What’s Buzzing in Pensions - Early April 2006
Well, what with A-Day looming and all I suppose it’s no surprise to any of us that so much flak has been flying around on the pension front in the last week or so. As usual I’ve put together a random sample of the flotsam and jetsum I keep finding in my in-tray. It’s impossible, of course, to publish everything, life’s too short after all, but this’ll give you a flavour of what’s shaping our so-called public debate on all this stuff.
To start with, the Conservative Party estimated the cost of the recent National Pensions Day for us at a staggering £1 million. Given that the number of people surveyed was only a thousand that equates to £1,000 a piece. I don’t know about you, but I’d have been happy to have told the DWP what I think about pensions for a fraction of that! Still, the TUC added a little bombshell of their own to the wider pension debate by pointing out that we’re sitting on top of a ticking time-bomb for the under-40s. Let’s hope it never goes off!
The Lib-Dems put out a press release on the 28th of March calling for a thorough review of public sector pensions which the Conservatives kind of added weight to with a press release the same day claiming that the shortfall in the Local Government Pension Scheme will cost every household in the country something like £1,400 (just think of the number of National Pensions Days we could have for that!). They also mentioned the next day that the savings ratio has halved in the last ten years and appears to be in freefall, so it didn’t seem too surprising I suppose when the TUC put out a release the very next day to that urging people to save more or “retirement reality will bite hard”. Quite!
KPMG worried me a bit with their release at the end of the month that implied that some people may not have considered the full implications of life post A-Day, something that ought really to be no surprise to anyone given the baffling complexity surrounding the simplification of our pension system. All of which, I suppose, will lead many to wonder just what it is that the pension experts themselves would have done about pension reform if they’d had half a chance. Well, if that’s bothered you, worry no more. The Pensions Policy Institute (my favourite think-tank) finally put out a report on their year-long quest to build a consensus from among 80 pension experts on the “So what would you do?” front…
Cost of National Pensions Day will reach £1 million1
National Pensions Day has cost the Department for Work and Pensions £1 million – that is £1000 per person surveyed.
The day was organised earlier this month by the government in an attempt to reach a consensus on the pensions crisis, however, we are still waiting for a consensus from within the government about what issues raised by the Turner Report should be addressed in the imminent White Paper.
Shadow Work and Pensions Secretary Philip Hammond said:
“This works out at a staggering cost of £1000 per person surveyed on National Pensions Day, which is an extraordinary amount of taxpayers’ money to spend on what amounted to not much more than a publicity stunt.
“National Pensions Day will be confirmed as a waste of taxpayers’ money if, as is widely being predicted, the forthcoming white paper ducks all the tough questions and kicks urgently needed pension reform into the long grass.”
Notes to Editors:
426 Mr Philip Hammond (Runnymede & Weybridge):
To ask the Secretary of State for Work and Pensions what the total cost was to the Government of the Pensions Day events and activities on 18th March, including his Department’s website survey. (61412)
The information is not available in the format requested.
Opinion Leader Research is contracted to this Department to deliver the National Pensions Day events, the regional events, the website survey, the stakeholder toolkit and analysis of all the National Pensions Debate feedback. This work is not yet concluded.
The total costs invoiced to date are £794,130. The total cost is expected to be just under £1 million.
Pensions time bomb for under-40s needs bold action2
Commenting on the study by the Financial Services Authority and Bristol University that found that 42 per cent of adults have no pensions savings and that Britain's under-40s are unlikely to save, TUC General Secretary, Brendan Barber, said:
"A whole generation is growing up with little or no pension. Without radical action they will face poverty in retirement. But ministers have a blueprint for what needs to be done in the Turner Report on the future of pensions. Its dual track of modest compulsion on employers and a firm foundation of a more woman-friendly state retirement pension that keeps up with rising living standards is the way forward.
"There is huge pressure on ministers to ditch the Pensions Commission proposals. But this compelling evidence of a pensions time bomb shows that action can not be put off or half hearted."
