# Pension Freezing By Healthy Companies



## CollyD (7 Jan 2006)

Hi I work for a large American Multinational and recently I read online that large healthy US multinationals have put a freeze on there pension plans in the US.

I know the US work force have not as many laws protecting them as the EU staff do so how possible is it that the company for eg recently Verizon and HP put a freeze on there US pensions (HP is in Inreland also), how possible is it that the Freeze the Irish staffs pension also.  I am reading online that alot of long term staff are devastated who were plowing money into there pension for early retirement and then heard the pension is stopped.

How much of a sway does the irish government have in the call of freezing it or not.  I am sure the companies are getting the substantial tax breaks with a few caveats from the government which the pension I hope is one.  I guess the longer you get money from the company the more you should plow in and if the worst comes to the worst just open a PRSA.  But having said that my companies pension is very good and as it was a big sales pitch at the interview and the whole package for taking me on I would not be very impressed as it is essentially a huge pay cut.

Any one any insight or ideas on how secure the same companies that are freezing in the US I think 71 of the top 1000 companies have frozen already and it seems to be increasing how likely is it that they will also freeze in Ireland?


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## Murt10 (7 Jan 2006)

Rentokill and irish Life are also cutting backon their pension schemes.

http://www.unison.ie/irish_independent/stories.php3?ca=9&si=1536131&issue_id=13496

With IL&P its pension scheme liabilities now amount to one-quarter of its stock market value compared with 10pc of total value five years ago. So you would have to ask whose benefit is the company being run for, its owners or its employees.  As  the company is only imposing these changes on new employees I don't see the problem.  

According to the Motley Fool Rentokill is imposing cuts on existing staff and other FT100 companiesare expected to follow.

[broken link removed]


Murt


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## ClubMan (7 Jan 2006)

_CollyD _- what precisely do you mean by "freezing" the pension funds in question and are you referring to cases of _Defined Benefit _of _Defined Contribution _pensions being affected? Do you mean winding up the schemes, reducing or stopping employer contributions, moving from _DB _to _DC _or _PRSAs _etc.?


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## CollyD (7 Jan 2006)

Here are the articles that got me thinking what the heck is going on:



It seems to be termination of the companies defined benefit program in for eg HP

"HP is not the only company that is freezing or terminating its defined-benefit pension plan. According to an analysis conducted by Watson Wyatt, the rate at which Fortune 1000 companies froze or terminated these plans increased significantly last year even as the average funding level for plans grew. The analysis found that although nearly 63 percent of these companies sponsored a defined-benefit pension plan in 2004, 71 of those businesses, or 11 percent, had a frozen or terminated plan, and another 25 companies (4 percent) had pension plans that were closed to new hires. In 2003, 45 companies (7 percent) of Fortune 1000 plan sponsors had a frozen or terminated plan"

Terminating the DB scheme is worrying enough, not sure what it is being replaced with.


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## kirvos (7 Jan 2006)

Hi colly, Many plcs in Ireland UK and US have widening pension liabilities due  mainly to  longer lifespans and  low bond yields (i.e. more bonds must be bought by a plc  to pay for pensions as staff retire).

  Mercer report in today's Telegraph puts Footsie 100 companies' pension black hole at £91bn at end 2005 up from £70bn last year despite 17pc rise in Footsie index in 2005. 

  In best case scenario (hopefully) where plcs 're-arrange' their DB (defined benefit) schemes, existing staff would have their  existing DB years closed up and their rights/payouts (i.e one year  = 1/60 pension)  protected.  Further/future years of employment would be of a DC format where employer would reduce pension payment from typical 12/13pc DB - to 5/6pc DC contribution. 

Also some notion of averaging salary over work years and basing pension on that figure. Again a pension cut to staff. 
  Gets really hairy if firm shuts with pension hole. Check out UK experience. Really horrible, frightening. 

   DB benefits and years of service are VERY valuable, compared to buying in the open market ( very expensive). If you want €30k pension a year indexed by 3 or 4pc pa at age 60 from a DC or PRSA, then have at least €850k in your fund!

I'm amazed Cowen doesn't want to kickstart wider pension coverage/appreciation with maturing SSIA funds, especially among 20-year-olds who have time/investment growth/compounding o their side.  McCreevy by contrast was a visionary ( re pensions at least) and I'm amazed that so many taxpayers ignore the generous tax relief (especially 42pc payers) available (getting the taxman to part fund your retirement income) and the low usage of AVCs to max pension contributions. 


