There has been much talk of how many companies are shutting down final salry pension schemes etc and introducing other measures to limit the amounts paid out by company pension schemes.
I am employed by a company within the NGT group
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My pension scheme has shut down final salry schemes to new entrants but old hands like myself are still on the final salary scheme.
As part of this years terms and conditions (pay) negotiations they have proposed as art of the package,a personal pension cap for each individual.
It works like this;
The company takes the best pensionable pay year of each individual ,chosen from the last three years,and that best pensionable pay year then becomes that individuals' personal pensionable pay cap for ever more(there are no periodic updates/reviews)
In following years ,all that individuals' pensionable pay up to their personal cap is 100% pensionable but any further amounts earned over the personal cap are 90% pensionable.
This sounds like a long term loss to the individual and I find it incredible that a company of this size feels that the pension scheme may be so under threat that they offer such a deal...
Basically, it *is* a long term loss to the individual.
Why is it a "deal"? In a "deal" you would get something in exchange for giving up 10% of the pension rights on your future salary increases.
Is it just something they are imposing? If so, what you are getting in exchange is probably the fact that the scheme isn't closing completely for future accrual.
Do have a choice to accept it or not? If so, what happens if you refuse?
It is because the nanny state is imposing such ridiculous requirements that it becomes impossible for a company such as yours to fulfil the state's new requirements for occupational pension funds and still be able to trade.
It revolves around the definition of marketable skills. Some people are not wanted simply because they have reached a certain age. With others it may be because of location. It could be lack of experience.
My point was about that you can always make your life meaningful by making an effort in some direction. People shouldnt give up because it's difficult to get a job. I know stress through personal relationships and financial problems can affect people but I dont agree that your life has little meaning if you dont have a job.
But is it not a bit knee-jerk ? A few years of poor investment performance and some accounting changes is a flimsy basis for such a fundamental and damaging change in employment terms.
Suppose you earn 20Kpa and decide to buy a 100K house using a mortgage of
3.5 times salary, ie 70K. You've done your sums, decided you can afford the 30K deposit and the mortgage repayments on the 70K mortgage. Great, welcome to the new house!
Now, 6 months later the bank has some new rules. It doesn't allow "3.5x" mortgages anymore, just a maximum of "2.5x". Just really like "some accounting changes". Must be a "flimsy basis" for any "fundamental" changes, eh?
You still believe that you can afford a 70K mortgage, even though you still only earn 20Kpa. But the new rules say you cannot have that mortgage. So what do you do now, then?
Factor-in a few increases in interest rates on the mortgage (akin to the "few years of poor investment performace" in the pension scheme) and is it still a flimsy basis for a radical change to your living arrangements?
It's more the other way round, final salary pensions would have gone out some time ago except that a few years of good returns in the 90s staved it off for a while. The basic problem is with life span, i.e. that people now live 20-30 years after retirement, so the cost of a pension is now enormous and unpredictable. Companies want to know what they are paying people now, not find in 20 years that they are actually paying their employees twice as much as they think.
Also from the employees point of view they are often not very good. Final salary schemes are based on the idea that you stay with the same company for life with a regular pay progression, early leavers or people whose salary peaks early often do very badly out of them. Also they tend to come with fairly generous benefits for dependants, so single people and childless couples also do relatively badly. The gainers tend to be senior managers who have a high final salary and who can often arrange to get a big salary increase just before retirement.
The obvious solution is to accept retirement ages which are much later; in other words, which are a similar number of years before "average age at death" that retirement ages used to be before mortality improvements.
So, perhaps retirement ages should generally be around 75-80 years of age? [If people wish to "retire" before this, then they'll jolly well have to save substantially for it!]
"Stephen Burke" wrote
Perhaps "do not quite as good" rather than "do very badly"?? Don't forget that the "average pensioner" may get value equivalent to around
*three* times their contributions out of a company (final salary) scheme (eg they pay around 5-6% of salary and employer pays 10-12% as "balance of cost"). I'd say that only getting *twice* the worth of their contributions, isn't "doing very badly" but just "not doing as well as three times" !!
"Stephen Burke" wrote
Which some schemes allow you to "opt-out of" and pay lower contributions. [You may then be upset when, 5 or 10 years later, you do marry & have children...]
I think that will inevitably happen in the medium term, but I don't think people are ready to have it just yet. Certainly the government only seems to be sneaking up on it rather slowly. If companies offered people the choice of switching to money purchase, or keeping final salary but with accrual on (say) hundredths of final salary per year to be paid from age 75, which would they take I wonder? Even then the companies would be taking a bet that lifespan doesn't increase much further.
