Br Steel and the big Pension question

[Welshbeef]

So in the news today we could be seeing special measurers being put through Parliment which will reduce the cost for BR Steel re pension costs.

It's raising the question of actually taking money away from already retired and drawing pension. Or if they don't then the company and the jobs may be lost.

It's tricky and could set the president for the decimation of every final salary scheme.


However to even think you can retire on 2/3rds salary is a bit of a joke and it's time those in the public sector to start to understand how different it is in the real world defined contributions set up no safety net.


But taking from those already retired - the logic being why should those who are paying in now subsidise those retired and without question will not get anything like the same. Why is it fair.
Is this the start of the old v young revolt???

[Welshbeef]

FredClogs said:

I think we need to take all the money from the poor and give it to the rich, it's the only way to ensure that businesses stay profitable and after all that's what's in everyone's best interests, isn't it?

And after all if the bosses at Indian steel firms don't have all the cash how are they going to bribe UK politicians? (I realise that it's not the same lot but you get my drift....)

They bought what was Br Steel/Corus for £7billion in 2006/7 they are selling it for £1 or shutting it down. For all the profits they have made in those years the loss on this is materially more than they ever earned from it.
What exactly should they use to pay?

Why should any new buyer accept the pension issues? Instead no buyer = everyone loses much much more.

[Welshbeef]

FredClogs said:

Welshbeef said:

They bought what was Br Steel/Corus for £7billion in 2006/7 they are selling it for £1 or shutting it down. For all the profits they have made in those years the loss on this is materially more than they ever earned from it.
What exactly should they use to pay?

Why should any new buyer accept the pension issues? Instead no buyer = everyone loses much much more.

Last year the TATA group did $6.7billion of profit on $109billion revenue, total assets of $118billion

The pension liabilities are around $0.7billion from what I understand. They could cover it - they won't - the system is broken, humans have err'd, there's a glitch in the matrix.

Restart...

Right let's start again since when does Tata global employees have to subsidise UK enployees?
U.K. Business purchased for £7 billion worth £1 now if not actually a golden payment from Tata to the new owner ie worthless. It's been hugely loss making £1-2m a day for years. The U.K. Business for Tata will have been a horrific investment lose £7billion then on top of that the year on year losses.
Oddly you seem to think that it's ok for a global company to use its full years profit to pay for the UK? What if that causes huge job losses or massive detriment to T&Cs elsewhere in the globe due to greedy UK stomping their feet?

[Welshbeef]

FredClogs said:

This is essentially the best way forward, get the mass population to take on the liabilities and payments through the PPF (I won't say tax payers because I know the PPF isn't funded by tax payers but it is funded by our pension money) and then the senior execs at TATA can enjoy their lunches in Monaco with Sir Green and the likes.

System will reboot, it's just a matter of time...

It did 20-25 years ago in the private sector now the final salary schemes are coming under attack as they are so costly it's unfair to punish those in work now to pay for retired people knowing they will get a fraction of the retired person. And yes the same argument can be used they too will have put in a lifetimes work in fact probably over 10 years longer to get less out and then have a shorter retirement with less cash and be so old and frail enjoying the money fancy trips forget about it.

System will reboot for sure the young will rise and not stand for paying so much for the old knowing they will have a massively poorer retirement yet the current retired refuse to have a little less so the young can have a little more.

[Welshbeef]

Foliage said:

I think they should be liable for the pensions, they knew what they where getting themselves into. It is a shame that it couldn't continue to make a profit at the rate it did when they bought it, but I don't think that should be a get out of paying out the pension they promised, they shouldn't have bought it if they didn't want to be liable for ALL the companies debt..

Why should the worker miss out so the shareholders can make more money? I know that's how business works though.

You do know that most of the shareholders globally are pension funds don't you?
The problem with a deficit is it's an estimate looking up to what 60-70 years in the future. It will be wrong. Today it could be fully funded physically but then someone states guess what mortality rate has upped by half a year - fk we have a massive funding hole. What if lots of middle aged die much younger due to drinking and fatty lifestyle? The deficit could actually be a massive surplus.

Also note promises are just that they are not guaranteed. If the company is bust like it is now in the UK the liability drops to PPI or whatever it's called. Limited liability different legal entities etc.

[Welshbeef]

Foliage said:

1. Yep I get that, was just curious how much, under 1%? So where does the rest of the money come from? company profits + the profits from the investment of the money, why was the pension overstated, to who's benefit was it to overstate it. I don't believe that 'recession' can be a simple catch all answer for financial failings.

