Poor performance of private sector DB pension schemes
Discussion
http://www.telegraph.co.uk/news/2017/09/27/three-m...
">Three million savers with 'final salary' pensions have a 50:50 chance of losing up to a fifth of their income<"
Another reason to take the money and run
">Three million savers with 'final salary' pensions have a 50:50 chance of losing up to a fifth of their income<"
Another reason to take the money and run
V8 Fettler said:
http://www.telegraph.co.uk/news/2017/09/27/three-m...
">Three million savers with 'final salary' pensions have a 50:50 chance of losing up to a fifth of their income<"
Another reason to take the money and run
The headline is meaningless.">Three million savers with 'final salary' pensions have a 50:50 chance of losing up to a fifth of their income<"
Another reason to take the money and run
Equally valid is the headline "Defined contribution pensioners could lose up to 100% of their fund value".
And the reason many schemes are in deficit has next to nothing to do investment fees and everything to do with significant increases in longevity and massive reductions in interest rates.
Edited by sidicks on Wednesday 27th September 21:15
sidicks said:
V8 Fettler said:
http://www.telegraph.co.uk/news/2017/09/27/three-m...
">Three million savers with 'final salary' pensions have a 50:50 chance of losing up to a fifth of their income<"
Another reason to take the money and run
The headline is meaningless.">Three million savers with 'final salary' pensions have a 50:50 chance of losing up to a fifth of their income<"
Another reason to take the money and run
Equally valid is the headline "Defined contribution pensioners could lose up to 100% of their fund value".
And the reason many schemes are in deficit has next to nothing to do investment fees and everything to do with significant increases in longevity and massive reductions in interest rates.
Edited by sidicks on Wednesday 27th September 21:15
V8 Fettler said:
Do you not know? Are you not the PH expert on pension matters? I'm merely a punter.
For someone who is' merely a punter', you seem to express quite strong opinions on the subject...I think the most likely answer is that those firms in surplus are those that have been able to afford to pay higher contributions to fund any shortfalls and / or those that implemented risk hedging strategies some time ago which protected them against the worst of the decline in interest rates.
The scheme I have been in for 31 years has gone from a massive surplus, which was skimmed by the company to a large deficit.
Valuation.this year puts it at 98.9% funded and the gap to close next year.
For the first time ever in my memory, they have adjusted life expectancy downwards. This coupled with limiting increases in pensionable salary to 1% for people earning over £64k (an effective cap on pensionable salary, that because of scheme rules doesn't apply to me
) and contributing at 30% against my 5%, has really sorted out our scheme.
Still worrying to have all my eggs in one basket though, but with a £250k lump sum and 2/3 salary pension it was such I nice basket i never though of diversifying.
Fingers crossed for the next 5 years.
Valuation.this year puts it at 98.9% funded and the gap to close next year.
For the first time ever in my memory, they have adjusted life expectancy downwards. This coupled with limiting increases in pensionable salary to 1% for people earning over £64k (an effective cap on pensionable salary, that because of scheme rules doesn't apply to me
) and contributing at 30% against my 5%, has really sorted out our scheme.Still worrying to have all my eggs in one basket though, but with a £250k lump sum and 2/3 salary pension it was such I nice basket i never though of diversifying.
Fingers crossed for the next 5 years.
Edited by Gary C on Thursday 28th September 07:50
Interesting to note, that whilst the WH Smith DB scheme declared a surplus last year (under IAS19), it chose not to recognise it, and still nodded towards a deficit.
The Pension Regulator has already investigated, and affirmed it does not believe there is a *systemic* risk to long term DB pension viability. There are though, problems from (e.g.) underfunding linked to longevity, and from employers trying to walk away from their obligations. Currently, the Regulator is stiffening its resolve to counter those who try to (notwithstanding the extenuating circumstances and the genuine financial distress of some schemes) do so, but this new proposed arrangement will only make it easier for errant employers to shirk their responsibilities.
Let's not forget either. These proposed gargantuan consolidation vehicles will exist to make a profit. It is proposed that they be backed by private equity and sovereign wealth funds - in other words, you're going to transfer the responsibility of a supposed guarantee of regular income from the shoulders of scheme trustees who have increasingly onerous responsibilities placed on their shoulders, to fund managers who have to keep shareholders happy, and the state. In ten or fifteen years, when there will be fewer and fewer baby boomers and Gen-Xers to worry about, and (instead) more and more millennial voters aiming to preserve their financial interests, which way do you think an increasingly impoverished government will jump?
In essence, do you want to place *more* trust into the hands of fund managers and politicians?