 Rant time............  Happy are those in the public service ( for whom this is not a problem) because all of us in the private sector will work our fingers to the bone to enable you to enjoy employment and pension benefits that many of us can only dream about.


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## ClubMan (7 Jan 2006)

kirvos said:
			
		

> Rant time............  HAppy are those in the public service ( for whom this is not a problem) because all of us in the private sector will work our fingers to the bone to enable you to enjoy employment and pension benefits that many of us can only dream about.


Are you sure that all public/civil servants are entitled to the same pension arrangements and that these are as generous as you suggest? Don't forget that some or all of them also pay lower _PRSI _and consequently have more restricted _PRSI _linked entitlements.


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## ClubMan (7 Jan 2006)

CollyD said:
			
		

> Here are the articles that got me thinking what the heck is going on:
> 
> 
> 
> It seems to be termination of the companies defined benefit program in for eg HP


Thanks for the further info. To be honest I never really understood how _DB _schemes could ever be guaranteed to be sustainable since returns must be based on the performance of some underlying assets and these cannot be predicted a priori. Sounds to me like moving from _DB _to _DC _schemes is a prudent move even thought there are obviously also negative implications for some.


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## Marie (7 Jan 2006)

Frankly arguing (a) that pensions are not sufficiently appreciated (as this article does) (b) that expectations and levels were set when returns on invested capital were higher and (c) that "there are more retirees now and fewer working adults contributing to pension funds (d) 'people are living longer'.   Individually and collectively these feeble arguments from the perspective of employers, shareholders institutions and govenments are not only without empirical basis but are designed to extract the maximum labour with the minimum of cost (i.e. it is a phenomenon of late- or post-capitalist labour relations).

Abolishing existing pension schemes and/or closing existing schemes to newcomers are _not_ the only or most intelligent solution to what is politically 'spun' as 'the pensions problem' or 'the demographic timebomb' _.  _Amongst other possibile solutions is for pension provision for ex-employees to enter the accounts as an expense of trading like any other, in as real a sense as fixtured and fittings, utilities, rent.  "Profit" would then be the sum that remaining _after _provision is established for those ex-employees who have given a major proportion of their time and competence to creation of that profit and delivery of the goods or services.

Even broken-down cart-horses get their few years 'out to graze'.  It is scandalous that the idea is now being entertained that human beings are not entitled to this fundamental respect.


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## RainyDay (7 Jan 2006)

kirvos said:
			
		

> Rant time............  HAppy are those in the public service ( for whom this is not a problem) because all of us in the private sector will work our fingers to the bone to enable you to enjoy employment and pension benefits that many of us can only dream about.


So why aren't you rushing to switch into a public sector job, if the grass is so much greener on that side of the fence?


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## ClubMan (7 Jan 2006)

Marie said:
			
		

> designed to extract the maximum labour with the minimum of cost (i.e. it is a phenomenon of late- or post-capitalist labour relations).


You seem to imply that this is a bad thing. If so perhaps you can explain why in an era of comprehensive employment rights and minimum wage legislation?


> Abolishing existing pension schemes and/or closing existing schemes to newcomers


I thought that many companies that were rolling back on _DB_ pension schemes were putting alternative arrangements in place - such as _DC_ schemes.

Do you think that _DB _pension schemes are sustainable and, if so, how do you see the required returns being underwritten?


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## Marie (8 Jan 2006)

ClubMan what does _DC _in your post stand for (contrasted with DB, defined benefit)?

I am not engaged in the financial sector so don't know the jargon but many of the arguments on the inevitability (!!!!??) of abolition of company pension schemes is based on the plea of 'poor market performance'.  Surely it is possible to invest pension-pot funds in government bonds or similar vehicles which are not risky and have some baseline guarantee..........a sort of _credit union _model but operating on the financial market rather than a deposit account basis?

Individual working lives are very different now to 50 years ago but there is no innovative thinking.  This is the age of so-called _life long learning _with often long gaps whilst people retrain, or leave to start families and then return to a new career with new competencies.  The pensions concept is outmoded and what individual employees now need is a flexible wrapper inside which their and their _various_ employers' contributions towards their maintenance in later life can be deposited and actively generate sufficient returns.  A new form of pension (_not _abrogation of employer responsibility!) is what is urgently needed.  This whole issue is being fecked up badly here in the UK with conflicting messages coming from government ("you must take responsibility for retirement" allied with "people are going to work till they drop in harness") and employer ageism and refusal to acknowledge the reality that if you remove all incentive and perquesites people won't work for you!


