for men than for women.
The UK state pension appears to be around £105pw, but I could be slightly out on that.
I think your statement about prioritising costs is a bit weak. Everyone in America and in the UK has enjoyed a significant increase in their standard of living over the last twenty years. The high streets have enjoyed a consumer boom has never before.
People always spend to their salary and the truth is that pensions are boring and it is all too easy to delay doing something until next year.
If we continue to ignore the problem, the social consequences will be severe.
The time for excuses is over, in the UK we need to put away about 18% of our salary each and every month without fail or pay more taxes to fund an improved state system.
Regards
Mick
Posted on: 05 March 2010 by Bob McC
quote:Originally posted by Phil Barry:
Mick,
You start by saying most men your age have final salary/defined benefit pensions. That's certainly untrue for the US, and I expect it's untrue for other developed countries.
What are the mean and median family incomes in GB? In the US, the average worker has to choose between food, shelter, medical care, higher education for the kids, and saving for the future - there isn't enough income to meet all the needs.
One of the recommendations for retirees is to do volunteer work.
Phil Barry
Mick's figure is that of the median UK salary in 2009. This of course not the mean salary, which will be considerably more.
Posted on: 05 March 2010 by OscillateWildly
quote:Originally posted by Mick Parry:
OW
Please remember that most annuities pay out at around 5% if you retire at 65 and have a fixed income for life.
Therefore if someone retired today on his/her 65th birthday, they would need approx £400k to produce a £20k pa fixed pension. If you want it indexed linked, you will need a lot more.
So please ensure your pot is adequate or you will suffer deprivation and misery in your later years.
Living your final days on bread and dripping will be most unpleasant.
Regards
Mick
Hello Mick,
Thank you for your concern. Rest assured that over a decade at a pensions company has given me a good grounding. With regard to the size of pot required, it did, and I imagine still does, tend to surprise.
Cheers,
OW
Posted on: 06 March 2010 by Phil Barry
Actually, Mick, the standard of living in the US, as measured by inflation adjusted income, has NOT increased for the vast majority of people.
Posted on: 06 March 2010 by David Sutton
I believe most civil servants are on Final Salary pension schemes. Does anyone know the provision that HMG is making in respect of their potential liability to fund these schemes?
David
David
Posted on: 06 March 2010 by Mick P
Phil
That does surprise me, your country has had nearly twenty years of economic growth, so one would have expected an increase in the standard of living.
Regards
Mick
That does surprise me, your country has had nearly twenty years of economic growth, so one would have expected an increase in the standard of living.
Regards
Mick
Posted on: 06 March 2010 by Mick P
David
They could either push up contributions of existing civil servants, They currently pay 7% and it could go up to 10%. They could also put back the retirement age.
The most likely action, however, is to cut the final salary scheme off to new recruits.
Regards
Mick
They could either push up contributions of existing civil servants, They currently pay 7% and it could go up to 10%. They could also put back the retirement age.
The most likely action, however, is to cut the final salary scheme off to new recruits.
Regards
Mick
Posted on: 06 March 2010 by naim_nymph
Mick,
very good topic thread, i agree with much you say, but...
The Royal Mail employee's pension fund has been revised after a so-called, 'consultation' that took place around December 2007.
This was when we learnt that our 40 year pension plan had become a farcical flexi-plan pension, and we would be required to work an extra 5 years for nothing (from 60 years old to 65) to mature the plan fully.
This was one of the main reasons for the strike action during 2007, and Gordon Brown (who is very wealthy and has a huge pension) couldn't understand why we were so upset!
Since then our annual pension plan illustrations have gotten smaller well into the poverty zone.
During the consultation, i wrote in to say that i had been paying into my pension play for over 30 years, and my plan was a 40 year plan, not a 45, but this was ignored because they don't care a toss what i think...
Also, in the same letter, i requested to pay more contribution (3 x as much), so i could afford to retire at 60. But this idea was strongly rejected. The idea of raising contributions is totally disregarded by the board of distrustees... probably because they don't want us to have a full mature pension, and nor do they want us to work until we are 65 because their devious master plan appears to be one of mass redundancies (probably later this year) ...and with the retirement age put back 5 years they will devalue the employee's pension pot and save a fortune in future pension pay-outs.
