Monday, December 03, 2012

"The Emperor has no clothes": but still killing retirement hopes and dreams

This cartoon is from Friday's "Inside Housing" Magazine about the £5 billion Pension Trust which is forcing out, for no good reason, many third sector employers from its defined benefit scheme, while pricing out others due to huge rises in contribution rates.

While I am pleased that Inside Housing has led this debate in our sector and had a news article, analysis and editorial on this subject, it has hasn't quite got it right about some pretty important issues.

1. Why is the Pension Trust writing to employers threatening to force their their workers out of a decent pension scheme on the basis of discredited "mark to market" accounting measures? Why are they increasing contribution rates on this basis to such levels as to force even more schemes to close.?

2. Why is the Pension Trust not talking to the Pension Regulator about extending its deficit repayment period to take into account the 200 year abnormal gilt yields, which are making schemes seem to be in trouble, when they are clearly not? Other social pension funds have done so successfully, why hasn't the Pension Trust?

3. The Pension Minister Steve Webb MP himself has recognised "mark to market" is a nightmare which is killing perfectly good pensions schemes and has promised to do something about it. Why force schemes to close when change is likely to happen soon?

4. Why isn't the Pension Trust thinking about asking the highly paid to pay more? They already pay less than the low paid due to high rate tax relief? Why aren't they encouraging or looking into salary sacrifice, contribution "caps and shares", changes in retirement ages, hybrid schemes or investment fund merger?

5. Was the Housing Charity "People Can" forced into administration by the Pension Trust, discredited pension accounting measures or Government cuts? What are the real reasons? Who is really to blame?

6. The Pension deficit is not "the result of poor returns on government bonds in which the scheme had invested heavily" (page 12).  The problem is not investment returns it is the way you calculate the cost of pension promises (liabilities) which are currently based on government bond yields.  This is absolutely crucial for people to understand. The deficit has increased in the last 3 years even though the scheme investments have increased in value.

7. What has changed? Have people suddenly started living longer in the last 3 years? No, the only thing that has changed is that gilt yields are at a 200 year low due to reasons completely unrelated to the real cost of a pension.

8. So "The Emperor has no clothes" the deficit is not real. So why close and force people out of decent pensions for no good reason?

9. It is a fact that closed schemes become more mature and are forced to have smaller and smaller levels of equities and more and more traditionally low return bonds and cash holding. While at the same time paying the same level of huge fees and commissions.

10. Closing schemes does not get rid of any deficits, in fact they can make things much worse.
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