- All TUC press releases can be found at www.tuc.org.uk
Thorough review of public pensions needed - Laws3
Commenting on today’s strike by public sector workers, Liberal Democrat Shadow Work and Pensions Secretary, David Laws MP, said:
“The Government has got itself in a real mess over public sector pension reforms by treating different groups of workers in totally different ways.
“The deal struck last year allowed some people who have yet to join the public sector to retire at age 60, while treating existing local government employees in a far less favourable way.
“The growing gulf between public and private pensions is going to cause real anger unless fundamental reforms take place.
“What is now very clearly needed is a completely independent review of every public sector pension scheme to put them on an affordable and sustainable footing in the future.”
Taxpayers can’t pay £1,400 bill for town hall pension crisis4
Hard-pressed families and pensioners already taxed to hilt warn Conservatives
As local services shut down in the face of one of the biggest days of industrial action since the 1926 General Strike, Conservatives are warning that local taxpayers cannot afford to bankroll the spiralling costs of the crisis-hit Local Government Pension Scheme.
Conservatives today revealed that the Scheme faces at least a £30 billion shortfall, equivalent to a £1,392 bill for every household in England & Wales.
The scheme’s cost to councils has soared from £1.5 billion in 1997 to £3.5 billion last year.
Local taxpayers face even higher council tax bills, year on year, as a result of this pension black hole, on top of the cost of pensions for other types of public sector workers.
Eric Pickles MP, the Shadow Minister for Local Government, said:
“Hundreds of thousands of people across the country are going to suffer thanks to one of the biggest days of industrial action since the 1926 General Strike.
“Local government workers have every reason to be annoyed at the inconsistent treatment given to them compared to other workers in other public sector pension schemes. John Prescott must take direct blame as the man in charge of town hall pensions. Labour’s taxes and red tape have created a pensions crisis for those employed in both the public and private sectors.
“Given many private sector workers could face having to retire at 69, I fear it is not sustainable to continue to allow town hall employees in good health to retire at 60 on a full pension. With an ageing population increasing the cost of the existing scheme, hard-working families and existing pensioners simply cannot afford to foot the growing bill through ever higher council taxes.”
Notes to Editors
How the Local Government Pension Scheme is funded
The Local Government Pension Scheme (LGPS) is a funded, final salary scheme, and overseen by John Prescott. Local councils have no discretion or ability to amend the scheme.
It is different from other public sector schemes, such as those for civil servants, teachers, firefighters and uniformed police forces, whose benefits are unfunded. But unlike a private sector final salary schemes, local government pensions are far more secure since, in practice, local authorities will never go bankrupt.
Soaring council tax
Council tax bills in England have risen by 84 per cent since 1997, hitting £1,268 on Band D from April. Pensioners this year face a tax hike of £254 – an increase of £54 on a Band D bill and the cut by Labour of the £200 payment for pensioners.
Town hall pension shortfall
The Government has estimated that only 74 per cent of the Scheme’s liabilities in England & Wales were funded as of March 2004 (Hansard, 23 March 2006, col. 529W); individual councils will vary – some have even greater shortfalls.
By contrast, when the scheme was last valued in 2001, the Scheme was 91 per cent funded.
The total valuation of the scheme in 2004 was £81 billion in England and £5 billion in Wales (Hansard, 16 June 2005, col. 548W). http://www.publications.parliament.uk/pa/cm200506/cmhansrd/cm050616/text/50616w08.htm
This suggests a total funding shortfall of at least £30.2 billion ([£86 billion ÷ 74 * 100] - £86 billion). Across the 21.7 million households in England & Wales (according to the 2001 Census), this gives a bill of £1,392 per household.
The cross-party Local Government Association has commented, ‘the employee staff contribution compared to the employer council tax contributions are currently not balanced and this must be addressed. The council taxpayer simply cannot pay more. The changes to local government staff pensions are both needed and necessary. Unless action is taken in the very near future, the cost to individual council tax payers and local government because people are living longer will continue to rise’ (LGA Press Release, 20 February 2006).
