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Steve Bee: Pensions are pay and should not be unwound

steve bee

Why is it that private companies feel they cannot afford defined benefit pension schemes for their employees but the Government has no trouble at all providing them for public servants?

Our Government is (directly or indirectly) the largest employer in the UK, with millions of public sector workers covered by generous DB pension promises. But such promises are largely unfunded.

Pensions are pay, and the money in pension schemes – funded or unfunded – is the deferred pay of the employees themselves, whether provided from employee or employer contributions. So I am horrified by the suggestion in the recent green paper on the future of DB pensions that the promises made by private companies could be watered down to make the schemes more affordable for employers if they hit hard times.

Taking away pension rights is akin to asking employees to pay back past salaries that are later judged to have been too high. Nobody would think that was sensible. Nor should anybody think it sensible to reduce the value of pension benefits earned in the past. Pensions are deferred pay. Deferred pay is pay.

The problem with our unfunded public sector pension liabilities in the UK is that, were they to be backed by a fund, it would be of the order of £1trn. That is a lot of money. Or at least I think it is. Those at the Government seem to lose no sleep over it. Indeed, it is something it rarely addresses when issuing its endless stream of green papers on private and state pension provision. I can only conclude that £1trn is a trivial amount in the overall scheme of things for the ship of state.

But if that is so, then I really cannot understand its reaction to the public fury raised by the Women Against State Pension Inequality campaign. This generation of women have been told it would cost £30bn to reinstate the pension rights they were denied by changes to the state pension age made in 1995 and 2011. The argument made by the Government is that £30bn is a lot of money.

But if that is such an unaffordable sum for it to magic up, then how on earth is it expecting to be able to come up with the £1trn required to pay out the promised pensions to public servants? Is this something we should all be terrified of?

Perhaps not. But it seems perverse that we are constantly bombarded with rules and regulations tying up our private pension system in ever more red tape and pushing our state pension age ever higher, yet trivial issues such as paying for advice directly from pension pots gets all the media coverage.

As we approach the third decade of the 21st century, the pension system in the UK is a mess. It is falling apart. How did we allow it to happen?

Steve Bee is director at Jargonfree Benefits

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Comments

There are 38 comments at the moment, we would love to hear your opinion too.

  1. Well said Steve. Accrued rights are sacrosanct and should not be touched. If they are it would amount to legalised theft of property.

  2. There has been no “public fury” raised by WASPI. The reaction of the public, if you read any online forums that aren’t controlled by WASPI (they ruthlessly purge criticism from their own Facebook pages), is mostly amused contempt. At both the idea that the discrimination against men should continue for any longer than it has already done, and the claims of WASPI that they were “unaware” of the 1995 Pensions Act.

    But leave that aside – I agree with Steve’s general point. And the question he raises is a very interesting one. For the answer, we must firstly remind ourselves that just because you have a liability of £1 trillion it does not mean we have to have £1 trillion on hand right now or we’re screwed. Since the liability is a pension, the creditor has no right to call it in early.

    The government’s assumption is that as long as people continue to line up in an orderly fashion to collect their part of the £1 trillion liability – as they reach retirement age and as their turn comes around – the money will somehow be found. At worst, the pips will have to be squeaked more and more, taxes will have to keep going up and up, but who cares – they’ve been doing that for centuries and the serfs haven’t revolted yet. If people keep lining up in an orderly fashion, they can keep turning the screw gradually, and the population won’t notice.

    What terrifies the government is the prospect of people losing confidence in the system, and deciding that they need to get their share *now*, because if they wait their turn it’ll all be gone. We’re seeing this already with people trying to make ill-advised transfers out of defined benefits schemes because they received a letter saying the scheme had a deficit of £[scary number].