Well, it depends on what you compare with, if you could get a similar level of employer contributions many people would do a lot better with money purchase, but of course employers often reduce contributions when they switch since there is no longer a target for the value of the fund. Bear in mind that the difference in final salary between early leavers and people who stay the whole course with continuous promotions can easily be a factor 5, so I think it's a bit more than "not quite as good". By getting my latest job I uplifted the value of the previous 13 years-worth of contributions by something like 30%, which is worth in the ballpark of a year's salary in itself, hardly trivial.
[BTW, I have a thing about adverbs, and I can't resist pointing out that doing good and doing well are quite different things ...]
You seem to be taking the view that the employer contributions are some kind of free gift, but in fact they are part of your salary package (the employer certainly sees it that way). If you phrase that as "you get paid 6% less for your whole working life" you might think it's not so good! (and that's 6% of gross salary, more like 10% net).
Depends on the scheme. My current scheme (civil service) gives a partial refund of contributions if you have no dependants when you retire, but the previous one (universities) doesn't, and the benefits are pretty generous, I think a spouse, including unmarried partners, up to 20 years younger is entitled to a 50% pension (maybe young female gold-diggers should look at professors as well as businessmen :) Also, unlike annuities the pensions are sex-neutral, so men do worse than women because they don't live as long. Even where people are married, if both partners are working they are probably better off each having their own pension provision, the final salary schemes are effectively still assuming that wives don't work. And even if there is a dependant spouse, if they die first there is no benefit, so you'd better not marry someone much older than you. (Children are less relevant because most people will not have dependant children by the time they retire.)
I have to say I think it's you who's being daft here! Firstly you don't seem to have noticed all the debate about demographic changes. The workforce is not in equilibrium, we have lots of baby boomers set to retire in 20 years or so and the birth rate is well below the replacement level, with current trends by about 2025 there will be about 4 people retiring for every 3 who enter the workforce (excluding immigration).
Secondly, the general idea you're describing is a classic economic fallacy known as the "lump of labour", the idea that there is only a fixed amount of work to do. It seems to be a very persistant idea despite being completely wrong. The odd thing is that up to a couple of hundred years ago it would have made no sense to anyone, it was just obvious that there was always work to do. It only started to seem plausible once we started having mechanised factories, because people who were out of work couldn't easily start their own factory, so unemployment could persist. Nevertheless, there is no reason whatever to think that there is a fixed amount of work to be done, despite a continual process of automation employment has been pretty much steadily increasing for the last 20 years (more than the *un*employment statistics indicate because there are now a lot more women working - of course the "lump of labour" idea was also used as an argument for why women shouldn't be allowed to do real jobs, they would just "steal" them from men). Productivity (output per worker) in the US is about 30% higher than in the UK, but they still have about the same level of unemployment as us - and they manage to find plenty of work for immigrants, legal and illegal.
Perhaps I am. It's allowed. I'm no expert and am just pointing out a possible obvious flaw.
I don't accept that as relevant. No matter what the profile is, keeping people in for 10 years longer will mean there are more in the pool. There will always be more wanting to get in. It is of course not valid to exclude immigration. Immigrants need to eat, live, work, and play too.
"Baby boomers" are a blip. What is being proposed is a long term "sea" change on a timescale which takes such blips in its stride.
I disagree that that is what I'm describing. I agree that there is always enough work to do, but not necessarily that there will always be someone happy to pay for it all.
If it hasn't been properly debunked, it can't be all that wrong.
There is a fixed amount of wealth in people's pockets available to be spent rewarding others for work they do for them, and people decide whether and on what to spend it, and they also do some work to replenish their coffers. It all has to add up.
They *do* steal them from men, just not as much as a simple-minded approach might expect. There just isn't enough money in the economy to pay for twice as many people to work as did before. Just as well there are enough women who choose not to work. OK, in a way this is a red herring, single women have always worked, and if mothers/wives work they have to employ someone else to look after the children/house, so it kind of balances out.
That's because Americans work enough to give them as much money as they want, while Brits work enough to give them as much spare time
Nothing. My analysis does not require an equilibrium.
Not relevant. I wasn't addressing economic performance, I was just saying unemployment would rise. The point is that we *have* some unemployment, and so delaying the opportunity to youngsters to enter the pool by allowing the oldies to stay in longer will
*necessarily* increase unemployment. If we had full employment, or even "negative unemployment" (more jobs available than there are applicants) then it would be different, but we don't, so it isn't.
That's begging the question. You are using the assumption that the work is useful to deduce that someone will pay for it. I'm saying that is not a given.
If the extra work to be done (by people retiring later) is useful and someone will pay for it, then there would be no problem, but then there would be no unemployment. But there is.
No. The point of retiring later is to save, not to spend.
Nice one :-)
Because we're saving less than then? Because we're spending wealth we haven't earned yet?
We can, but do we want to? The problem is that when people can see that lean times are ahead, they save more and spend/consume less, and there will thus be less demand for workers to produce the fripperies no-one wants to buy any more.
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