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## CCOVICH (8 Jan 2006)

DC stands for Defined Contribution, where only the employer's contribution is guaranteed.  These are the more common schemes these days.


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## CollyD (8 Jan 2006)

I believe they made an adjustment last year in the company I work for to sustain the DB scheme but not sure how often or long they can do that for as far as I know they review every 4yrs but that seems like a long time, I won't wait that long I will review my options on a yearly basis. So as long as they keep the DB scheme going I am happy out and will plow as much cash into it as I can. Currently it looks like I am paying 5% and they are paying between 9-10% the more they do that the better for me and if they freeze it as Clubman said they will more than likely replace it with a DC scheme so the longer I stay in the DB scheme the better, it is not like I have much sway in the companies decision to change there pension plans for there employees all I can do is maximise it and if it changes look at other companies and the possibilty of moving there if there employment package is better.

This thread is a good discussion all good inputs cheers.


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## Marie (8 Jan 2006)

Colly your comments support the position that individuals are more than willing to start laying down a pension from the start of their working-lives but (a) feel disempowered and uninvolved and (b) will simply move on if this particular 'perk' isn't available.

Personal anecdote.  My own formal schooling stopped (through family economic necessity) at age 16 and I worked full-time until I was 23.  When I left employment at that stage to embark on 4 years training (in Fine Art) I withdrew my pension contributions as I knew I would be searching for teaching work when I achieved my B.A.  That meant I lost the tax-benefits on pension accumulated until then.  For the next 10 years I was a self-employed sculptor living on income from occasional sale of a sculpture or drawing supplemented by income from part-time non-contract teaching (i.e. my employing education authority did not pay an NHS 'stamp' and did not offer access to a pension scheme.  Even if they had, I was living at subsistance level because my part-time term-time salary had to also cover the long academic holidays.   I could not even afford to purchase my own "stamp" and at the end of that period the Inland Revenue wrote to me pointing out my _state pension _would be affected.  However the amount required to buy 7 years or so of stamps was beyond me.  Though I was a successful artist and my name was becoming known and I had had a number of national residencies I was the typical 'impoverished artist'.

My first opportunity to lay down a pension came in my mid-40's when for the first time I was in full-time employment and with an employer (NHS) who offered a (for me) accessible pension scheme and by paying the maximum permitted into this I will have _a very modest_ pension.  Working in community psychiatric service is extremely demanding and I have decided to take the option of  retirement at age 60 as to work beyond that raises too many risks to self and to patient wellbeing (in my considered opinion and experience).  _However_ if the envisaged changes to pensions being discussed currently goes ahead, younger colleagues in the health service will have to work to at least 65!!!   This has been 'the last straw' and many Registered Mental Nurses occupational therapists and psychiatrists in their 30's are expressing their intentions of changing career and retraining...........into fields such as I.T., business management, retailing, leisure and teaching.  _They will all - of course - lose out considerably on the tax advantages of the NHS pension when they cash them in!!!_

It is surely not impossible to conceive of a system (on European Community level perhaps) whereby every individual is assigned a 'pension wrapper' when they become employed for the first time, into which s(he) builds up contributions on a ratio 1:2 with those from the employer _regardless of who/where that employer is.  _With one overall E.U. Pensions Agency all the red tape, bureaurcracy and muddle gets eliminated.......as do inequalities in pension plans between different sectors.  An elegant and workable system fully in the control of the individual with flexiblity to pay in more when money is flush and suspend contributions during - for example - years of retraining or further education.


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## CCOVICH (8 Jan 2006)

Marie said:
			
		

> It is surely not impossible to conceive of a system (on European Community level perhaps) whereby every individual is assigned a 'pension wrapper' when they become employed for the first time, into which s(he) builds up contributions on a ratio 1:2 with those from the employer _regardless of who/where that employer is.  _With one overall E.U. Pensions Agency all the red tape, bureaurcracy and muddle gets eliminated.......as do inequalities in pension plans between different sectors.



Would this sort of policy then extend to wages/salaries in different sectors and countries?



			
				Marie said:
			
		

> An elegant and workable system fully in the control of the individual with flexiblity to pay in more when money is flush and suspend contributions during - for example - years of retraining or further education.



That's not a bad concept, but we already have a degree of flexibility in this country which it could be argued has led to the 'looming pension crisis' and hence the calls for mandatory pensions.


