"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.

Why is this government destroying Pensions, Charities and Jobs?

This morning I read about the Charity "People Can" being forced into administration and 300 jobs being put at risk.

I don't know all the reasons why this has happened but we are told it was due to its "pension liabilities". Whatever that actually means?

But I do know that the charity and its workforce protects victims of domestic violence, stops ex-offenders reoffending and gets the homeless into secure and safe accommodation.

The  Administrators, PriceWaterhouseCoppers (PWC), is not of course an evil organisation, however is not that well known for its concerns about battered women, ex-cons wanting to go straight or homeless kids desperate to get off winter streets.

It is known that "People Can" has a history of financial insecurity.  But I wonder what is the real reason for the "pension liabilities" (or deficits) in the first place that are supposed to have led to the potential sackings and loss of vital services? Was it due to inadequate financial planning or that its defined benefit pension scheme was in some way unsustainable?

No one has mentioned either about whether the pensions of the charity staff are truly safe or are they being subject to the tender mercies of the "Pension Protection Fund"? The PPF is a "good thing" but do not think for a moment if the PPF steps in that you have nothing to worry about your retirement. You do.  If you haven't already retired you may find your future pension significantly reduced.

My biggest gripe is that this closure and threat to peoples pensions in "People Can" and elsewhere could be based on complete and utter stuff and nonsense.

Due to outdated and deficient accountancy rules called "Mark to Market", perfectly good defined benefit pensions schemes are going to the wall. Sometimes bringing their organisations down with them. For no good reason. Perhaps we ought to shout out the emperor has no clothes – these so-called pension deficits are not real! They do not reflect the true future costs and liabilities facing pension schemes.

Schemes usually have to price these costs according to the return on Government loans called gilts. Due to our abnormal economic conditions these gilts currently have negative prices. This means scheme deficits have increased massively and have nothing to do their underlying strengths or weaknesses.  Quantitative Easing (QE) by the Bank of England is making things even worse. This has resulted in gilts yields being in even more La La land. They are at a 200 year financial low.

Everyone knows this but why is it allowed to happen and destroy perfectly good pension schemes and then make its members live and die in poverty? Even worse, relying on the tax payer to subsidise poverty employers who pay their pension pittances. Is this the sort of society that we really want?

The government has committed to act on this but has just  failed to do so! The Pension minister Steve Webb promised in June to do something about what he called this "nightmare" which is "killing" perfectly good pension schemes and that he would "not idly stand bye" and let this happen.

I'm not holding my breath Steve. Many more jobs, services and decent pensions schemes will not last, unless you, Clegg and Cameron get their fingers out and do something.