    That is the problem with WASPI. They’re not waiting their turn. Ignore the nonsense about how they didn’t get a personally addressed letter saying their turn was at 65 (they didn’t get a letter saying it was 60 either) – they know perfectly well when their turn is and they know that as per the 1995 Pensions Act it’s not now. If the government caves in, and allows 1950s-born women to jump the queue and collect their pensions at 60, then the 1960s-born women will revolt, due to the flagrant unfairness of having to wait 6 years longer for your pension than someone born on December 31 1959. And the men will revolt at the flagrant unfairness that sex discrimination will continue. Everyone who understands human nature knows that a queue only works if everyone respects the queue. If people start jumping the queue without sanction, the polite people realise that they’ll never reach the front because the queue-jumpers are constantly sending them backwards, and the queue disintegrates.

    Suddenly that £1 trillion isn’t a sum of money that has to be extracted from the population over the course of a century, but a political crisis that has to be sorted now.

    So that is why WASPI will get the square root of sod all. That £1 trillion deficit is manageable so long as everyone waits their turn for their share of it. Or so the government thinks. That is debateable, but what is not debateable is that the government cannot afford to suddenly have everyone clamoring to be paid their share *now*, because then the £1 trillion morphs from a theoretical future problem that may never arise to a very real crisis that it has to deal with in the present.

    • THE ExDWP Minister Steve Webb recognized they had not allowed a fair transition. The DWP also stated that people should be given 15 years adequate notice of any proposed changes to the state pension. This did not happen for many women born in the 1950s and by the way quite a number of women received letters from the DWP stating they would receive their pension when they reached 60

    • It is a tad arrogant to infer that 50s women were told they would be retiring aged 65 I for one will be working an extra 6 years and at no point was I ever told, written to or informed in any way I would be working longer If you consider we have worked since the age of 15/16 I have paid to date 45 years NI and tax By the time I retire at my Now predicted age of 66 (DWP information) I will have paid 51 years of contributions Now let’s, for example, take our MPs, many will have attended university and not started contributing until they were possibly 20, so there are 5 years less contributions already. Now I maybe wrong here but do they not retire ag d 60? Their basic annual salary is £74k, then add expenses, second homes and subsidised meals, that adds up to a tidy sum, oh I forgot their recent pay rise of just over £1000, many people (myself included) have not had a pay rise in almost 5 years and some even longer. Now maybe you can see and possibly understand why 50s women are a tad annoyed Now let’s take the House of Lords They receive £300 per day they attend (or sign in and leave) they also receive a good pension so again I’m sure you can possibly understand why we feel a tad aggrieved Yes we are fighting for what is rightly ours, no matter what spin is put on it, we payed in, they must pay out

    • Not all 1950’s born women are “Waspi”! There is a large cohort of us who look at the badly accelerated 2011 act as being the unfair unreasonable act. That would also include men.

    • You are clearly unaware of the exact ask and circumstances of the vast majority of women born in the 1950s. Would you like to be in the position whereby you had 3 years notice that you would be forced to wait a further 6 years for your pension after having been made redundant? Would you like to be in the position where you try procure a job equal to that from which you were made redundant from at the age of 57+ and after never having failed an interview in your younger years find that you are now unable to get an interview?! Would you like to be in the position where you have to consider selling your home because your savings have almost gone in the 4 years you have spent trying to gain employment at this age?!
      No probably not. Therefore I would suggest you get your facts right before speaking badly about a group of women who are simply trying to survive after having been pushed aside and left to rot by a government who waste money on members tumble dryers and time on whether to wear wigs or not!

    • It is not ‘nonsense’ that 1950s born women were not personally informed about the first rise in SPA. This is the whole raisin d’etre of our campaign – not the fact that our SPA was increased but that we were not informed, and therefore we were unable to plan properly for our later years. If I had received a letter in 1995 I would have happily carried on working instead of taking early retirement and moving up north to look after my mother, wrongly thinking I’d get my pension at 60. The govt saved the price of a stamp; I lost a minimum of £80,000 in potential earnings and am now living a hand-to-mouth existence. In 1995 I was at the height of my career. I’ve always been interested in politics and current affairs, read the broadsheets, listened to the Today programme etc etc. Never did I read or hear anything about a rise in SPA. If a private company failed to personally inform their clients of a major change in an agreed deal, there would rightly be an outcry and compensation would be payable. This being rip-off Britain, we are the only European country (apart from Greece, which is a fiscal basket-case) that has not put in place fair transitional arrangements for women in our position. Successive governments have failed to grasp the nettle of the state pension and its inadequacies and this knee-jerk reaction has been ill thought out and extremely unfair on a small section of the population that was never treated fairly in the first place: unequal pay, low career expectations, giving up work to look after children, glass ceiling, etc etc.

