Pension reform

[Clitheroekid]

Moderator Message:
Moved from Pensions - Practical Problems to The Economy, leaving a link, because it seemed like a slightly better fit. - Chris

the course of my professional career I have dealt with many divorces, and the one constant in any divorce where there were significant assets was the client’s almost complete ignorance of their pension provision. Many clients had several small pension pots, having worked for a number of different employers. The large majority of them had little or no idea about the value of these pots.

This reflects the fragmented nature of workplace pensions, and the problem is bound to get worse as people move jobs far more frequently than they used to.

It therefore seems to me that a possible solution would be for the government to establish a central not for profit pension fund that would simply track the markets generally. For those who wanted it there could be individual tracker funds to track different markets.

Although employers and employees would still be free to make their own provisions I'd envisage that it would be made available to everyone.

It’s long been accepted that such tracker funds frequently outperform privately run (and high charging) pension funds, and it would hugely simplify people’s pension provision, as although they might work for several different employers during their career their pension fund would remain with the same central provider. It would end the problem of lost pots, and make administration far easier for all concerned. The fund would also offer a major advantage over conventional funds in that contributions would not be diminished by fees and charges.

Although the chances of this ever happening are probably near to zero, bearing in mind the huge political clout that the city and its overpaid professionals carry in government circles, I'd be interested to know other Fools' view on such a proposal.

[Tedx]

I recall discussing Singapore's Sovereign Wealth fund with a colleague a good few years ago who came from that part of the world.

I don't remember the exact figures, but for all the fund's trumpeted headline investments and the crowing successes of the government and their investment advisers (and the fees they charged) the annual return was actually pretty piss poor.

....which led me to suggest that if they'd just taken the people's billions and stuck it in a Vanguard S&P tracker since 1965 (when they gained independence) they'd be considerably richer than they already are now.

[swill453]

Seemed like the government is thinking in a slightly different direction. In the statement yesterday:

I will also consult on giving savers a legal right to require a new employer to pay pension contributions into their existing pension pot if they choose, meaning people can move to having one pension pot for life.

https://www.gov.uk/government/speeches/ ... 023-speech

That could be a bit of a nightmare for employers, having to pay pension contributions into hundreds or thousands of different schemes.

Scott.

[DrFfybes]

Seemed like the government is thinking in a slightly different direction. In the statement yesterday:

I will also consult on giving savers a legal right to require a new employer to pay pension contributions into their existing pension pot if they choose, meaning people can move to having one pension pot for life.

https://www.gov.uk/government/speeches/ ... 023-speech

That could be a bit of a nightmare for employers, having to pay pension contributions into hundreds or thousands of different schemes.

Scott.

To be honest, I can't see it actually being any harder than paying salaries into hundreds or thousands of different accounts - it just needs to be setup on on the payroll system. The difficulty comes when the company NI/Pension system is ONLY setup with one possible destination.

As for the NI cuts - I can see the appeal of voters getting the extra cash in their Jan pay package, but given how long most places take to amend an AVC and with Xmas closure of many offices I think a lot of Payroll depts will struggle to get that implemented correctly in time.

Paul

[James]

I recall discussing Singapore's Sovereign Wealth fund with a colleague a good few years ago who came from that part of the world.

I don't remember the exact figures, but for all the fund's trumpeted headline investments and the crowing successes of the government and their investment advisers (and the fees they charged) the annual return was actually pretty piss poor.

....which led me to suggest that if they'd just taken the people's billions and stuck it in a Vanguard S&P tracker since 1965 (when they gained independence) they'd be considerably richer than they already are now.

Part of its remit was to prop up industries of national interest, including a shipping line, airline and telco. Not sure the locals would have been too pleased to know Singapore Airlines was going bust but that they'd made a few percent more on their investments.

[Tedx]

I recall discussing Singapore's Sovereign Wealth fund with a colleague a good few years ago who came from that part of the world.

I don't remember the exact figures, but for all the fund's trumpeted headline investments and the crowing successes of the government and their investment advisers (and the fees they charged) the annual return was actually pretty piss poor.

....which led me to suggest that if they'd just taken the people's billions and stuck it in a Vanguard S&P tracker since 1965 (when they gained independence) they'd be considerably richer than they already are now.

Part of its remit was to prop up industries of national interest, including a shipping line, airline and telco. Not sure the locals would have been too pleased to know Singapore Airlines was going bust but that they'd made a few percent more on their investments.

