Mr anonymous
I posted a defence of private pensions yesterday from Gordon Aitken. It explains that the current lucky boomers have no reason to worry about the state pension as they are adequately looked after by defined benefit pensions which are now paying out a retirement wage.
Gordon normally writes about insurance companies dismantling DB schemes using bulk purchase annuities but I suspect he’s got questions about how DB sits with insurers.
They have benefited from workplace pensions first from with profit AVCs and early DC schemes, from GPPs and from insured platforms for occupational unit linked DC schemes. most recently they’ve enjoyed the pick of workplace schemes through the master trusts which have by and large avoided uneconomic employer offerings through underwriting.
Most recently insurers have been there to pick off DB schemes ready to be harvested for bulk purchase annuities.
It is hard not to congratulate insurers for their takeover of the profitable parts of workplace pensions since the demise of private DB schemes around the turn of last century and ever since.
I have enjoyed some extraordinary comment on this by an anonymous reader – well the reader was anonymous till he declared himself with a comment!
It is important to remember that even in the halcyon days of DB well under half the working population ever stood to benefit. It was SERPS/S2P that started to fill the gap, before they suffered a death of a thousand cuts.
This first comment is a prelude to the second which is one of the finest comments this blog has ever seen.
Workers liked and benefitted from DB pensions. Employers supported and liked the costs. But the financial service companies, as they once explained to me, hated DB because it wasn’t a product they could replicate. They preferred to provide pots, taking a fee for AUM, leaving all the risk on the working man/woman.
The 2000’s suffered from a total absence of Policy or Ministerial direction, and into that vacuum the insurers stepped and took control. Their good, our bad.
The result was Policy geared around ‘de-risking’ of DB resulting in colossal overfunding, and then the transfer of de-risked overfunded pension schemes to Insurers.
No one wins apart from insurers.
But, eventually Policy buffs have realised you cannot de-risk an economy to growth. The converse happens.
Policy buffs also appreciate now that if you cap pension inflation via annuities, then a cycle of high inflation will erode the spending power of those annuities (the fomerly DB pensions) casting more strain back onto the State.
If you hang around long enough, you see that everything comes in cycles, and the cycle is quickly by necessity veering ( at long last) to growth and pensions that keep pace with prices.
Let’s get behind this and put our shoulders to the wheel.
I would like to thank who we now know is Bryn Davies, the Lord of Brixton.
The first comment, which obviously bears all my fingerprints, was only anonymous because I was logged into another Word Press account.
The first anonymous comment was mine and was only anonymous because Word Press have changed how you make a comment without logging in. Which I didn’t want to do.
It is still possible to leave a name without logging in, just less obvious than before. Click “Add your name” then “Continue as guest”
Okay, I haven’t got the hang of this. For the avoidance of doubt this is Bryn Davies, and I guess at least some people thought it obvious. This is the stage at which I introduce myself as the President for Life of the SERPS Preservation Society.
Well done for persevering! I have wondered if we are reinventing the wheel when we talk of mandatory UK investment, combined with improving pension adequacy for ordinary folk based on a contribution.
Would we be in a better place now if SERPS had persisted and the basic state pension set to cover the essentials?
Well I can see why they made you a Lord.
All I can say is that I got kicked in the teeth by Gordon Brown on his last century pension raid on DB pensioners and the PAG/FAS have suffered ever sincce. What did they do – they made Gordon a CH!
“Workers liked and benefitted from DB pensions.” Sometimes. My father-in-law very much disliked his first one because when he planned to move to a new employer the old employer pointed out that all his old DB rights would vanish! Just like that!
He wasn’t alone: if you’ve read Peter Wright’s Spycatcher you’ll know that he lost all his rights to a Royal Navy DB pension when he transferred to MI5.
He fell for that ancient fraud of being assured that a “gentleman’s agreement” would see him right. (My own response to being offered a “gentleman’s agreement” has always been to offer ungentleman-like violence.)
Then there were all the widows who discovered that hubby’s DB pension didn’t pay them a widow’s pension. That must have been fun.
So there were two dreadful design flaws put right by political intrusion (the second by Thatcher; I don’t know who did the first) but with the downside that the politicians provided no funds for these repairs – they simply imposed the costs on the employers and employees. Do that often enough and you make DB pensions too expensive.
(Who imposed inflation-linking? Was that Thatcher too?)
If “workers” unreservedly believed DB pensions to be wonderful where were all the strikes demanding a pay cut to allow more money to be diverted into their pensions?
I’ve just checked: under Thatcher there was introduced a little bit of inflation-linking but much the bulk of it was introduced under Major. So to a good approximation it was Major wot dunnit.
I’ve checked again: “The Legislation: The right to a “preserved [DB] pension” … was enacted under the Social Security Act 1973“
So it was under Heath that the conjuring away of DB pensions was prohibited. Goodness me – not often you see something to Heath’s credit.
A further improvement under Thatcher’s government came with Section 10 of the Social Security Act 1986.
The statutory qualifying period for short-service preservation was reduced from 5 years to 2 years.
This took effect for individuals leaving service on or after April 6, 1988.
“The 2000’s suffered from a total absence of Policy or Ministerial direction”: aha, Blair and Brown again. Blair was a dim little man but Brown has no excuse: at least when he was young he was an able lad.