We look to Russia and see how Putin has plundered his Sovereign Wealth pension fund on one hand, to fund his Ukrainian jaunt, and on the other, look to Norway which was able to bolsters its, when oil was expensive. I'm agnostic about DB pension transfer switching, but when I am told that these new so-called superfunds will tap into economies of scale by switching into more illiquid but higher-returning investments 'unavailable to smaller defined-benefit schemes', I roll my eyes. Are we so stupid we forget so quickly the mistakes 'my' profession makes when there's a margin in it?
The bottom line is that whilst accounting mechanisms *are* currently making it difficult for schemes to look particularly rosy, scare-grabbing headlines will only induce headline reading scheme members into making bad decisions.
For a minority of people, in context, transferring out may be the most suitable course of action. For many, many more, though, it won't be. In isolation, what the Pensions and Lifetime Savings Association is using as an excuse for this latest idea is nowhere near justification enough to transfer, that's the most important thing to remember. Sure, if you're a DB scheme member, ask your trustees how robust your scheme funding is, and take things from there. My final thought is my most cynical. The Pensions and Lifetime Savings Association, which is pushing this idea, is a trade body established to further the aims of pension professionals.
The Pension Regulator has already investigated, and affirmed it does not believe there is a *systemic* risk to long term DB pension viability. There are though, problems from (e.g.) underfunding linked to longevity, and from employers trying to walk away from their obligations. Currently, the Regulator is stiffening its resolve to counter those who try to (notwithstanding the extenuating circumstances and the genuine financial distress of some schemes) do so, but this new proposed arrangement will only make it easier for errant employers to shirk their responsibilities.
Let's not forget either. These proposed gargantuan consolidation vehicles will exist to make a profit. It is proposed that they be backed by private equity and sovereign wealth funds - in other words, you're going to transfer the responsibility of a supposed guarantee of regular income from the shoulders of scheme trustees who have increasingly onerous responsibilities placed on their shoulders, to fund managers who have to keep shareholders happy, and the state. In ten or fifteen years, when there will be fewer and fewer baby boomers and Gen-Xers to worry about, and (instead) more and more millennial voters aiming to preserve their financial interests, which way do you think an increasingly impoverished government will jump?
In essence, do you want to place *more* trust into the hands of fund managers and politicians?
We look to Russia and see how Putin has plundered his Sovereign Wealth pension fund on one hand, to fund his Ukrainian jaunt, and on the other, look to Norway which was able to bolsters its, when oil was expensive. I'm agnostic about DB pension transfer switching, but when I am told that these new so-called superfunds will tap into economies of scale by switching into more illiquid but higher-returning investments 'unavailable to smaller defined-benefit schemes', I roll my eyes. Are we so stupid we forget so quickly the mistakes 'my' profession makes when there's a margin in it?
The bottom line is that whilst accounting mechanisms *are* currently making it difficult for schemes to look particularly rosy, scare-grabbing headlines will only induce headline reading scheme members into making bad decisions.
For a minority of people, in context, transferring out may be the most suitable course of action. For many, many more, though, it won't be. In isolation, what the Pensions and Lifetime Savings Association is using as an excuse for this latest idea is nowhere near justification enough to transfer, that's the most important thing to remember. Sure, if you're a DB scheme member, ask your trustees how robust your scheme funding is, and take things from there. My final thought is my most cynical. The Pensions and Lifetime Savings Association, which is pushing this idea, is a trade body established to further the aims of pension professionals.
sidicks said:
The headline is meaningless.
Equally valid is the headline "Defined contribution pensioners could lose up to 100% of their fund value".
And the reason many schemes are in deficit has next to nothing to do investment fees and everything to do with significant increases in longevity and massive reductions in interest rates.
Well said sir.Equally valid is the headline "Defined contribution pensioners could lose up to 100% of their fund value".
And the reason many schemes are in deficit has next to nothing to do investment fees and everything to do with significant increases in longevity and massive reductions in interest rates.
Edited by sidicks on Wednesday 27th September 21:15
I administer one defined benefit pension scheme. There are 45 pensioners now and 35 deferred members. Accrual ceased in 2003. A dozen of the pensioners are well into their 90's.
The employer is still having funding it to the tune of £180,000 pa.
sidicks said:
V8 Fettler said:
Do you not know? Are you not the PH expert on pension matters? I'm merely a punter.
For someone who is' merely a punter', you seem to express quite strong opinions on the subject...I think the most likely answer is that those firms in surplus are those that have been able to afford to pay higher contributions to fund any shortfalls and / or those that implemented risk hedging strategies some time ago which protected them against the worst of the decline in interest rates.