Yeah, but they can use the profit from the S&P Tracker to prop up Singapore Airlines can't they?

....and a few percent over decades, as every good Fool knows, makes a huge difference

[James]

Part of its remit was to prop up industries of national interest, including a shipping line, airline and telco. Not sure the locals would have been too pleased to know Singapore Airlines was going bust but that they'd made a few percent more on their investments.

Yeah, but they can use the profit from the S&P Tracker to prop up Singapore Airlines can't they?

....and a few percent over decades, as every good Fool knows, makes a huge difference

Nationalism beats common sense every time, as any fool knows

[dionaeamuscipula]

It therefore seems to me that a possible solution would be for the government to establish a central not for profit pension fund that would simply track the markets generally. For those who wanted it there could be individual tracker funds to track different markets.

If everyone's pensions are in a tracker, what forms the market that it tracks?

DM

(whose employer will only pay into the company scheme)
(not admitting who set that policy though)

[Kantwebefriends]

It therefore seems to me that a possible solution would be for the government to establish a central not for profit pension fund that would simply track the markets generally. For those who wanted it there could be individual tracker funds to track different markets.

That will certainly make it easier for a future government to confiscate your pensions "at a stroke".

[Alaric]

That could be a bit of a nightmare for employers, having to pay pension contributions into hundreds or thousands of different schemes.
Scott.

The less complex way of handling the "multiple pots" problem is to do what some already do. That is to participate in whatever scheme the employer offers but to consolidate the resulting funds into a personal SIPP when leaving the employment.

The regulators aversion to allow transfers of defined benefit schemes can still leave these to proliferate if someone has multiple serial employments all with DB schemes.

[Lootman]

That could be a bit of a nightmare for employers, having to pay pension contributions into hundreds or thousands of different schemes.

The less complex way of handling the "multiple pots" problem is to do what some already do. That is to participate in whatever scheme the employer offers but to consolidate the resulting funds into a personal SIPP when leaving the employment.

The regulators aversion to allow transfers of defined benefit schemes can still leave these to proliferate if someone has multiple serial employments all with DB schemes.

Yes the problem is more with DB plans.

I have 4 small plans from employers I had for 2/3 years each back in the late 1970s and 1980s. I have not even bothered to claim my entitlement to them because it just seems like more bother than it is worth.

[Charlottesquare]

Seemed like the government is thinking in a slightly different direction. In the statement yesterday:


https://www.gov.uk/government/speeches/ ... 023-speech

That could be a bit of a nightmare for employers, having to pay pension contributions into hundreds or thousands of different schemes.

Scott.

To be honest, I can't see it actually being any harder than paying salaries into hundreds or thousands of different accounts - it just needs to be setup on on the payroll system. The difficulty comes when the company NI/Pension system is ONLY setup with one possible destination.

As for the NI cuts - I can see the appeal of voters getting the extra cash in their Jan pay package, but given how long most places take to amend an AVC and with Xmas closure of many offices I think a lot of Payroll depts will struggle to get that implemented correctly in time.

Paul

Not quite, it is not merely a payment issue but more a transfer of data issue. If there was a pensions clearing house where all contributions might be uploaded and communicated/distributed, fine, but there is not so you would end up needing payroll software to collate all the different submissions to the various providers and make all the submissions. Certainly ours needs manual intervention/passwords etc to submit, one that submitted to multiple pension providers would likely require lots of different logins/passwords etc

[doug2500]

Was this not exactly why NEST and the peoples pension were set up? Hasn't that solved the problem?

[Gerry557]

Seemed like the government is thinking in a slightly different direction. In the statement yesterday:


https://www.gov.uk/government/speeches/ ... 023-speech

That could be a bit of a nightmare for employers, having to pay pension contributions into hundreds or thousands of different schemes.

Scott.

To be honest, I can't see it actually being any harder than paying salaries into hundreds or thousands of different accounts - it just needs to be setup on on the payroll system. The difficulty comes when the company NI/Pension system is ONLY setup with one possible destination.

As for the NI cuts - I can see the appeal of voters getting the extra cash in their Jan pay package, but given how long most places take to amend an AVC and with Xmas closure of many offices I think a lot of Payroll depts will struggle to get that implemented correctly in time.

Paul

But at least working the overtime during Christmas means that once it's sorted they will have a bit more money in their pockets.

[stevem01]

Yes the problem is more with DB plans.

I have 4 small plans from employers I had for 2/3 years each back in the late 1970s and 1980s. I have not even bothered to claim my entitlement to them because it just seems like more bother than it is worth.

