Inflation changes to pensions leave us in the dark

As far as I can see the government (present and past) expect those in retirement and those saving to do so to pay for the mess we are in.

Put it another way, we are going to have to take another step to living on the breadline so as to keep large numbers of people on benefit and down the betting shop and pub.

Why did I ever bother trying? I should have sat on my ass and let the rest of you keep me

How is the Government going to persuade people to contribute towards a pension when you get a twerp of a pensions minister Steve Webb (note Liberal Democrat) who at the stroke of a pen wipes 10 per cent off the pension value of someone who has been saving for 40 years? Just who in their right minds would save for pension when a Government can dip their hand into your pension savings (on behalf of employers) in this way? It is just too risky. You cannot plan effectively at all for your retirement with these sort of shenanigans. Steve Webb has acted no better than some dodgy scam artist selling investments.

One decision I have now made as a consequence of this - under no

circumstances will I vote Liberal Democrat again (yes unfortunately I did this time around - give myself a good kicking). The Lib Dems have cost me a small fortune by this change and they are going to pay by loosing my vote. I hope others feel the same and will punish them by wiping the Lib Dems off the political map. I now detest them as a party - where in their manifesto did it say anything whatsoever about this sort of change.

Will the change to Serps, etc., pension calculations using CPI result in a net savings which will go someway to covering the cost of the fanfare announcement increasing the Basic State pension in line with wages/2.5%/CPI. Finger in the air -- how much? Again, those that have worked and saved extra for their retirement end up the biggest losers.

I still don't understand this "proposal" - Is it the minimum inflation protection, or is it the only inflation protection permitted? Everyone knows, including the BoE, the ONS, & ECB, that CPI is a very poor and inaccurate assessment oif real inflation so to use it in any important way - including pensions and targetting the BoE - is frankly crass and stupid. It might suit some twisted politician's logic that it would be nice to exclude housing costs, council taxes and government duties from inflation (as the CPI does), but it's nonsense. If these people are not very careful, they will find that millions of pensioners who supported them last time will threaten to campaign against the parties in Governemnt from now on, and wipe them out completely: They have been warned.

Yes, these inflation figures are nonsense. You can't measure it properly by removing (picking and choosing) things that are more likely to rise in price. Many of the governments measurement sticks are wrong and don't give a realistic snap shot of living standards.

For example, most people earn less than the average wage? Think !

If house prices go through a sustained decline in real terms i.e. don't grow at the pace of RPI - would CPI then be expected to be higher than RPI over that period. In other words is there not a strong chance that for many yaers to come CPI will be higher than RPI? Don't forget the main reason for the disparity must have been largely due to the sustained rise in house prices from the early nineties until a few years ago.

As we all know, the European Court in 1990 ruled that pensions are deferred pay. This is fine for the interpretation of some rules, but leaves a lot of other aspects very murky.

A defined contribution scheme is simple to understand under the pension is pay interpretation, namely, the money in the pot is yours at some time in the future - sort of. There are some distinct advantages in dying a few days before retirement. The advantages are for family rather than self, so there is little incentive to take this option.

Buy an annuity and the whole lot could be lost within a short time, but most people get a reasonable return, so on balance its a reasonable option. Have enough in the kitty, and one can use the DrawDown route improving the general odds of getting a reasonable return. So, over all, (ignoring investment risk and level of contributions), the defined contribution route appears to be satisfactory. In general most people get their deferred pay.

But what happens with the defined benefit schemes. Quite a lot depends on the rules of the scheme, over which the member has little or no control.

Dying before retirement may not be a good option, depending on whether one is still with the employing company. Due to the paranoia exuded by the FSA many people will have left their benefits with the old company scheme, so on death a partial benefit may, or may not, be payable. If there is no surviving spouse then goodbye deferred pay.

The same situation can occur if death happens soon after retirement, which was a frequent occurrence in the ‘good ole days’. So goodbye deferred pay.

The Government keeps interfering with the basic components of defined benefit schemes, increasing the liabilities. They also have the audacity of improving medical facilities, which has the effect of increasing longevity, thus further increasing pension fund liabilities. In too many cases the result has been a collapse in the benefits payable, financial trouble for the company resulting in loss of jobs, and occasionally both. So goodbye a portion of deferred pay.

And goodbye to pay for the rest of the populace when a company cannot support that pension scheme, and needs support from public coffers. Bizarre isn’t it when the cost of support falls on people who had no possibility of benefiting form the scheme; and whose problems are, in the main, created by Government and not mismanagement.

Now a new Government comes along and changes the rules yet again by changing the rate of future increases, to reduce the future value of deferred pay. Goodbye a portion of deferred pay.

So the Court says you have pay, but there is no way in which it’s benefit can be determined prior to the death of the recipient. Isn’t this just a legalised form of gambling. The member has no true rights over this asset. At least with normal pay the member has the choice to spend it or save it, and pass it on to other members of the family.

If someone were to ‘steal’ your direct pay wouldn’t you feel aggrieved about it? Wouldn’t you start to believe that it may at least be immoral, and at worst illegal?

So why do we accept it? Because we believe “pensions are a good thing” - just like we throughout that the earth was flat and the Sun circled us.

The pension industry has too much at stake to argue against the present overly complex and costly regime, subject to the ego of successive Government Ministers.

Defined Benefit Schemes have, unfortunately, become dinosaurs - and should go the same way, as quickly as possible.å

www.bankofengland.co.uk/monetarypolicy/pdf/annex031210.pdf

The reasons for the differences in CPI and RPI. In the short term this is more as a result of the exclusion of housing costs (which are generally a much lower cost for a pensioner) so the exclusion is probably reasonable. But the real difference is the switch to a geo-mean average over an arithmetic mean. The consequence of which is that CPI will remain about 0.5% (the root of variation in CPI) behind RPI. Which has a significant difference over 20 years.

I have just recieved my P11D and will be taxed on my company car as it is a perk. I could not do my job with out the company car and I do in excess of 25000 company miles per year.

I do not have a problem being taxed in this way as it is a benifit in kind.

I feel that public servants should be taxed for the excessive contribution that we tax payers make to their inflation proof pensions.

Any government pension contribution over 10% should be taxed as a benifit in kind. We may then start to get a level playing field.

Firstly I don't think the man in the street has a clue about the difference between RPI and CPI.

It's not clear that RPI is the right measure in any case. In the absence of a specific measure to track "pensioner's prices" (PPI?); it doesn't feel like a disaster.

As we have over promised the benefits that we can afford to pay in retirement (private and public) isn't this a necessary step to reduce the burden of final salary schemes? It's also unlikely to be the last.

Given that there is unlikely to be a rationale debate about what we can actually afford, I'm assuming that we will see more of this in future.