2. But surely when the employee authorised a contribution from his wages to go towards his pension he has some kind of recourse, he/she is paying money for goods or services. I wouldn't just hand someone money from my wages every month without something concrete in writing of my rights.

I really don't understand pensions, and personally I just wont touch them, they are goods/services that are paid for but the customer seems to have no recourse under any form of consumer protection...

What has changed is when these pensions were first offered 50 years ago people lived about 5 years tops in retirement that's now changed drastically due to improvements in healthcare so a man will on average live to 82yo 12 years longer. So the problem is no one picked up on that issue so the employees didn't pay in the necessary extra NOR did companies consult to reduce the annual pension payment nor did they push back the earliest start date of he pension.

Then came along Mr Gordon Brown and his stealth tax which removed the dividend tax credit from memory that tax in 1998/99 has to date taken out more than £400billion from pension funds. Oddly that's a similar value to the combined net deficit of all pension funds. Also at that time no employer said me employee due to nasty labour adding in this cost you need to pay in more to cover.

Then we have had a massive recession.
We have had 0.5% interest rates for what 7-8years. Pension funds have to be invested in govt bonds and equity mainly so the equity market has dropped 11% since 1999 and govt bond yeilds are 1% ish. So where are the returns required to meet the investment return.

Then we had the crazy situation which govt gave companies the option of pension payment holidays if they were in surplus - why to get more upfront taxes and the companies more profits.

So the country has had the "benefit" to the exchequer already so really we as tax payers should pay it back. ....

Then we have the BP collapse macondo well -- so many of our pension funds were heavily invested in it due to its great dividends. Well dividends stopped and market cap plummeted. Ditto the banks high holding in areas with massive losses RBS 96% loss.

Make sense now.

So who should pay and why?

[Welshbeef]

FourWheelDrift said:

Welshbeef said:

You do know that most of the shareholders globally are pension funds don't you?

No they're not - https://en.wikipedia.org/wiki/Tata_Sons#Shareholdi...

Majority are TATA trusts - http://www.tata.com/aboutus/sub_index/Leadership-w...

"The Tata trusts, majority shareholders of Tata Sons, have endowed institutions for science and technology, medical research, social studies and the performing arts. The trusts also provide aid and assistance to non-government organisations working in the areas of education, health care and livelihoods."

No British pension funds in there.

I'm talking at the macro level about all companies.

Take the FTSE100 most of he stock is owned by pension funds. Some funds could buy huge companies outright and be a pension fund which also happens to make cars or whatever.

[Welshbeef]

FredClogs said:

And if we know anything about indian steel magnates it's that they definitely don't get involved in trying to corrupt politics and democracy or splashing multi millions of pounds on fancy Regent Park mansions, no sireee...

You appear to be talking about not the issue at hand but wealthy individuals spending money as they wish.

I see you like buying cars too with your money good for you same difference but the angle you have is the angle of envy. Our people in the UK have salaries which are vastly higher than overseas plus crippling on costs. The U.K. Plants are all massively old and need vast investment v overseas much newer and more efficient, China is playing the long loss making game and Tata don't want to be bent over they want to survive.

[Welshbeef]

FredClogs said:

Ok, well good luck on the flip side... I'm sure the TATA family will come to your aid and give you shelter in their ivory tower of stolen wealth come the reboot.

Simply painting anyone who believes in the rule of democracy and social equity as "envious" is a willful intellectual cop out.

You've decided which side you're on, as I'm sure you know no man is an Island - good luck, there's nothing much left to discuss is there?

You do know that the TATA foundation trust is a philanthropic organisation? So more needy people get help.

Look at Bill Gates all but £30m of hit £80billion wealth is in a charity be it to cure maleria of Ebola etc. He has got Warren Buffet to give all of his wealth too countless others give vast amounts (most tend not to shout about it ie M Schumacher gave vast amounts of his wealth to good causes anonymously only an annoying jurno found out then went to print).

I'm pretty confident plenty on here who are wealthy do give significant amounts away and those who don't have much give their time instead. Most don't blow their whistle about such things.

[Welshbeef]

Sidicks I can see things changing in that employees will say we want the employer contribution within base salary take it all upfront then put it into whatever investment vehicle they want to (or not) this way there is zero risk you have the cash you do as you please with it.

