Pensions Crisis Solved

We can now sleep easily.

The pensions crisis is solved.

Did you fall asleep and miss something? - No.

The solution comes from the reform/ privitisation of the NHS.

If you ask a trust executive, you will find that they see the NHS not as the employer, but as one funding stream. Most trusts are setting up private sections in their hospitals and consultants are being asked to join partnership groups much like GP practices.
A number of private providers are poised to enter this area.

This all means that the NHS is effectively being dismantled, but because most people will not notice, not that many people will care.

Some services will get better.

So, cui bono.
I am not sure, but basically if you are otherwise reasonably healthy, but have one thing wrong with you - from a broken arm, to a hip replacement, that does not tend to have complications, you will be fine.

Hospital doctors will award themselves v. big pay rises to bring themselves up to GP levels.

Who suffers.
If you have something complicated wrong with you, like a broken hip and pneumonia and altzhiemers, you will not be a source of profit to the provider.

Multi-factor problems tend to happen to old people.

More old people dying = less strain on the state.

Not nice, but rather inevitable

Pensions Revaluation

Nothing to see here, not new, move on.

From the budget : On page 34 of the red book published around 22 ish June

1.106 The Government will use the CPI for the price indexation of
benefits and tax credits from April 2011. The CPI provides a more
appropriate measure of benefit and pension recipients’ inflation experiences
than RPI, because it excludes the majority of housing costs faced by
homeowners (low income households are subsidised separately through
Housing Benefit, and the majority of pensioners own their home outright),
and differences in calculation mean it may be considered a better
representation of the way consumers change their consumption patterns in
response to price changes. This will also ensure consistency with the measure
of inflation used by the Bank of England. This change will also apply to
public service pensions through the statutory link to the indexation
of the Second State Pension. The Government is also reviewing how
the CPI can be used for the indexation of taxes and duties while
protecting revenues.

So, State Pensions will be increased by CPI rather than RPI.

Yes, CPI is less than RPI. Generally speaking the RPI includes the cost of housing - mortgages etc and council tax.
If you are a pensioner paying rent or a mortgage, over a 10 year period you might be slightly worse off.

As at July 2010, CPI is 1.7% less than RPI - meaning a difference of £1.62 per week for a single person on the basic state pension.
This is a lot to someone on £95 a week.

Remember that someone who gets that will also get income support etc.

One real question is, what is the rate of inflation for Pensioners?

This is a good one, and I think you can argue CPI is more appropriate.

Another real question is will this encourage private pension provision?

No.

Lets be honest, this is just a way of reducing the cost of public pension provision. Nothing too wrong about that in itself, but they could be more open about the impact.

New Government, no change

The Government published its coalition programme for government document.

The section of the document regarding the programme for pensions is called "Pensions and older people"

Did you spot the short comment at the bottom

We will simplify the rules and regulations relating to pensions

To inaccurately quote my friend phyrrus, one more such simplification would utterly undo me

23. PENSIONS AND OLDER PEOPLE

The Government believes that people deserve dignity and respect in old age, and that they should be provided with the support they need. That means safeguarding key benefits and pensions, and taking action to make it easier for older people to work or volunteer.

• We will restore the earnings link for the basic state pension from April 2011, with a ‘triple guarantee’ that pensions are raised by the higher of earnings, prices or 2.5%.
• We will commit to establishing an independent commission to review the longterm affordability of public sector pensions, while protecting accrued rights.

• We will phase out the default retirement age and hold a review to set the date at which the state pension age starts to rise to 66, although it will not be sooner than 2016 for men and 2020 for women. We will end the rules requiring compulsory annuitisation at 75.
• We will implement the Parliamentary and Health Ombudsman’s recommendation to make fair and transparent payments to Equitable Life policy holders, through an independent payment scheme, for their relative loss as a consequence of regulatory failure.
• We will explore the potential to give people greater flexibility in accessing part of their personal pension fund early.
• We will protect key benefits for older people such as the winter fuel allowance, free TV licences, free bus travel, and free eye tests and prescriptions.
• We will simplify the rules and regulations relating to pensions to help reinvigorate occupational pensions, encouraging companies to offer high-quality pensions to all employees, and we will work with business and the industry to support auto enrolment.

Pensions Dropping

Professional Pensions reports today that ...

Towers Perrin finds that DC schemes cut pension costs by two-thirds

Employer contributions reduced from between 15 and 20pc down to 6.5pc on average.

Perhaps another way of putting this is

"Employees only buying themselves under 50% of the pension they ought to be".
...

Age Discrimination

So, the draft regs have been published. This implements Directive 2000/78 EC, which makes it illegal to discriminate directly or indirectly in the workplace due to age, which also applies to Pension Schemes. From the notes:

Direct and indirect discrimination
Discrimination on the grounds of age can be direct or indirect. Direct discrimination occurs when the trustees/managers or an employer treat a worker less favourably than other workers on the grounds of age. Indirect discrimination occurs when a rule, practice, action or decision which is apparently age-neutral in fact disadvantages workers of a particular age.
...
Choosing a comparator
If a worker claims he has suffered from age discrimination, he will need to show that he has been treated worse than another worker who is in the same position as him except for age. If no such actual worker exists, the claimant can compare himself with a "hypothetical" comparator.
...
"Objective justification" test
The Directive allows direct or indirect discrimination if it is "objectively justified" i.e. if it pursues a "legitimate aim" and is a "proportionate" means of achieving that aim.
Legitimate aims might include business needs, efficiency, reducing staff turnover or providing promotion opportunities to retain good people.
To be "proportionate", there must be a balance between the discriminatory effect of a measure and the importance of the aim being pursued. A measure will not be proportionate if an alternative exists that is less discriminatory.