Soaring cost of town hall pensions
The table below shows the soaring cost of the Local Government Pension Scheme to councils, based on new Parliamentary Questions asked by Conservatives.
Hansard, 9 March 2006, col. 1751W
Hammond: Saving ratio halved under Labour5
Figures released today by the Office for National Statistics show that the household savings ratio has fallen to 4.8 per cent - half of what it was when the current Government came to power.
Shadow Work and Pensions Secretary, Philip Hammond, said:
"Today’s figures show that the savings ratio has halved since Labour came to power. There are 9m people in the UK who are not saving enough and as a result of this there are 5m pensioners who are stuck on means testing for the rest of their lives.
Mr Hammond continued:
“The Government should be encouraging people to save but Gordon Brown has actively deterred people from saving through his obsession with means testing and his smash and grab raid on their savings through his pension stealth tax.”
Save now or 'retirement reality will bite hard' TUC warns young people6
Most people in their late teens and early twenties are not saving into a pension and at its annual Young Members' Conference today (Saturday), the TUC is warning that young workers face a poor retirement if they do not start saving soon. The TUC is also launching a pensions advice leaflet to help young people understand their pensions choices.
Only just over a quarter of working men (26 per cent) and a third of working women (33 per cent) between 18 - 24 have a pension. Nine out of ten of the minority of young workers are saving into an occupational pension scheme, the kind of pension most likely to provide a decent retirement income.
The new TUC leaflet explains the different kind of pensions available and says that to afford a decent retirement most people need to be paying at least 11 per cent of their earnings into a pension if they start saving at 25 but this rises to 14 per cent if they put off saving until they are 30 and 18 per cent if they delay until they are 35. Most young people are not saving sufficient amounts although FSA research shows that four out of ten 18 - 24 year olds in or seeking work think that they will enjoy a better standard of life in retirement than they have now.
The TUC is urging the government to help young people save by implementing a National Pension Saving Scheme recommended by the Turner Commission. The government is currently considering whether to propose such a scheme, which would require all employers to pay into staff pensions, alongside staff contributions, unless employees choose to opt out.
Speaking at the TUC's Young Members' Conference in Eastbourne later today, TUC Deputy General Secretary Frances O'Grady will say:
"Young people struggling with debts and housing costs are faced with tough choices. And many are putting off saving or think they will be able to get by without their own pension. But if pensions saving is left too long, reality will bite hard for young people when they hit retirement.
"The simplest way to increase saving amongst young people so that they will enjoy a decent retirement is to ensure they have access to a decent work pension with some compulsory employer and employee contribution, as Turner has recommended. But the government will need to be bold and brave, and stand up to the employer onslaught against even the modest level of compulsion that is being proposed."
Notes to editors
- The TUC leaflet is available on www.tuc.org.uk and from the know your rights line 0870 600 4 882. Lines are open every day from 9am-9pm. A pdf is available by email from the TUC press office.
- The TUC Young Members' Conference takes place from Friday 31 March - Sunday 2 April), Eastbourne Centre, the Grand Parade. Frances O'Grady speaks at 11.30am on 1 April.
- The latest official figures (ONS, 2004) show that 26 per cent of working men and 33 per cent of working women between 18 - 24 have a pension.
- FSA research found that just under a fifth of people (19 per cent) aged 18 or over who are either working or seeking work expect to have a higher standard of living in retirement than now with one quarter (25 per cent) thinking they will be worse off, more than half (52 per cent) thinking it will be the same. Younger people are more likely to think they will have improved standards of living in retirement than older people who have not yet retired with more than 4 in ten (41per cent) 18-24 year olds and a quarter (25 per cent) of 25-34 year olds thinking things will improve (FSA, 2002).
Companies scramble to meet A-Day deadline7
Some may not have considered the full implications of life post A-Day, says KPMG
A-day (6 April) is just a week away and many UK companies have yet to complete their preparations and put in place all the necessary measures for pension provision under the new rules.
