Category Archives: Pensions finance etc

• Four million public sector workers will see their pension earnings reduce
• Retirement income calculated on career average earnings, not final salary
• NHS staff, teachers and local government workers among worst hit

Doctors, nurses, teachers and local government staff will see the income from their ‘gold-plated’ public sector pensions slashed by more than a THIRD under the Government’s reform plans.

Some four million public sector workers will see their retirement income take a huge hit as the Government looks to cut its pension liabilities by a quarter by 2065.

Paying out pensions based on a proportion of average career earnings, rather than final salaries, will see workers’ average pension income fall from 23 per cent of their salary to just 15 per cent, the Pensions Policy Institute has said today.

Pension pain: How the Government’s reforms will impact members of the four main public service pension schemes.

Those who turned 50 before April 1, 2012, will be protected from the reforms, but everyone else faces having to work for longer, pay more into their pots, and get less out of their pensions.

Local government workers will experience the changes first as the reforms are introduced from next April, with NHS staff, teachers and government civil servants following suit in April 2015.

Despite this, the PPI found that public sector pensions will still provide better levels of income than private sector workers on money purchase schemes.

Niki Cleal, PPI director, said: ‘The analysis suggests that the combined impact of the Coalition Government’s proposed reforms is to reduce the average value of the pension benefit for all members of the NHS, teachers, local government and civil service pension schemes from 23 per cent of a member’s salary before the Coalition Government’s reforms, to 15 per cent.

‘This is a reduction in the average value of the pension benefit for members of these four schemes of more than a third.

‘Nevertheless, even after the Coalition’s proposed reforms, the benefit offered by all four of the largest public service pension schemes remains more valuable, on average, than the pension benefit offered by defined contribution schemes that are now most commonly offered to employees in the private sector.’

Final salary schemes see staff given a proportion of their final salary, typically 1/60th, as income in retirement for every year they have worked with the organisation. So someone with 40 years service, who retired on a salary of £60,000, can expect a retirement income of £40,000.

But career average pensions will see the payouts calculated based on an average of pensionable earnings for each year they worked.

The reforms were first brought up in the 2011 Budget, and received Royal Assent last month.

Other changes include bringing the age at which staff can take their pensions, which is currently 60 for most members, in line with the state pension age. This will rise for men and woman to 67 between 2026 and 2028.

Members will have to pay on average an extra 3.2 per cent of their salary into their pension schemes as well.

Police, fire and Armed Forces personnel are also expected to be affected by the changes, though their ‘normal pension age’ will remain at 60.

In 2007/08 reforms introduced by Labour, the normal pension age for civil service, NHS and teacher pension schemes rose from 60 to 65.

However this only applied to new members, so the majority of scheme members will still have a pension age of 60.

Those within 10 years of their pension age on April 1, 2012, will be able to take their pension under the current final salary conditions, rather than the new career average.

Teachers and nurses will see a THIRD of their pension incomes wiped out under government reforms

Pensions Divide

For almost half a century, many of the girls in the Ilkley Grammar School hockey team have stayed close.

Despite their lives going separate ways — some have enjoyed long successful careers, others concentrated on raising a family, a couple went through divorces and one even managed a rock band — the bond from those happy times in Yorkshire has always remained.

But today the Queen will set out changes to the pension system that will separate three of these life-long friends — leaving two of them £44,000 poorer than the other. And it’s all because of a quirk of when their birthday falls.

Unfair: Denise MacGregor (top left) is among 700,000 women who will miss out on larger pensions. But lifelong friend Linda Hull (next but one to Denise), who is just four months younger, will get the new £144-a-week state pension

Denise MacGregor (circled top left) and Katherine Worsfold are among 700,000 women born between April 6, 1951, and April 5, 1953, who will miss out on larger pensions because of a double whammy of reforms outlined in a Bill today.

But lifelong friend Linda Hull (circled next but one to Denise), who is just four months younger, will get the new £144-a-week state pension.

Up and down the country, friends in this age group — who grew up fighting for women’s rights and their own careers — are being separated by what they see as a cruel rule change.

And a further bitter pill is that men born on the same day as them will be better off — even though the changes are designed to bring equality in the state pension.

Mrs Worsfold, who was born on March 17, 1953, says: ‘It’s just not fair — it’s essentially a birthday lottery.

‘We are trapped. Women younger than us and men two years older will get the new pension, but we won’t.’

WHAT EXACTLY IS HAPPENING?

For years, women in retirement have been treated as second-class citizens.

The state pension — currently a basic £110.15 a week — has, historically, benefited men. Females earned less and took more time off to raise a family.

Some also opted to pay lower National Insurance (NI) contributions in order to benefit from their husband’s pension.

Men get an average weekly state pension of £148; women get just £131.

The state pension is also impossibly complicated. Women qualify for it at 61, men at 65.

Anyone with at least 30 years’ NI contributions is paid the full basic rate, with reductions made for every missing year.

