Terry Monk

I have received a message from Terry Monk which I understand is an update of the on-going saga about pre-97 pension increases.

An update from the Pensions Action Group and the Pensions Bill regarding pre 97 paid for inflation protection . The Minister said this (  see below ) but in spite of a detailed letter and follow up emails we have not been told  what is acceptable or why.

Our fear now is that ageing FAS pensioners will become the victims of Politicians .

The tax payers argument is flawed and the National Accounts comment surely cannot mean that FAS pensioner can not have what they paid for !!

New clauses 18 and 19 would not work. The new clauses as drafted would apply to subsets of the PPF population. Some pensioners would receive indexation, and some would not. The same flaws in the new clauses apply to FAS. We will definitely be opposing the new clauses, but that is without regard to the wider questions, which, as I said, I commented on last Tuesday.

 

If what I have been sent in this clip in blue is from DWP or Torsten Bell , it suggests that a solution to a problem which has been with the DWP, PPF and FAS for decades, is still caught in the weeds. I feel sorry for politicians who have to deal with issues such as this which take up huge amounts of time and lead to more frustration, but lets look at Terry Monk’s concern.

ageing FAS pensioners will become the victims of Politicians

Why?

the FAS pensioner can not have what they paid for !!

The need for indexation in pensions

The following comment comes from a man with a large part in organising FAS and PPF

The issues on indexation can be confusing as different considerations apply to different issues, in particular (1) policy on minimum indexation requirements (2) scheme rules, especially discretionary (3) PPF and FAS compensation.

So to avoid confusion I will not cover more than one here.

So here:

Requiring indexation on benefit accrual going forward, whether CDC, DC or DB.

Indexation is not free.  In DC and CDC it clearly means a lower amount returned to the member at the start and more paid to those who survive longest.

It is a serious policy decision whether that should be required legally in the benefit design, as in DB or CDC or in the design of a default.

My view is that the basic state pension should be indexed (and I would say in line with net of tax and NI earnings increases) as should any legally required “secured income” to be purchased from state pension age out of AE contributions (however managed (DC, CDC or DC).  I see no reason why the full benefit provided by “pension taxed savings” needed to be indexed.   The extent of any secured income requirement, including any indexation, is a nightmarish policy decision.

In the past I have argued that we wouldn’t want an older person to be turfed out of their care home as the price of the home increased but their pension income didn’t.  I now think that is a separate issue -paying care home fees from income is out of sight for almost all pensioners.

So now I believe indexation it should not be required other than on the “secured income”  and savers should be given clear communications on the impact of the different options open to them.  I do not believe government should require all pension savings to deliver indexed streams of payment although they should always be an option.  Similarly, people can move all their pot (excluding the “secured” part), again with clear communication on the tax and other life impacts.

Of course if employers want to do more than the minimum AE for their employees, they should be free to design that as they wish, including on indexation if they want.

This issue is one of the many important ones faced by the PC2 now we live in a world and see a future world with more focus on sustainability than for previous pension reviews.

If you are not retiring on a pension earned prior to 1997 which is now paid by the Financial Assistance Scheme (and it’s elder sister the PPF), then you may consider this a waste of your reading time.

But there are millions of people who will be defaulted into “pensions” that come out of their DC pension pots. These are currently known as “default decumulation retirement income” but to most people they will become known as “their pension”.

If you do not know what to do , you will get it done for you, just as you didn’t know what to save and you got auto-enrolled into a plan to pay you this kind of pension.

And if we decide it is acceptable that members of FAS who have lost their pension increases for the best part of 30 are to be denied these increases (at the very least gong forward) then it may be acceptable to swap out increases in the pensions you and I get (going forward).

Indeed there was a vogue for swapping pension increases for bigger initial pensions and even a cash bung and no increases a few years back. This disgraceful business “de-risked” employers of having to pay money into the pension because the odds were stacked in favour of the sponsors and trustees. The ruse was dreamed up by actuaries in management consultancies but implemented by IFAs like LEBC (who are now mostly out of business because they took the blame went this idea was stomped on by the FCA).

The vast majority of annuities are sold as level, the SMPI illustrations provided by DC providers use level pensions and this all seems perfectly ok “going forward”.

But back in the real world, the people who have had no increases since 1997 are in their nineties and dying and many more are in their eighties and seventies and moving towards the end of their lives.

My heart goes out to Terry Monk who sends me…

An update from the Pensions Action Group and the Pensions Bill regarding pre 97 paid for inflation protection

I publish it as the frustration from Terry and his colleagues. But I will take it further and make it a warning to policy makers who will make the rules on these retirement income defaults paid out of DC plans. Whether they are flex and fix deferred annuity solutions, or decumulation  CDC schemes , they must mirror what transfers of DC pots into public sector pensions pay – that is an increasing pension for life!

Let Terry Monk’s warning be a warning to us all, we must not rely on level income for the decades we have in retirement.

This has been going on a long time and it’s not just about naked pensioners on Brighton Beach