Nigel Stanley
I have a piece on Left Foot Forward on today’s IFS report on public sector pensions, predictably misrepresented by much of the media.
Pensions & Investment — Page 2
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Nigel Stanley
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Nigel Stanley
Pensions Minister Steve Webb has just announced the new detailed timetable for pensions auto-enrolment. This provides the small print for the delay announced in the Autumn Statement following lobbying by the small business lobby and the Beecroft review.
My strong impression is that this delay was forced on the DWP, and could even be seen as a victory over a strong push for the permanent exemption of small firms from pensions auto-enrolment. But it is still bad news.
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Helen Nadin
In October the European Insurance and Occupational Pensions Authority (EIOPA) published the consultation ‘Response to Call for Advice on the review of Directive 2003/41/EC: second consultation’. The consultation covered EIOPA’s draft advice to the European Commission on the review of the Institutions for Occupational Retirement Provision (IORP – Directive 2003/41/EC). The Directive applies to occupational pension schemes, which unlike insurance-based pension schemes do so on a not-for-profit basis.
EIOPA will give their final advice to the Commission in mid-February on the reform of the IORP Directive, with a view to publishing a draft Directive later in the year. While this may sound very technical, the outcome of the consultation could be pivotal – and extremely adverse –for UK defined benefit (DB) pension schemes and the wider European Union economy. It is an issue that significantly concerns the TUC.
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Nigel Stanley
In my earlier post on public sector pensions I asserted that indexing by earnings produces better results than indexing by prices. In the comments Luke Snell queried whether this was still true. He asked whether “this assertion is valid given trends over the past 10-15 years?”.
Good question I thought. So I’ve knocked up a very quick spreadsheet that worked out whether you would be better off with a pension (or anything else for that matter) uprated by earnings, RPI inflation or CPI inflation.
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Nigel Stanley
Business organisations are arguing that the introduction of pensions auto-enrolment later this year is an argument for holding down the minimum wage. At first sight they might have a point.
Pensions auto-enrolment for the first time will force employers to contribute to the pensions of their staff. This is absolutely right, but unlike some employer complaints it is undoubtedly a burden on business as pensions contributions have a price tag. No doubt for staff higher up the income scale employers will attempt to recoup some of the costs from their wages, but as you cannot cut the minimum wage this is harder for those who on the legal minimum (though there may be some pressure on hours).
But closer examination of the figures suggests that the cost of auto-enrolment, particularly for the next few years, will be tiny for minimum wage workers.
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Janet Williamson
David Cameron has grabbed the headlines by announcing that his Government is going to take action on executive pay. However, despite denouncing ‘market failure’ in the setting of executive pay, the only clear policy commitments he made were to give shareholders a binding vote on executive pay and more transparency.
Why does this matter? Because if more disclosure and more power for shareholders is all that we are going to get from this Government on executive pay, it simply won’t work.
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Nigel Stanley
It may be a quiet news day today, but that does not explain Robert Peston’s curious report, first on the Today programme and now on his blog, on public sector pensions. This claims – based on the work of John Ralfe:
The increase in the normal retirement age from 60 to 67 for public sector workers has not led to significant savings in the cost of public-sector pensions.
The story is odd in a number of ways. We can wonder why the BBC’s Business Editor is reporting on a non-business story in which he has not been much involved before – unlike say John Moylan, their industry correspondent who has covered the story in depth. It is also strange that the BBC is covering research that has not – as far as we can tell – been published. It is certainly not on Mr Ralfe’s website.
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Nigel Stanley
Once upon a time, long, long ago the vast majority of workplace pensions were final-salary defined benefit schemes run by trustees. Everyone could agree that periods of short membership of such schemes were an administrative headache all round. The law therefore allowed schemes to give employees their contributions back if they left before two years service, and to give the employer theirs back too.
Today workplace pension provision is very different. More people are paying into defined contribution workplace pensions than defined benefit pensions. Some defined contribution schemes are run as occupational schemes with trust based governance, but most are contract-based. These are provided by a commercial pensions company and cannot make short service refunds as this provision is only available to trust-based schemes.
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Con Keating
Many commentators stress the notion that “fairness” is profoundly subjective.
I will offer the following simple way of measuring fairness in pension saving. The proportion of our national output that we pay in contribution savings today should equal the proportion of national output that we receive as pensions in retirement.
This seems eminently reasonable for any scheme member whether they work in the public or private sector. If you don’t get back what you contribute in this way, then the incentive is to consume today, rather than to provide for your retirement. If I get back what I have put in real and relative terms – if my share of the national cake is unchanged – that is fair.
This gives us a way to assess the recent change in pensions indexation from the retail price index (RPI) to the consumer price index (CPI) for public sector (and many private sector) pensions.
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Nigel Stanley
The Office for Budget Responsibility has increased its forecast for the long run difference between the CPI and RPI inflation measures to 1.4 per cent. Previously they thought it would be 1.1 per cent.
One of the government’s attacks on public sector pensions is to change the way that pensions in payment are linked to prices. In the past they have gone up in line with the retail price inflation (RPI) inflation measure. In future they are linking pensions to the consumer price inflation (CPI) measure.