On top of that, higher earners can receive the state second pension (S2P) — previously known as Serps — to top up their income to a total of £270.15 a week. The poorest pensioners qualify for a baffling array of credits.

Now the Government wants to introduce a new, simpler state pension — a flat rate of £144 a week in today’s money. This will be brought in on April 6, 2016.

This means anyone who retires before then will receive the old state pension.

The new pension will require 35 years of NI contributions. And anyone who has built up state second pension top-ups will also keep these.

Because we are all living longer, the Government is also pushing back the age at which people can start claiming the state pension. For years, women could claim it at 60 and men at 65.

In the interest of gender equality, men and women will have the same retirement age.
Initially, the retirement age would have been equalised by 2020. But this has been brought forward to 2018.

The rise for women is being brought in through increments and has started already.
Women born between 1950 and 1953 have a different retirement age of between 60 and 65, depending on the date of their birthday.

For example, if you were born on January 3, 1952, you will qualify for a state pension on September 6 this year, aged 61 years, eight months and three days.

If you were born five months later on June 3, 1952, you’ll reach state pension age on July 6, 2014, aged 62, one month and three days.

Between 2018 and 2020, the Government then plans to increase the state pension age for men and women to 66.

This will affect people born after December 6, 1953.

The state pension age will move to 67 by 2028 and then rise in line with life expectancy. You can find out your retirement age at gov.uk or by calling the Pension Service on 08456 060 265.

Read more here: – ‘We are trapped’: The life-long school friends split by the £44k state pension divide

I think the idea of saying in the meantime, you give people benefits and then you say – ‘Oh, by the way, can you please give them back?’ – I don’t think that makes sense.Nick Clegg

Rich and elderly? Give back your free bus pass, says IDS

Lib Dems float their alternative to cutting free TV licences, bus passes and winter fuel

Better off pensioners may have to pay tax on perks such as their winter fuel allowance or lose them completely under a plan to be considered during the Government’s spending review.

Liberal Democrat ministers say that taxing or means-testing the special benefits for older people would not breach David Cameron’s pledge at the 2010 general election to maintain their winter fuel allowance, free TV licences and bus passes. Taxing winter fuel payments and TV licences would save about £250m a year and affect 1.5 million old people, while restricting them to poor pensioners who qualify for the pension credit top-up would save £1.4bn a year.

Nick Clegg has previously threatened to block another raid on the welfare budget as George Osborne seeks an extra £11.5bn of cuts in 2015-16 in a spending review to be completed in June. But senior Lib Dems do not want to be portrayed as being “soft” on welfare by the Conservatives, who have already branded Labour “the benefits party” for not being tough enough. One Lib Dem minister said: “Taxing or means-testing the pensioners’ benefits would not mean getting rid of them. So, David Cameron would not be breaking any promises.”

Iain Duncan Smith, the Work and Pensions Secretary, is thought to be prepared to curb some pensioner perks but Downing Street has repeatedly said Mr Cameron is sticking to his previous pledge. It is not yet clear whether the Prime Minister is open to the formula being suggested by the Lib Dems. “He does not want this to be his tuition fees,” said one Tory minister, referring to Mr Clegg’s damaging U-turn over his 2010 promise to abolish university fees, which the Coalition raised to a maximum £9,000.

A Whitehall source said: “These issues are not currently under discussion in the spending review. That does not mean that they won’t be.”

Last night, pensioners attacked the proposal. Dot Gibson, general secretary of the National Pensioners Convention, said: “Any attempt to tax the bus pass or the winter fuel allowance would cause a major fightback by pensioners. It would be a personal betrayal by the Prime Minister who has previously said that these benefits were protected until the next election. Any suggestion that those with incomes of £11,000 a year are well off and can therefore pay additional tax are absolutely ridiculous – especially at a time when those on £150,000 are getting a tax cut.

“The real reason why we have these additional benefits for older people is because our state pension system is among the worst in Europe. If the Government starts to break this arrangement it will have to brace itself for the backlash that will follow.”

So far, older people have been relatively unscathed by Coalition cuts, leading to pressure for handouts to better-off pensioners to be targeted. The basic state pension has been protected by a “triple lock” which sees it rise each year in line with earnings, the consumer prices index or 2.5 per cent, whichever is higher. It is exempt from the 1 per cent cap on benefit rises for the next three years.

The Treasury has ordered Whitehall departments to draw up savings of 10 per cent outside the protected areas of health, schools, overseas aid and defence procurement. Ministers in other departments complain that this will mean deep, unacceptable cuts in their budgets even though they have already been hit. Several argue for more welfare cuts to relieve pressure on their departments, including Theresa May, the Home Secretary; Philip Hammond, the Defence Secretary and Chris Grayling, the Justice Secretary. Welfare and tax credits cost almost £200bn a year, nearly a third of public spending

Tax on pensioners’ perks seen as way to save billions

Dairy Crest plugs pension fund hole with cheese

Dairy Crest has filled a hole in its pension scheme with the promise of £60m of maturing cheddar.

Dairy Crest has transferred £60m worth of maturing cheese to its pension fund.