David Fairs, partner in KPMG’s pensions practice, said: “Next Thursday will see the biggest pensions shake-up for 25 years. Businesses have had to consider a number of complex changes to the design of their pension arrangements and the knock on impact to administration systems. Whilst the new regulations represent a genuine and welcome simplification for many; for senior executives the decisions are difficult and complex.
For those executives impacted by the Lifetime Allowance and Annual Allowance there may be new forms of remuneration available, typically a cash alternative to pension. Executives need to decide whether to stay in their pension arrangements or take up whatever else is on offer. Executives also need to decide whether to register for transitional protection, and if so, what type of transitional protection. Many organisations have provided independent advice to their executives to help them through these difficult decisions.
Companies have also had to ensure that trustees and shareholders have been consulted on decisions made.
David Fairs added: “Preparation for A-day has prompted many companies to completely review and refresh their pension strategies. Taking stock of existing practices and questioning whether current arrangements are optimal is to be welcomed. However, such comprehensive reviews are no light undertaking and there will be a few very late nights for many between now and 6 April.”
Key changes on A-day
The “Lifetime Allowance”
Current benefit limits will be replaced by a single lifetime allowance that can benefit from tax relief. For tax year 2006/07, this is £1.5M, rising to £1.8M in 2010/11.
Tax rate of 55% on benefits over the lifetime allowance
Benefits in excess of this lifetime allowance will be taxed at an effective tax rate of 55%.
Enhanced or primary protection to ringfence pre-A-day assets from the 55% tax
If an individual has pension fund assets in excess of the lifetime allowance, it is possible to ringfence and protect those assets from the 55% effective tax charge provided that individual registers before 6 April 2009. A decision as to whether to register for protection and which type of protection to opt for is complicated and it is important that the individual seeks professional advice.
Annual allowances for contributions – removes pressure to maximise 05/06 allowance
A new Annual Allowance will be introduced. In the year 2006/07, this will be £215,000 increasing annually (or 100% of salary if less).
David Fairs concluded: “Anyone who has pension provisions above the lifetime allowance and has not considered what action to take, needs to do something fast. I would hope that most people in this position will have addressed the issues but if not, they need to contact their financial advisers as a matter of extreme urgency.”
“Be bold in reforming state pensions” say pension experts8
The PPI today launches a new report Shaping a Stable Pensions Solution: How pension experts would reform UK pensions.
The PPI report brings together the views of around 80 pensions experts from over 40 organisations who, throughout the last 12 months, responded to detailed papers on the critical aspects of pension policy. The aim was to build up a consensus on what a long-term pension solution could look like. The project was funded by the Nuffield Foundation.
PS Sorry to keep bothering you (this is the first time I’ve put a PS on a BeeLine), but I thought it would be appropriate today to add an extra bit on. This compilation BeeLine was actually put together on Monday night before I set off on a round of pension talks in the Midlands yesterday (Coventry, Leicester and Nottingham as you ask) and looking at it today as it’s about to be published it looks a bit odd that it seems to ignore the latest stuff from Adair Turner and his Pensions Commission. So I thought ‘I know I’ll put that right by tagging a bit on the end’. And that’s what I’m doing.
I don’t want to write too much about the Turner stuff and the National Pension Savings Scheme (NPSS) except to say that I’m shocked to read in this latest piece that if things don’t change soon we’ll end up with 75% of the population qualifying for the Pension Credit! If that hasn’t got "Blimey!" written all over it I don’t know what has.
Those of you who like to keep up to the minute on all this can get hold of a copy of the Commission’s swan song report by clicking on the following link. If you print it out though you might want to check your ink cartridges first, it’s 48 pages long!http://www.pensionscommission.org.uk/publications/2006/final-report/index.asp
5 April 2006
1. Conservative Party
3. Liberal Democrats
4. Conservative Party
5. Conservative Party
8. Pensions Policy Institute
Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.