So...
Within these guidelines schemes can discriminate due to age in various sensible ways :

- People who earn more can have more contributed even if they tend to be older.

But...
A company can close its defined benefits arrangement to new joiners but continue to allow existing members to remain in the scheme for future accrual (or for a deferred pension). The company may decide to offer alternative [DC] pension arrangements to new joiners (but is not obliged to do so).

Now,
The regulation may well explicitly exempt this, but I would point out
(a) After a couple of years, the age distribution of the two schemes will diverge. There is now a comparator.
(b) Exactly how do you objectively justify this? I can think of a few.
1 The closed section relates to staff who arrived in a merger, so they had to give those terms and no-one else got it.
2 Generally speaking the level of pension the DC member will get is the same as a DB member

Otherwise I can see challenges at the ECJ.
I can see that one might say that it should be possible to change employees terms so that people who joined before a certain date get different benefits to thos who join after - but - please explain the objective justification (unless Directive 2000/78 EC exempts this).

Pensions White Paper 2 - The intermission

Paragraph 41
...streamline the regulatory environment.

41. We will do this by:

• introducing a rolling deregulatory review of pensions regulation, in light of the Pensions Act 2004;

Marvellous.
Finally they have admitted that a few mistakes were made in the 'pensions simplification' process and that perhaps a little less regulation is needed.

I am surprised that this has not been commented on in the mainstream news.

All humor aside, the governments willingness to meddle and add endless regulation retrospectively is helping to drive a rapid growth in the offshoring industry. There is not a high level of trust that the government will play fair (whatever that means).
This type of solution has only been open to multi-millionaires until recently.
The growth of technology and the EU Markets in Financial Instruments Directive - basically making sure cross-border financial services are enabled - brings these schemes within the grasp of the middle classes. As the average 'nice detached 4 bed' house in the south east can easily be worth over 1m, there is a growing number these people and they are being hunted by IFAs who are making sure that IHT will not apply. One way is to place the asset into a foreign trust where HMRC cannot peek.
The same applies to Pensions and people who have invested lots of money in GPPs and MP schemes - before, it was not as clear what your DB pension was worth and you had less chance to move it elsewhere.
Now, do you want to give all that money to (a) an insurance company and then possibly die in 5 years time, or (b) arrange your affairs so that the funds can be passed on down through your family forever.
This is now possible - and will you choose (a)?
Thought not. I know some nice people you can contact...

What saddens me is that if they had not continually fiddled with the rules over the last 20 years - both parties are guilty - things would have been simpler, pensions would still be in largely in place and hordes of intelligent people would not spend their time dreaming up clever wheezes, they (myself included) would be doing something that adds value to the economy instead.

Pensions White Paper

So here we are with the long awaited white paper. The executive summary is 42 pages long. Lets summarise the summary and follow their headings and paragraph numbers.

Progress since 1997
1-4.
Until 1997 pensioners were all miserably poor and regularly froze to death in mid -summer. After 1997 everything got a lot better. There is no explanation of why things suddenly got better just then.

Improving the pensions system
7.
The government spends lots of money on pensions. Why arent you grateful?
The state second pension (S2P) was introduced in 2002. This makes lots of people better off. Unfortunately it is so complicated no-one knows that.
Stakeholder pensions have been introduced. Middle class grandparents are immensely grateful for this as they can now set up tax-efficient savings schemes for grandchildren - and be sure the litte buggers cannot spend it until they are too old spend it on alchopops, no, they will spend it on claret.

8.
"The Pensions Act 2004 has improved security and confidence for occupational pension scheme members. " ...
9.
"The Pensions Regulator will help to protect members’ benefits"
Priceless. This is newspeak for

• Occupational pension scheme members will not have noticed any changes at all
• There is increased job security in the Pensions industry as what was touted as Simplification rapidly became Complication
• When a Scheme falls into the PPF, all the advisors are able to charge the fund at their full hourly rate for whatever they do...
  
• There is increased confidence in the Pensions industry as we know that this government only makes more complicated regulation - producing bigger fees for us. We made a packet out of the 6 april changes. We will make another packet out of the Age Discrimination changes in December.
• The increasing costs of running Pension Schemes cause them to be shut down. The number of people in pension scheme are dropping by around 200,000 a year.
  

14.
People live longer and will continue to do so.
One thing we all know is that in common with most other predictions, the government will have underestimated the increase in mortality.

20.
People are not saving enough for retirement.
Not because they are not paying enough of course - it is not their fault. It is all because we are all so much better off that they will feel poor.

21.
Occupational pension scheme membership is dropping because people live longer and markets dropped in the 90s.
Absolute rubbish. At the end of the 80's the government placed a cap on the salary that could count for a pension. The directors had larger salaries and so were not so concerned about paying money into the pension scheme because they would not benefit.
The government also passed legislation that forced the company to state the defecit in the accounts. If there was a surplus, it could not be kept for bad years.
Later on the government mandated that any defecit be paid off very quickly.
I am not so sure that other things like share options or contingent director bonuses are exposed to the same level of scrutiny.
Not surprisingly, company directors decided that they are not there to run a pension scheme.

Proposals for reform

Exactly as trailed. The document could have started here.

More later.