The company has granted a floating charge over the cheese – the firm’s leading Cathedral City cheese brand – to its pension fund trustees.

It means that in the unlikely event the firm goes bust, the trustees will become owners of 20,000 tonnes of cheese and can sell it. This strengthens the pension fund while giving Dairy Crest the chance to keep and spend cash in the business.

Drinks group Diageo struck a similar deal in 2010, when it agreed to pour up to 2.5m barrels of maturing whisky into its pension fund to ease a £862m deficit.

Cathedral City cheese is manufactured in Davidstow, Cornwall, and then moved to a warehouse in Nuneaton, Warwickshire, where it matures for around 12 months before being sold.

Dairy Crest usually has around £150m worth of maturing cheese in the warehouse. As stocks are replenished, the pension fund trustees will retain floating ownership of £60m worth of stock.

The company, which has been caught in the middle of supermarket price wars and blockades by farmers in recent months, had a pension fund deficit of £84m in September 2012.

It is using the proceeds of last year’s £341m sale of its French spread business, St Hubert, to cut its bank borrowings and strengthen the pension fund.

Dairy Crest announced it will buy back £100m worth of loan notes, which will help reduce interest charges by around £7m a year.

The pension fund will get a one-off cash contribution of £40m, in addition to the floating charge over £60m of maturing cheese.

Dairy Crest, which supplies 15pc of Britain’s milk, closed its final salary pension scheme in 2010, affecting some 3,500 members of its 5,000-strong staff.

Mark Allen, chief executive of Dairy Crest, said: “Following the successful sale of St Hubert, we have now restructured our balance sheet, putting in place a more appropriate capital structure. This will reduce interest costs going forward and underpin the dividend and still gives us scope to invest to grow the business.

“We are also pleased to have reached agreement with the Trustee of the Pension Fund to improve its financial position at an acceptable cash cost to the company.”

Other Dairy Crest brands include Country Life spread, Clover butter and Frijj milk.

Industry experts said using non-cash assets to reduce a pension scheme deficit was becoming more common.

A spokesperson from The Pensions Regulator said: “Contingent assets can be a valuable way of providing security for pension scheme promises, particularly in situations where cash may not be readily available.

“As with any contractual arrangement it is very important that they are properly drafted, underlying assets are properly valued and that they would be realisable for the scheme when needed.”

Any thoughts on how this idea could help with possible police pension fund deficits?

Also at: It stinks. It’s full of holes. But it will give you a tasty lump sum. The company that’s put cheese in its pension plan

Read: – Latest Information about police pensions for Enlgand and Wales

Iain Duncan Smith says proposal is good for women but critics claim plan ignores fact people will have to pay in for longer

Critics say the new plans would mean people would have to make national insurance contributions for 35 years rather than 30.

The government will on Monday unveil a new flat-rate state pension worth £144 a week with a pledge to end the “shameful situation” in which women who take time out to care for their children suffer in retirement.Iain Duncan Smith, the work and pensions secretary, will declare that the new “single tier” pension will ensure women receive a full state pension in their own right.

But the government announcement, due to be unveiled in a white paper, was immediately condemned by the National Pensioners Convention as a “con trick” for future generations.

The convention directly challenged Duncan Smith’s claim, saying that women will suffer because pensioners will have to make national insurance contributions for 35 years, rather than the current 30, to benefit from the new pension.

Dot Gibson, the convention’s general secretary, said: “What the government is trying to sell is a plan for people to pay in for 35 years, get £144 a week and have to wait at least until 68 before they can collect it. No one should be taken in by what is little more than a con trick.”

Gibson hit out at the government as Duncan Smith and Steve Webb, the pensions minister, prepared to unveil a simplification of the state pension that will be introduced for new pensioners from 2017. They insist that the new rate, set above the basic £142.70 level of the means test and well above the current basic state pension of £107 a week, will be a vast improvement.

Pensioners will have to make national insurance contributions for 35 years to qualify for the full amount – more than 40% of new pensioners are expected to achieve this by the 2040s. There is a minimum 10-year qualifying period.

The government estimates that 750,000 women who reach pension age in the decade after the new system is introduced will receive an extra £9 a week. It says that 2.8 million receive a state pension of under £80 a week, compared with 474,000 men. Duncan Smith said: “This reform is good news for women who for too long have been effectively punished by the current system. The single tier will mean that more women can get a full state pension in their own right, and stop this shameful situation where they are let down by the system when it comes to retirement because they have taken time out to care for their family.”

Gibson said: “The white paper offers nothing to existing pensioners and leaves many of them to struggle on lower pensions and a complicated means-testing system. The worst affected will be around 5 million older women who don’t have a pension anywhere near £144 a week and would clearly benefit if they were included in the new arrangements, but look like they are going to miss out. This will only add insult to injury to millions who have already made a contribution to our society but are still living in poverty.”

Flat-rate state pension branded a con trick by OAP group

See: Biggest shake-up for a century is ‘incredibly pro-family’ says minister