Pension ISA is interesting though with normal ISA being £20k per person per year and the ability to take cash out at any point I see little benefit of the pension ISA unless you've filled yer boots on tax free investments.


Career average is another variant of pension it's midway between DB and DC and provided the mortality rates are reviewed annually and any increase in employee and employer are made year on year then there should never be any problem.

[Welshbeef]

FredClogs said:

Well that's ok then, I'll sleep better tonight knowing they can renege on their contractual duties to the retired and near retired of South Wales (which btw is one of the most deprived areas in the UK, if not Europe) but I'll be safe in the knowledge that they've used their money tax efficiently to support what ever tin pot Donkey sanctuary tales their fancy.

It's becoming more of an idiocracy day by day, let them eat cake!

South Wales deprived!
You've not been to
Bulgaria
Romania
Belarus
Greece
Southern Italy
Spain 45% young unemployment
Estonia
Irish free state
Scotland
Slovakia
Serbia
Austria
Ukraine
Georgia
Kaliningrad.
What contractual duties the company is bust if hey don't find a buyer the fund is hit instantly by at least 10% to all live retirees or future, if they sell the new employer will not take the hit so who does.

Be nasty to Tata do you think they will think twice about moving Jag Land Rover production out of the U.K.? Hmm. We have so little leverage here and legally state aid is a nightmare in this instance. You cannot make the group cover the difference as you'd be changing the law and applicable to all companies now & historic.

[Welshbeef]

Jockman said:

sidicks said:

Career average is pure DB, nothing to do with DC at all.

Correct. ISA limit not £20k until next April

But rather than say me being on a 1/60th paying in 3% working 40 years all at £18k a year then last but 1 day I get a promotion to £250k with pure DB I'd be on 2/3rds of £250k.
Compared to Career average my pension would be essentially 2/3rds of £18k.

I know a number of people my dad included who had big promotions before they retired (I say before I mean a handful of years to go).

£20k a year for the vast majority to save after all other living costs is getting towards very wealthy.

[Welshbeef]

sidicks said:

Yes, but that's nothing to do with Defined Contribution and everything to do with Defined Benefit.

Plus, most career average schemes are actually revalued career average and also the accrual rate is typically higher than for a final salary scheme. None of which is relevant for the DB v DC discussion...

Fair enough - I saw it as a stepping stone from DB towards DC slightly less costly for employer and higher cost to employee but not the massive step change from DB to DC.




Out of interest should we be thinking 50% of final salary to be a fairly good end result or is it as low as 1/3rd ? DC lifetime investment at a combined input of at least 10% from 18 to 65.

[Welshbeef]

sidicks said:

You'd need a combined input of 25% or more to have a high probability of achieving a pension of 50% of final salary, without relying on massive investment performance and / or favourable economic conditions at retirement.

Ok so ignoring my final salary and career average pensions banked... The DC's I've been paying in a combined 14% so id be looking between 33-50% range maybe 36-45% range of final salary investment performance dependant. If that's the case I'm pretty happy with that & add in a number of buy to let rents should = fairly decent all else being equal.

[Welshbeef]

sidicks said:

Welshbeef said:

Ok so ignoring my final salary and career average pensions banked... The DC's I've been paying in a combined 14% so id be looking between 33-50% range maybe 36-45% range of final salary investment performance dependant. If that's the case I'm pretty happy with that & add in a number of buy to let rents should = fairly decent all else being equal.

eh? If 25% combined contribution rate equates to a 50% pension then 14% would broadly equate to a 28% pension.

But there's a massive amount of guesswork and assumption that goes into the above - you need to think not only about the average pension that you might be able to achieve, but also the likely distribution of that amount under different scenarios. Taking more investment risk might increase the average pension achieved but might also increase the likelihood that the pension achieved is less than (say) 20% of final salary.

Sorry I mean that 14% + investment growth gets me to a net 25% input. Or did you mean 25%+ growth ?

[Welshbeef]

sidicks said:

See above.

Few private employer's have DB schemes anymore, at least not open to new accrual or new members, which means that the majority of people will be contributing to DC schemes going forward.

The majority of your observations relate to DB rather than DC schemes.

And sadly this will / can only impact the older or already retired, those in Public sector and the tiny number of schemes still live for prevailing contributing members.

