Pensions are a vexed issue for almost all of us.
The once famous British final salary scheme has now all but disappeared thanks to Gordon Brown’s raid on the Pension Funds in the early days of his chancellorship. Although in all fairness the companies were trying it on by taking pension contribution holidays. The trouble was that the funds really were high, but, and I suppose this is the problem with an historian being the finance minister, that was unlikely to go on forever. The stock market tumbles around the world, a rise in inflation and the interest rates disappearing into the ground have meant that there is no money for final salary schemes. Thanks Brown, yet again, for some more prudence we could have done without.
Really all that remains as a final salary scheme is the government’s own scheme for MPs, Ministers, Civil Servants and other public sector workers. The government has already announced that rises in these pensions
will now be indicated by a lower measure of inflation than previously used. The existing system links pension increases to the Retail Prices Index which includes housing costs such as mortgage interest payments. But the government plans to link it to the Consumer Prices Index instead, which is typically lower, thus saving them millions of pounds.
Now Steve Webb, a pensions minister at the DWP has announced that the rises obligatory on private pensions are also to be marked down to the lower measure, thus saving the pension companies millions of pounds, but meaning that pensioners will lose out.
An expert has provided the following information about how that will affect people in receipt of pensions:
The once famous British final salary scheme has now all but disappeared thanks to Gordon Brown’s raid on the Pension Funds in the early days of his chancellorship. Although in all fairness the companies were trying it on by taking pension contribution holidays. The trouble was that the funds really were high, but, and I suppose this is the problem with an historian being the finance minister, that was unlikely to go on forever. The stock market tumbles around the world, a rise in inflation and the interest rates disappearing into the ground have meant that there is no money for final salary schemes. Thanks Brown, yet again, for some more prudence we could have done without.
Really all that remains as a final salary scheme is the government’s own scheme for MPs, Ministers, Civil Servants and other public sector workers. The government has already announced that rises in these pensions
will now be indicated by a lower measure of inflation than previously used. The existing system links pension increases to the Retail Prices Index which includes housing costs such as mortgage interest payments. But the government plans to link it to the Consumer Prices Index instead, which is typically lower, thus saving them millions of pounds.Now Steve Webb, a pensions minister at the DWP has announced that the rises obligatory on private pensions are also to be marked down to the lower measure, thus saving the pension companies millions of pounds, but meaning that pensioners will lose out.
An expert has provided the following information about how that will affect people in receipt of pensions:
Based on current levels of RPI at 5.1% and CPI at 3.4% the average occupational pension of £1,600 a year would be worth £4,043 after 20 years if up-rated in line with RPI, but only £3,020 if up-rated in line with CPI. It means that the pensioners would have lost out on £8,120 worth of income over the 20 years.
It is estimated that this measure would reduce the collective pensions deficits of the FTSE 350’s defined benefit schemes by around £50 billon, so I can see why it would be done, but it does seem to me that people with pensions of as little as £1,600 are not the people who should be paying back the mess that the government and pension schemes have got themselves into.
On the subject of pensions there is an excellent article across at Iain Macwhirter’s place. It makes rather scary reading, but I couldn’t disagree with a word of it. (It’s great to have Iain back blogging again!)
If we are all in this together then we all ought to have crap pensions together I say!
ReplyDeleteYep, Munguin. But I'm waiting with interest to see how they deal with MPs' pensions.
ReplyDeletePrime Ministers are entitled to excellent pensions from the minute they step down (as incidentally are First Ministers).
Gordon Brown to his credit eschewed this pension, which was originally designed to insure that ex-Prime Ministers of Great Britain, who automatically got an Earldom (if they didn't already have one), lived in a standard befitting their status(?!*!?). Of course they were usually old when they retired and not about to start a new career as a university lecturer, peace envoy, after-dinner speaker or whatever.
I will be interested to see what happens with the current crew of FMs and PM when they retire, especially the ones who already have pots of money.
Munguin...
ReplyDeleteWe are not all in this together, we never have been, and I guess we never will be.
Davie:
ReplyDeleteGood morning ....Nice to see you here
That's a good point. I suppose the only thing that ex-prime ministers did was write their memoirs, which probably didn't sell in massive quantities as they were rather stuffy tomes about world politics.
Mrs Thatcher changed all that by writing low level stuff about how great she was and how crap everyone else was, but altogether very much in the "penny dreadful" style.
Of course the sensationalism of them sold them... tittle tattle writ large... but then the Thatchers always did know how to make a bob or two.
I wonder why First Ministers managed to get their hands on that kind of perk. Henry McLeish was barely in the job before he was out and as a relatively young man he walked away with a big fat pot... ah yeah, the rules were written by Labour Ministers for Labour Ministers.... tsk, that's it.
The changing from RPI to CPI will save private pension providers of the FTSE 350 around £50bn, or so the Telegraph informs me. So no small change in policy.
ReplyDeleteIf it helps make our pensions funds sustainable, good. But this will hit your average joe hard. I think that if we take an average occupational pension contribution of £1,600 a year, worth $4,043 after 20 years if in line with the RPI, but only £3,020 - that means a pensioner could lose out by as much as £8,120 over the period..
and that is a basic formula of contribution etc..
It will be tough, is this a cut being forced on us by GB [Broon] or by ideology?
I am not sure.
Well Dean I guess it is Brown's fault that the pension funds are in the mess that they are in. He raided them when he thought they were rich without taking into consideration that they wouldn't always necessarily be rich.
ReplyDeleteIt hurts people whose pensions are already so small that life is hard. The state pension in the Uk is one of the worst in Europe. Why we have to treat our old so badly is beyond my comprehension. Let's face it we will all be old one day if we don't die off before we get there.
At least at long last the government has promised to restore the link between retirement pensions and wage increases rather than the manipulted inflation rate, whichever one suits them to use. Mind I'll be happy when I see it happen
It was a progressive thing to do, and they said it will go up according to "whichever is greater" [inflation or the CPI], notice the absence of one thing? RPI?
ReplyDeleteTelling isn't it, even when a government does do something worth celebrating - there is always a case of giving with the one hand, and taking back with the other.
Progress is progress I suppose. And One month of Tory-LibDem government has done more for pensioners than 13 years of labour.
I'm glad that at last something is being done and I congratulate the Tories for doing it.
ReplyDeleteMind if the lovely Mags hadn't done the dirty on them... (and I agree Barbara Castle begged Blair to right that wrong, and he wouldn't despite the never ending boom that they created) then they would be about £40 a week better off now.
What a dreadful thing to do to old people...both parties.
All fixed now though Tris, and by the Conservatives, not Labour.
ReplyDeleteYes Dea... and all credit for that belated move, but they are £40 a week worse off than they would otherwise be, and compared with pensioners in other countries that are NOT in the G8.
ReplyDeleteHow shameful to be able to afford a nuclear deterrent, but to let our old people die of the cold at worst but at best worry all winter about putting on heating or eating.
Shameful Dean, in my humble opinion.
But yes. I say it again, well done that they have restored that link.