The Lemon Fool

Bouleversee wrote:Look at the top of the page, Arb.

Yeah, that was a bit weird. I was writing on HYP practical - I thought. How come I popped up on this board without realising it? Seems like an episode of Star Trek where I slipped through to somewhere else.

Anyhow, sorry I didn't notice.

daveh wrote:· BT agrees with Communication Workers Union to establish a 'hybrid' pension scheme, combining elements of both defined benefit and defined contribution schemes

A "'hybrid' pension scheme"? - Interesting. This sounds possibly not unlike something I once tried to float as an idea on the old TMF 'Pension Policy' board. It wasn't popular!

http://www.pensionsauthority.ie/en/Life ... n_schemes/

daveh wrote:...this announcement now extends it to all staff (team members as BT calls them).

Yuk!

This sort of thing always makes me think of all those countries with a big sign up at the border: "You are now entering the People's Democratic Republic of..."

Arborbridge wrote:good for them, but at the risk of the company's future, which never made sense to me.

Arb.

Only because in many cases the companies have been religiously paying dividends rather than reducing their pension deficit. I see no reason why dividends shouldn't be banned for companies who have a pension deficit (I'm sure some will say this will reduce their access to capital, but it doesn't ring true to me at all).

paulnumbers wrote:

Arborbridge wrote:good for them, but at the risk of the company's future, which never made sense to me.

Only because in many cases the companies have been religiously paying dividends rather than reducing their pension deficit. I see no reason why dividends shouldn't be banned for companies who have a pension deficit (I'm sure some will say this will reduce their access to capital, but it doesn't ring true to me at all).

It would reduce their access to capital. I would not invest in any company that had that policy, nor in any country that had a law requiring that. Everyone should share the risk. Nobody gets immunity.

paulnumbers wrote:

Arborbridge wrote:good for them, but at the risk of the company's future, which never made sense to me.

Arb.

Only because in many cases the companies have been religiously paying dividends rather than reducing their pension deficit. I see no reason why dividends shouldn't be banned for companies who have a pension deficit (I'm sure some will say this will reduce their access to capital, but it doesn't ring true to me at all).

So people who have invested their hard-earned money into SIPPs and ISAs (without tax relief in the case of the latter) to provide for their own old age (and spend their lives monitoring them) should be denied dividends so that the final salary schemes of others (sit back and leave it to the trustees) can be sheltered from the vagaries of he market, politics or whatever? Where is the fairness in that and why should anyone be expected to lend their money interest free?

Bouleversee wrote:

paulnumbers wrote:

Arborbridge wrote:good for them, but at the risk of the company's future, which never made sense to me.

Arb.

Only because in many cases the companies have been religiously paying dividends rather than reducing their pension deficit. I see no reason why dividends shouldn't be banned for companies who have a pension deficit (I'm sure some will say this will reduce their access to capital, but it doesn't ring true to me at all).

So people who have invested their hard-earned money into SIPPs and ISAs (without tax relief in the case of the latter) to provide for their own old age (and spend their lives monitoring them) should be denied dividends so that the final salary schemes of others (sit back and leave it to the trustees) can be sheltered from the vagaries of he market, politics or whatever? Where is the fairness in that and why should anyone be expected to lend their money interest free?

Given that pension schemes seem to bring down companies with alarming regularity, I would have thought any rational investor would be keen for companies to de-risk in this manner. I see I stand alone though!

Yes, denied dividends, but obviously you wouldn't suffer the ex-div date fall either, so you're just as well off.

paulnumbers wrote:
Given that pension schemes seem to bring down companies with alarming regularity, I would have thought any rational investor would be keen for companies to de-risk in this manner. I see I stand alone though!

I'm not convinced you "stand alone". It's the tension between between the various parties which produce ideas which apparently face in opposite directions but which can be quite rational. I'm in an interesting multi-faceted positon which encapsulates all sides! - being employee, employer and investor, all in one. I guess many people will be similar and therefore have an insight into the various ethical and practical problems.

For instance, as an investor I want the best out turn for myself, but I also have to agree that if a pension promise is made as part of a salary package, ethically it is bound to be honoured if possible without destroying the company. So my desire to "derisk" in the investor's favour is stricly a self-centred one. Not to acknowledge the legitimate claims of the other parties would be to rationalise an unethical position.
Arb.

Arborbridge wrote:For instance, as an investor I want the best out turn for myself, but I also have to agree that if a pension promise is made as part of a salary package, ethically it is bound to be honoured if possible without destroying the company.

It used to be easy enough. You set up a scheme where employees paid 5% and the employer 10%. Provided the shareholders thought this affordable, this capped the outgo. Calculations were performed to establish what level of benefits this could promise. To keep it simple, benefits were based on salary, usually an average in the three years before retirement and on years of service. Investments were made in the likely best performing sectors, such as equities and property, to maximise returns rather than minimise risk.

The model was suspect because it relied on short changing those who left the company's employment before retirement and a failure to index benefits for inflation. It also didn't help when Companies realised the joys of pension holidays utilising favourable investment returns. It all started to turn sour when the promises or expectations had to become guarantees, when short changing leavers and ignoring inflation was outlawed, when longevity increased the cost of pensions in payment, when pension costs and deficits had to be disclosed on Balance Sheets, when there were moves to classify equities as "too risky" and then finally when QE reduced the returns on government bonds and similar investments to derisory levels.

Alaric wrote:
It used to be easy enough. You set up a scheme where employees paid 5% and the employer 10%. Provided the shareholders thought this affordable, this capped the outgo. Calculations were performed to establish what level of benefits this could promise. To keep it simple, benefits were based on salary, usually an average in the three years before retirement and on years of service. Investments were made in the likely best performing sectors, such as equities and property, to maximise returns rather than minimise risk.

