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!)