An exceptionally high % of private sector are DC we have already adjusted to this change as painful as it is over the last 20-25 years. Now it will have to be those in the public sector which is going to be especially challenging as the unions negotiated to keep the gold plated pensions instead of higher base salary increases... That promise really cannot be met - it may well have been an honest view at the time but now and in the time the realisation of the rubicon has emerged.

We have plenty of TUPE out legacy civil sector staff they have 40.5% employer contributions - it's a farce you can have the total cost of employment of those individuals at such a rate that they will simply not move on to a different job and do just enough to be of acceptable performance. If they left we might be able to employ nearly 2x number of heads so increase employment and productivity. But we cannot and they know it so play the game. Add in lubricious flexitime where they can build up and extra 4 weeks a year --- when the route cause for the extra hours they are doing is turn up early for a long st then cannot complete their job within core hours. (Yes its performance mgt but a nightmare)

[Welshbeef]

lauda said:

I don't see a significant difference between the British Steel case and what happened to the Kodak Pension Plan in the UK. The Kodak members were offered lower benefits than originally promised or the PPF (which was lower than either). Funnily enough, almost all of them took the offer from the trustees and stayed out of the PPF.

Ok, so Kodak was insolvent at the time the offer was on the table but so will Tata's UK business be if there isn't a resolution to the current situation.

Clearly no one would actively seek a situation where they are worse off than they would otherwise have expected but it still looks like a fairly decent deal for the members and gives the existing employees some hope of keeping their jobs. I think the unions will be it and I think they'll be right to do so.

Point well made - yes to the individuals sadly involved it is paramount for their future well being but they are no more of a special case than any other company or any other of our population they all need to be treated the same. Why should they receive special treatment while others have not been given such bend over handouts?

Should this be one where UK middle class start to speak up about fairness as it only seems it needs to be fair to the lower paid workers (and yes the highest paid) but the middle earners who make up the rump of tax receipts get humped time and time again they not once have been on the receiving end of handouts. They through good education and effort and learnt skills be they vocational or white collar they have managed to get there when do they get rewarded? Those who end up only marginally better off than the lowest earners will inevitably think why did I bother - purely from a money perspective pointless they could have had more time with their children growing up which they will never be able to do again.

[Welshbeef]

fblm said:

Yes thats what I meant. I had always assumed thats how they worked TBH, obviously I was wrong. I appreciate that would mean less in the pot to compound investment gains for all members but then I assumed that was part of why these schemes are so expensive for employers. I'm not normaly one for hysterics but new money being used to pay out old investors does kind of look a little like another investment scheme we all know of.

This may be a how long is a piece of string question but what is the minimum ratio of assets to liabilites a DB scheme is allowed? Ie if a scheme went into administration today (or whatever the technical term is) what is the maximum haircut everyone would have to take on their 'entitlement'?

As I understand it 10% when the PPF takes over - basically all funds pay into an insurance premium so when one is in trouble they have it covered off. However all up they have a £400billion plus gap... The insurance provider has nowhere near that level. A bit like Fannie May and Freddie Mac they are the lenders of last resort but if all the banks went under/claimed against insurance policies it would be bust which is why the Fed bailed them out. So many people really don't realise how close the world was to the edge in 2008 Sept. You'd lose all your savings companies would fold as they couldn't pay suppliers and suppliers couldn't pay them and customers couldn't buy anything plus the cash reserves they had would be lost due to failed banks.

[Welshbeef]

fblm said:

I kind of do too. Especially those already retired. I don't really understand how DB schemes are allowed to not be fully funded for those already in retirement. That said if it were a foreign sub that had folded and UK employees were being asked to subsidise foreign retirees I'm not sure we'd all be so keen...

That's the crux of it. We seem more than wanting foreign entities of Tata to bail out the UK yet would we do the same?

Given in the UK we wouldn't bail out equitable life letting pensioners suffer many to death before hand outs confirms we wouldn't piss on them if they were on fire.

[Welshbeef]

sidicks said:

Adrian W said:

I think it's yes I did,

and I said "they felt they could have done better" I wouldn't know

Seriously, you came out of your employer's DB scheme in favour of SSAS?

What were the terms of that scheme?

If this is a yes I'd be very interest to hear more about it. Walking away from your DB pension - did you take its transfer value out and put it into a DC fund too?

Personally I hope you've made the right choice - none the less it's not possible to reverse now.


Good luck chap but as others have flagged what you have posted either you posted in error and not what you really think or you don't know much about the basics of pensions let alone anything more.