You might be very surprised.

Assuming the DB pensions were contracted out then you will also have accumulated an entitlement to a Guaranteed Minimum Pension (GMP). The rules relating to the revaluation of a deferred GMP, offered your employers a number of different methods of uprating the deferred GMP. Whichever one was chosen, had to be applied for the duration of the deferral until you reached your GMP age (still age 65 for males and age 60 for females).

Many private sector employers chose to apply a "fixed rate revaluation" method, as this offered them certainty and eliminated the possibility of having to apply inflation linked revaluation in a period when inflation was generally much higher than it was from mid 1990's through to very recently. The revaluation rate that was applied to the GMP element of your deferred pension depended on the date when you deferred the pension. The rates were:
Date of termination of C/O employment Fixed Rate of Revaluation (per annum)
6 April 2022 - 5 April 2027 3.25%
6 April 2017 - 5 April 2022 3.5%
6 April 2012 - 5 April 2017 4.75%
6 April 2007 - 5 April 2012 4.0%
6 April 2002 - 5 April 2007 4.5%
6 April 1997 - 5 April 2002 6.25%
6 April 1993 - 5 April 1997 7.0%
6 April 1988 - 5 April 1993 7.5%
Before 6 April 1988 8.5%

It is likely that your deferred GMP's have been uprated by 8.5% per annum ever since you deferred them. So, if a GMP was deferred in say 1980, applying 8.5% annual revaluation would mean it is now worth 1.085^43 = 33.38 times the value when it was deferred. A deferred GMP worth £100/annum in 1980 would now be worth £3338/annum in 2023.

The non-GMP part of the deferred pension would be ravalued by the method specified by the pension scheme rules. Prior to 1986 these might have had no revalution at all. However since 1986, the government issued "Occupational Pension (Revaluation) Orders" apply. The most recent of these (Occupational Pension (Revaluation) Orders 2022) shows that the revalution of deferred, non-GMP pensions since 01 January 1986 is only 221.4%. As you can see the revaluation of deferred GMP's from 1970's, 1980's and 1990's is massiveley more valuable than the revalaution of the non-GMP element.

[Lootman]

You might be very surprised.

Assuming the DB pensions were contracted out then you will also have accumulated an entitlement to a Guaranteed Minimum Pension (GMP). The rules relating to the revaluation of a deferred GMP, offered your employers a number of different methods of uprating the deferred GMP. Whichever one was chosen, had to be applied for the duration of the deferral until you reached your GMP age (still age 65 for males and age 60 for females).

Many private sector employers chose to apply a "fixed rate revaluation" method, as this offered them certainty and eliminated the possibility of having to apply inflation linked revaluation in a period when inflation was generally much higher than it was from mid 1990's through to very recently. The revaluation rate that was applied to the GMP element of your deferred pension depended on the date when you deferred the pension. The rates were:
Date of termination of C/O employment Fixed Rate of Revaluation (per annum)
6 April 2022 - 5 April 2027 3.25%
6 April 2017 - 5 April 2022 3.5%
6 April 2012 - 5 April 2017 4.75%
6 April 2007 - 5 April 2012 4.0%
6 April 2002 - 5 April 2007 4.5%
6 April 1997 - 5 April 2002 6.25%
6 April 1993 - 5 April 1997 7.0%
6 April 1988 - 5 April 1993 7.5%
Before 6 April 1988 8.5%

It is likely that your deferred GMP's have been uprated by 8.5% per annum ever since you deferred them. So, if a GMP was deferred in say 1980, applying 8.5% annual revaluation would mean it is now worth 1.085^43 = 33.38 times the value when it was deferred. A deferred GMP worth £100/annum in 1980 would now be worth £3338/annum in 2023.

The non-GMP part of the deferred pension would be ravalued by the method specified by the pension scheme rules. Prior to 1986 these might have had no revalution at all. However since 1986, the government issued "Occupational Pension (Revaluation) Orders" apply. The most recent of these (Occupational Pension (Revaluation) Orders 2022) shows that the revalution of deferred, non-GMP pensions since 01 January 1986 is only 221.4%. As you can see the revaluation of deferred GMP's from 1970's, 1980's and 1990's is massiveley more valuable than the revalaution of the non-GMP element.

Thank you for that - perhaps it is worth at least a phone call. A guy I still know from one of those jobs stayed there longer than me - 9 years in the 1980s, and he now gets £1,000 a month in his pension from them, which is definitely worth having.