The Royal Mail Pension consultation was secretly hatched out during the summer of 2007 and then quickly imposed upon us later that year with the consultation at Christmas!.. the busiest time of the year for Posties when people would either be to young to care (which is sadly true in many cases), or too busy to get involved.
But 10's of thousands of letters of protest were sent in, and were promptly brushed aside as their plans of pension reform simply bulldozed through. The consultation was nothing more than 'legal' dictation.
The Executive and Senior Manager Pensions Plans are "Crown Guaranteed", so their fat golden pensions are totally unaffected with this reform, but due to the fact they have received very generous pay rises of late, they will now get even bigger ones.
However, the point of this story is that even if you do pay into a company pension, and stick with it for a long time, it doesn't mean you'll be okay.
Debs
very good topic thread, i agree with much you say, but...
The Royal Mail employee's pension fund has been revised after a so-called, 'consultation' that took place around December 2007.
This was when we learnt that our 40 year pension plan had become a farcical flexi-plan pension, and we would be required to work an extra 5 years for nothing (from 60 years old to 65) to mature the plan fully.
This was one of the main reasons for the strike action during 2007, and Gordon Brown (who is very wealthy and has a huge pension) couldn't understand why we were so upset!
Since then our annual pension plan illustrations have gotten smaller well into the poverty zone.
During the consultation, i wrote in to say that i had been paying into my pension play for over 30 years, and my plan was a 40 year plan, not a 45, but this was ignored because they don't care a toss what i think...
Also, in the same letter, i requested to pay more contribution (3 x as much), so i could afford to retire at 60. But this idea was strongly rejected. The idea of raising contributions is totally disregarded by the board of distrustees... probably because they don't want us to have a full mature pension, and nor do they want us to work until we are 65 because their devious master plan appears to be one of mass redundancies (probably later this year) ...and with the retirement age put back 5 years they will devalue the employee's pension pot and save a fortune in future pension pay-outs.
The Royal Mail Pension consultation was secretly hatched out during the summer of 2007 and then quickly imposed upon us later that year with the consultation at Christmas!.. the busiest time of the year for Posties when people would either be to young to care (which is sadly true in many cases), or too busy to get involved.
But 10's of thousands of letters of protest were sent in, and were promptly brushed aside as their plans of pension reform simply bulldozed through. The consultation was nothing more than 'legal' dictation.
The Executive and Senior Manager Pensions Plans are "Crown Guaranteed", so their fat golden pensions are totally unaffected with this reform, but due to the fact they have received very generous pay rises of late, they will now get even bigger ones.
However, the point of this story is that even if you do pay into a company pension, and stick with it for a long time, it doesn't mean you'll be okay.
Debs
Posted on: 07 March 2010 by Mick P
Debs
Your position depends on what year you joined RM.
Did you join before or after 1st April 1987?
If you joined before 01.04.1987 then your previous pension will be preserved and it will increase in value every year (from April 2008)in line with RPI.
If you joined after 01.04.1987 then your pension is still presereved but the increases in RPI are limited to 6% pa.
You will still be paid these pensions when you become 60. You will probably be working for the RM after you are 60 and also in receipt of a pension.
The disadvantage to you is that in the long term, wages will probably increase more than the RPI and thus your pension will dimminish in comparative value but it should not be that bad.
Regards
Mick
Your position depends on what year you joined RM.
Did you join before or after 1st April 1987?
If you joined before 01.04.1987 then your previous pension will be preserved and it will increase in value every year (from April 2008)in line with RPI.
If you joined after 01.04.1987 then your pension is still presereved but the increases in RPI are limited to 6% pa.
You will still be paid these pensions when you become 60. You will probably be working for the RM after you are 60 and also in receipt of a pension.
The disadvantage to you is that in the long term, wages will probably increase more than the RPI and thus your pension will dimminish in comparative value but it should not be that bad.
Regards
Mick
Posted on: 08 March 2010 by Tarquin Maynard - Portly
quote:Originally posted by David Sutton:
I believe most civil servants are on Final Salary pension schemes. Does anyone know the provision that HMG is making in respect of their potential liability to fund these schemes?
David
AIUI these schemes are not actually funded.