Government's plans for insolvent pensions schemes

The government has announced their plans for dealing with insolvent defined benefit pension schemes

1) Pensions of retired people will be frozen, so that they share some of the pain with those who have not yet retired.

2) The funds will be able to buy their annuities from the NTMA at cost instead of on the market. This will leave more money in the fund for those who have not yet retired.

1) is too small a measure. Do most defined benefit schemes allow for pensions to increase with inflation?

It should be applied to all pensions where the fund is in deficit and not just ones which have been wound up.

2) So we are nationalising pensions when the governement is arguing against the nationalising the banks?

I would prefer to have my pension paid by a AAA rated insurance company than by an AA rated government.

Brendan

Brendan said:

I would prefer to have my pension paid by a AAA rated insurance company than by an AA rated government.

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Wouldn't care about the AA rating of the government, would have more chance of getting paid by a government than an insurance company that possibly could go bust.

Brendan said:

The government has announced their plans for dealing with insolvent defined benefit pension schemes

1) Pensions of retired people will be frozen, so that they share some of the pain with those who have not yet retired.

2) The funds will be able to buy their annuities from the NTMA at cost instead of on the market. This will leave more money in the fund for those who have not yet retired.

1) is too small a measure. Do most defined benefit schemes allow for pensions to increase with inflation?

It should be applied to all pensions where the fund is in deficit and not just ones which have been wound up.

2) So we are nationalising pensions when the governement is arguing against the nationalising the banks?

I would prefer to have my pension paid by a AAA rated insurance company than by an AA rated government.

Brendan

Click to expand...

I'm a bit worried about the NTMA selling annuities at cost part. There is a persistent disbelief out there at the price of annuities in the market.

It's comforting and convenient for people to say that there is bad value in the market as this is an easy problem to fix.

The inconvenient and discomforting issue is that there is only a couple of serious players in the annuity market because the other companies that would be expected to compete in this area wouldn't touch annuities with a barge pole.

There are huge risks for any provider in getting into the annuity market from the potential improvements to people's lifespans.

So the point is that no one does know or can know the true cost until we see how long people will actually end up living for. It baffles me how anyone can actually arrive at the conclusion that there is some significant savings to be made by cutting annuity providers out of the market.

So where I think this is going is that the taxpayer will end up paying for the €30bn in private pension scheme deficits. Add this to the probable €30bn they are likely to over pay for the assets to be taken over by NAMA and we're left with an overburdened taxpayer paying for a government with no spine to do anything other than make populist decisions whose ultimate cost they have no understanding of.

Agree with Derkaiser - how are they going to price them? As far as I'm aware the biggest player in the Irish market have their whole annuity book resinsured, as they don;t want to take the risk. And the government with no experience in these matters reckon they can price these better and take on the risk?

Brendan said:

The government has announced their plans for dealing with insolvent defined benefit pension schemes

1) Pensions of retired people will be frozen, so that they share some of the pain with those who have not yet retired.


1) is too small a measure. Do most defined benefit schemes allow for pensions to increase with inflation?

It should be applied to all pensions where the fund is in deficit and not just ones which have been wound up.

Click to expand...

I think that this is actually an excellent rule change. The effect is quite large in my estimation. My experience of DB schemes is that they do offer inflationary increases (subject to a maximum).

Take the example of someone aged 70. We expect that they will live for another 16 years. If they forego inflation of say 3%, this will reduce the value of their pension payments by almost 25% after 8 years. A rough approximation would value their total future pension at age 70 at maybe 20% less.

The younger you are the greater the proportionate reduction. Theoretically a wound up fund that is underfunded to the tune of 30% could simply offer non-inflationary increases to all rather than very little to those who have yet to retire.

This rule also sticks to the principle that people need time to adjust their standards of living i.e. those with least time to plan an alternate source of retirment income will lose proportionately less.

Potentially it could be used where the scheme is not yet wound up so long as increments to retirees were only temporarily deferred and the emplyer was forced to address the deficit as quickly as possible

DerKaiser said:

So where I think this is going is that the taxpayer will end up paying for the €30bn in private pension scheme deficits.

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Agreed.

It's probably only a matter of time before some DB scheme members sue the State, through the European Court of Justice, for not adequately supervising the deficits being accumulated. Similar scenario in the UK reported here , but I can't find any updates.

IMHO, the current plans are merely an effort to show that they are doing 'something'. A reactionary effort to disguise the failure of not taking any preventative measures.

GSheehy said:

Agreed.

It's probably only a matter of time before some DB scheme members sue the State, through the European Court of Justice, for not adequately supervising the deficits being accumulated. Similar scenario in the UK reported here , but I can't find any updates.

IMHO, the current plans are merely an effort to show that they are doing 'something'. A reactionary effort to disguise the failure of not taking any preventative measures.

Click to expand...

Its probably a more worrying time for the Trustee's of these schemes in my opinion as they are ultimately responsible for the investment decisions of these schemes and more likely to be sued. People laughed at the Boots Defined Benefit scheme Trustee's investing all the scheme assets in Gilts/Bonds a few years ago but now the move is seen as inspired.