The model was suspect because it relied on short changing those who left the company's employment before retirement and a failure to index benefits for inflation. It also didn't help when Companies realised the joys of pension holidays utilising favourable investment returns. It all started to turn sour when the promises or expectations had to become guarantees, when short changing leavers and ignoring inflation was outlawed, when longevity increased the cost of pensions in payment, when pension costs and deficits had to be disclosed on Balance Sheets, when there were moves to classify equities as "too risky" and then finally when QE reduced the returns on government bonds and similar investments to derisory levels.

An excellent summary of the course if this sad tale.... add in increasing longevity, and the fall in interest rates and tightening regulation post Maxwell and you have the perfect storm which has brought us to where we are.

Bouleversee wrote:

paulnumbers wrote:

Arborbridge wrote:good for them, but at the risk of the company's future, which never made sense to me.

Arb.

Only because in many cases the companies have been religiously paying dividends rather than reducing their pension deficit. I see no reason why dividends shouldn't be banned for companies who have a pension deficit (I'm sure some will say this will reduce their access to capital, but it doesn't ring true to me at all).

So people who have invested their hard-earned money into SIPPs and ISAs (without tax relief in the case of the latter) to provide for their own old age (and spend their lives monitoring them) should be denied dividends so that the final salary schemes of others (sit back and leave it to the trustees) can be sheltered from the vagaries of he market, politics or whatever? Where is the fairness in that and why should anyone be expected to lend their money interest free?

Perhaps using Carillon as an example is unfair, hindsight and all that, but it hardly seems that those who invested their hard heard money are any better off for the fact that they went bust. Those dividend payment would have made all the difference to the pension deficit, and the company would still presumably be around now.

paulnumbers wrote:

Bouleversee wrote:

paulnumbers wrote:
Only because in many cases the companies have been religiously paying dividends rather than reducing their pension deficit. I see no reason why dividends shouldn't be banned for companies who have a pension deficit (I'm sure some will say this will reduce their access to capital, but it doesn't ring true to me at all).

So people who have invested their hard-earned money into SIPPs and ISAs (without tax relief in the case of the latter) to provide for their own old age (and spend their lives monitoring them) should be denied dividends so that the final salary schemes of others (sit back and leave it to the trustees) can be sheltered from the vagaries of he market, politics or whatever? Where is the fairness in that and why should anyone be expected to lend their money interest free?

Perhaps using Carillon as an example is unfair, hindsight and all that, but it hardly seems that those who invested their hard heard money are any better off for the fact that they went bust. Those dividend payment would have made all the difference to the pension deficit, and the company would still presumably be around now.

As you say, it could have made a difference - as would other factors too. The pension/dividend discussion was far from the only one, and as you comment this is perfect hindsight. I doubt anyone would have been convinced that there was any need to suspend dividends at any point until the last year or so.
What's interesting in the table you publish is the huge stepped increases in pension liabilities. I don't know what was going on there, but it sort of reminds me of my own company scheme in which every actuarial review promised reducing the deficit over the next three years, if only we paid a bit more in (which we did) but it never worked out that way. We were running faster and faster only to stand still. The actuaries wanted first 10%, then 14% then 22% and finally - can you believe this? - 45% of salary paid in, we rather gave up, realising that the pension scheme was eating the company alive.

1nv35t wrote:Way back I worked for BT for a while. Believe I was in their B scheme and that that pension would become payable when I reach age 60. Does this mean that pension is now lost? Seem to remember reading that it transitioned from being government backed to not being so. Now if totally lost !!!! No incentive for anyone to pay into any pension scheme, not even a apparent government assured one.

Coming rather late to this thread, I'm pleased 1nv3st got the answers he did! I too am a deferred BT pensioner and was a little alarmed when I first saw the headline!

1nv3st - I think the issue you are referring to is the so-called "Crown Guarantee". Things turned out in our favour on that point:
https://www.btpensions.net/information/crown-guarantee

The other change, for you, if you are indeed in Section B, is that increases in benefits are now linked to CPI, rather than RPI. For me, Section C, BT lost its case to make the change, so my future benefits are still linked to RPI, although BT is appealing the decision.

paulnumbers wrote:

Bouleversee wrote:

paulnumbers wrote:
Only because in many cases the companies have been religiously paying dividends rather than reducing their pension deficit. I see no reason why dividends shouldn't be banned for companies who have a pension deficit (I'm sure some will say this will reduce their access to capital, but it doesn't ring true to me at all).

So people who have invested their hard-earned money into SIPPs and ISAs (without tax relief in the case of the latter) to provide for their own old age (and spend their lives monitoring them) should be denied dividends so that the final salary schemes of others (sit back and leave it to the trustees) can be sheltered from the vagaries of he market, politics or whatever? Where is the fairness in that and why should anyone be expected to lend their money interest free?

Perhaps using Carillon as an example is unfair, hindsight and all that, but it hardly seems that those who invested their hard heard money are any better off for the fact that they went bust. Those dividend payment would have made all the difference to the pension deficit, and the company would still presumably be around now.

Interesting that Carillion had all but paid off its pension deficit in 2007 and in fact could have done so by the simple step of holding that year's dividend at the level of the previous year. I know the GFC happened the next year, but since so much of Carillion's work was isolated from that, I wonder what happened to cause the pension deficit to balloon?

On the point of a company paying its pension deficit before paying dividends versus it's not fair to withhold dividends to let final salary beneficiaries sit back and leave it to the trustees, I would say - those of us who are deriving equity income would simply not have looked at those companies and found other dividend payers without pension deficits. Plenty of fish in the sea. And, even without such a rule, you see individual investors on the HY boards who self-select themselves away from BT/BA./etc whose pension deficits may well be the end of them.

Helpful and informative thread.

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