"Rolls-Royce bucks pension trend with surplus and better benefits" https://www.ft.com/content/b291e9f0-9919-11e6-b8c6...
head of pensions and benefits for Rolls-Royce said:
the most significant strategic shift had been the decision to hedge against a fall in interest rates, which was crucial to protecting the schemes against the recent collapse in bond yields. “Brexit hasn’t hurt us at all,”
Is expressing an opinion verboten?V8 Fettler said:
sidicks said:
V8 Fettler said:
Do you not know? Are you not the PH expert on pension matters? I'm merely a punter.
For someone who is' merely a punter', you seem to express quite strong opinions on the subject...I think the most likely answer is that those firms in surplus are those that have been able to afford to pay higher contributions to fund any shortfalls and / or those that implemented risk hedging strategies some time ago which protected them against the worst of the decline in interest rates.
"Rolls-Royce bucks pension trend with surplus and better benefits" https://www.ft.com/content/b291e9f0-9919-11e6-b8c6...
head of pensions and benefits for Rolls-Royce said:
the most significant strategic shift had been the decision to hedge against a fall in interest rates, which was crucial to protecting the schemes against the recent collapse in bond yields. “Brexit hasn’t hurt us at all,”
Is expressing an opinion verboten?sidicks said:
V8 Fettler said:
sidicks said:
V8 Fettler said:
Do you not know? Are you not the PH expert on pension matters? I'm merely a punter.
For someone who is' merely a punter', you seem to express quite strong opinions on the subject...I think the most likely answer is that those firms in surplus are those that have been able to afford to pay higher contributions to fund any shortfalls and / or those that implemented risk hedging strategies some time ago which protected them against the worst of the decline in interest rates.
"Rolls-Royce bucks pension trend with surplus and better benefits" https://www.ft.com/content/b291e9f0-9919-11e6-b8c6...
head of pensions and benefits for Rolls-Royce said:
the most significant strategic shift had been the decision to hedge against a fall in interest rates, which was crucial to protecting the schemes against the recent collapse in bond yields. “Brexit hasn’t hurt us at all,”
Is expressing an opinion verboten?V8 Fettler said:
We are agreed that the primary factor driving good fund performance and creating surpluses is competent fund management.
We agreed nothing of the sort and that claim is fundamentally wrong, given that the majority of schemes which are in not in deficit due to poor fund performance or incompetent fund management.sidicks said:
V8 Fettler said:
We are agreed that the primary factor driving good fund performance and creating surpluses is competent fund management.
We agreed nothing of the sort and that claim is fundamentally wrong, given that the majority of schemes which are in not in deficit due to poor fund performance or incompetent fund management.sidicks said:
V8 Fettler said:
Eh? Please make your mind up. In deficit or not in deficit?
BothIn deficit and not in deficit.
">
We agreed nothing of the sort and that claim is fundamentally wrong, given that the majority of schemes which are in deficit and not in deficit due to poor fund performance or incompetent fund management.
<" ?
.. which is still gibberish. A scheme is either in deficit or it isn't.
V8 Fettler said:
Do you mean:
">
We agreed nothing of the sort and that claim is fundamentally wrong, given that the majority of schemes which are in deficit and not in deficit due to poor fund performance or incompetent fund management.
<" ?
.. which is still gibberish. A scheme is either in deficit or it isn't.
We agreed nothing of the sort and that claim is fundamentally wrong.">
We agreed nothing of the sort and that claim is fundamentally wrong, given that the majority of schemes which are in deficit and not in deficit due to poor fund performance or incompetent fund management.
<" ?
.. which is still gibberish. A scheme is either in deficit or it isn't.
Poor fund performance or incompetent fund management is highly unlikely to be the reason that schemes are in deficit or in surplus.
As already explained, the majority of schemes are in deficit because of improving longevity and falling interest rates.
Edited by sidicks on Friday 29th September 08:49
sidicks said:
V8 Fettler said:
Do you mean:
">
We agreed nothing of the sort and that claim is fundamentally wrong, given that the majority of schemes which are in deficit and not in deficit due to poor fund performance or incompetent fund management.
<" ?
.. which is still gibberish. A scheme is either in deficit or it isn't.
We agreed nothing of the sort and that claim is fundamentally wrong.">
We agreed nothing of the sort and that claim is fundamentally wrong, given that the majority of schemes which are in deficit and not in deficit due to poor fund performance or incompetent fund management.
<" ?
.. which is still gibberish. A scheme is either in deficit or it isn't.
Poor fund performance or incompetent fund management is highly unlikely to be the reason that schemes are in deficit or in surplus.
As already explained, the majority of schemes are in surplus because of improving longevity and falling interest rates.
Surely increasing longevity makes a scheme more likely to be in deficit ?
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