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## Marie (8 Jan 2006)

Hi CC!  The question is, _is_ there flexibility?  In terms of the area I know best (NHS) the Pension Scheme online forum is crammed with questions from confused healthcare workers who are experiencing the inflexibility of the system arising when they (for example) work in a non-EU country or another EU country for a few years, change employers within the NHS, change grade, take sabbatical time at their own expense for further training, retire to an EU country other than the one in which they were last employed etc., etc. I don't mean to make this too specific (and I'm sure this is mirrored in careers in other sectors)  psychiatrists and others in this field work for anything up to 10 years working 6-month 'blocks' for a variety of different employers, sometimes in different EU countries, to gain the requisite experience before applying for MRCPsych exams (and this extends to most NHS professionals to a large extent).   Many don't bother to contribute to the pension scheme as they often can't spare that from their salary at that stage of their career.  

The debate on ways forward on pensions falls has so far produced only suggestions of upping the pension age, upping personal responsibility.  However there is _absolutely no empirical evidence _produced - as far as I can see - that individuals want to stop work early or are indifferent or imprudent about their retirement needs.  The debate falls -unfortunately -into the trap of unhelpful generalisation when the actual age of retirement becomes the focus and is (erroneously!) perceived as 'the' solution.  If instead the laying-down of provision for each individual for later life were integral to employment - part and parcel of the employer-employee relationship - this might offer the flexibility and transparency needed on both the individual and collective level.  Not sure how this would be implemented as I am naieve about how the system currently works.  My own pension scheme is a model of inefficiency and obscurity and from some posts here it seems that applies to pension schemes in other sectors also.  This makes thinking about pension schemes - and enhancing them - difficult and probably fuels the 'looming pensions crisis' myth.  If - as I understand - 28,000 new jobs were created in Ireland in the last financial year and immigration continues apace how can the self-same government statisticians who broadcast this also broadcast a crisis in pension funds as there are insufficient contributions from working-age adults?  It doesn't add up!


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## CCOVICH (8 Jan 2006)

I am not familiar with the NHS, and I am not in any way familiar with the situation vis-a-vis public sector pensions in Ireland, so I can't comment on that one.  

What I do know is that employees have more rights than they used to with regard to transfer of pensions between employers, transfer from benefits from overseas, and transfer of benefits overseas.  Also, while on a career break, you cannot contribute to a pension, but you may contribute to a PRSA.

The FAQ on the Pensions Board site has a wealth of information on these issues.

On the subject of the creation of 28,000 jobs and insufficient contributions, it is possible that many of the jobs created are in the lower paid sectors of the economy and hence are not paying significant sums of PRSI, some could be in the public sector paying lower rates of PRSI, some could be classed as contractors and paying lower (no?) PRSI etc. etc. so just because we are currently creating loads of jobs, it doesn't hold that there will be no 'pensions crisis'.  You have to look at our demographics as well; at the moment we have many workers and few pensioners (relatively speaking), but birth rates are falling so this alone can create problems in the years ahead (i.e. pensioners be a larger percentage of the population).


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## Marie (8 Jan 2006)

"The NHS" is the generic name for contemporary health services in the UK which now involve a mix of private and public funding.  It is currently the model being used by the Irish Health Services Executive in reshaping the RoI healthcare system.  It is the largest institution/employer in Europe and (if I remember correctly!) the 5th largest employer in the world.  Its constitutent systems are the subject of a research PhD I am in process of submitting.  Understanding the articulartion - or lack of articulation - of its subsystems can constitute a basis for modelling constructive change in a variety of institutional settings.


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## Murt10 (9 Jan 2006)

Here's a link to todays Guardian stating that the FT100 companies face a pensions black hole of £150bn stg. and explains about firms looking to buy out workers pensions.

It also gives a link to a pensions calculator.  The size of the contributions needed is frightening. Enough to make you go grey and fall out if it hasn't already happened, although I hope it doesn't already take into account the State pension.

http://business.guardian.co.uk/story/0,16781,1682568,00.html


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## Marie (9 Jan 2006)

_*Buyout rates tend to be higher than the actual liabilities faced by a scheme because insurance companies use more conservative calculations for life expectancy and investment return, and want to make a profit on running the scheme*_

There we go!


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## CCOVICH (9 Jan 2006)

An insurance company (or any other commercial enterprise) looking to make a profit-whatever next????????????????????


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