Dynamisation is increasing the earlier career salaries to allow for time period between when earned, and retirement.
"John Redman" wrote
Are you really sure about that?
When I heard about the new public sector "career average" pensions on tv, I thought they said that people with "normal" salary increases over lifetime would be about equivalent, people with higher-than-average salary increases over lifetime will be worse-off and those with lower-than-average salary increases over lifetime will be better-off. That is what happens when the career-average salary *is* dynamised ...
You're not thinking clearly - with lower salary increases (no promotion), the pension is still *lower* (under either career-average -or- final-salary pensions) than it would be if you *did* have that promotion.
But - if you don't have the promotions (flatter salary progression over lifetime), the "dynamised career-average" pension will likely exceed the "final salary" pension. [You'd still be better-off, both before & after retirement, if you *do* get promotions!]
I appreciate that. I was just picking you up on saying (well, quoting, to be fair) something that doesn't make sense. You *did* say "will be worse-off" and I'm glad you've now seen fit to change the spin on it and say this really means "will still be better off". :-)
The trouble with using comparatives is omitting the "than" part, and finding different people inferring different things.
There's a stushie going on in the uS about this at the moment. The simplest way to establish actual costs of what's owed is the amount that will need to be paid (from actuarial tables) discounted by the 30 year Treasuries rate.
In the US, this brings the pensions hole for the major companies out to between 300 billion and 450 billion Dollars if everyone has been honest. Quite a bit more if you factor in the Enron Effect. Since the pesnions insurance company was effectively bankrupt even before the airlines started offloading their obligations through creative bankruptcy, this is looking like quite a problem.
A large part of that problem was that the large companies were permitted to book future gains on their pension funds as bottom line earnings. Even better, since they didn't know what those earnings would be, they could make an assumption on them. Some assumed 11% per annum growth, with very pleasing results for the bottom line. In fact they were so pleasing, that some companies took a "contributions holiday" with further delightful results for shareholders.
Of course 11% growth was almost certainly an aberration of the equities bubble in the 90's. Now that companies are being forced to think more like 5% or 6% growth, and less if they're forced to back their obligations with Treasuries of the appropriae maturity, those pension holes start to look very much bigger.
In fact, so big were they that rather than force the companies to make up the funds by taking cash from the bottom line and putting in extra for a few years, Congress worried that this would abort the US recovery from the post-bubble slump, and alowed them a partial holiday for a few years, thus compounding the problem.
The US, even if it has run away in the face of the enemy, has at least started the conversation. Indeed Bush has ramped it up with arguments for privatisation of pension accounts. In the UK, we haven't even really started the conversation. It's going to be no less pleasant and the longer we wait, the worse the problem will get.
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