      • “we are the only European country (apart from Greece, which is a fiscal basket-case) that has not put in place fair transitional arrangements for women in our position”

        Leaving aside the subjectivity of what a “fair transitional arrangement” actually is, is there any evidence to back up this statement?

    • Sasha you need to get your facts right ! WASPI is damn well right the women born isince 1953 have over six years to wait for to collect their pension – inborn 1955 I collect my state Pension in September 2021 – not in 2015 as stated in my contract of pay in 1971 when I began my employment and paid into a system run by our government that promised me a pension at 60 . That contract as now failed and as such legal exactions is being taken ! And on your comment of people born in the sixties waiting 6years – they will wait no longer than 12 months to collect their pension because this is how the transitional table is running – it’s the women at the beginning of the table that takes the biggest hike to bring everyone into line equally with the men

      • What “legal exactions” are being taken, other than the DIY variety?

        Women born from 1961-68 have had 7 years added to their state pension, which has been raised 3 times rather than once or twice for women born upto 1959. Unlike women born before April 1960, no-one born after that date was sent a personalised letter informing them of the changes. Why is it all about 1950s women?!?

        Most people don’t begrudge women affected by state pension rises being annoyed, particularly those caught directly in the 2011 increases between 1953-54. However, the nonsensical circular logic used to justify demands, and the gusto with which they seemingly want to dump on all other cohorts, is repulsive to many.

        There are plenty of reasonable 1950s women who just want to get a fairer deal, but they tend to get drowned out by the racket from the wannabe suffragette mob.

    • Carole Archibald 5th March 2017 at 3:15 pm

      So it’s quite all right to be given only two years notice that your pension age has been increased by 8 years?

  3. Wholeheartedly agree with this. It never fails to surprise me how little the government are challenged (by the industry, by media, by regulators and other scrutineers) on the cost of unfunded public sector pensions.

  4. No one should get a FS pension. Pay everyone what they are worth and let them make their own arrangements; MPs, refuse collectors, teachers, that would concentrate their minds on ensuring good pension provision for all. Is the Prime Minister paid £150000? Probably more like £250000 pa with all the extras. We’re building up a ridiculous and unpayable debt my grandchildren will not be able to pay. Why? Because MPs only think in 5 year terms.

  5. IF you are in fact correct that ‘pensions are pay’ that is precisely what is wrong.

    I grew up regarding pensions as a privilege – a perk. Firms (and I ran one with 40 employees) had a decent wage – that came first. Pensions, luncheon vouchers, company cars etc were all the add-ons.

    I have always maintained that a firms responsibility is to pay a competitive salary and provide decent working conditions. Anything else is up to the individual. There is far too much nannying and far too little self- help and little responsibility taken by individuals. And the idea that pension is salary just points to firms who don’t want to pay decent wages.

    • Pensions are treated as deferred pay under (from memory) article 120 of the Treaty of Rome.

      Cutting pension promises can be seen as Constructive Dismissal. ( Hello Steve)

      • So why defer pay in the first place. You can’t pay the mortgage on deferred pay. I say again it is just a way for employers to skimp on salaries with a vague promise for the future. Few now have a job for life and early leavers generally pick up peanuts.

        The industry has been very adept at selling the advantage to employers and often conning the staff into thinking they are getting a good deal. Some undoubtedly are, but there are indisputable benefits for the firm and many an FD has had (let us say) a juicy incentive for setting up the scheme with a particular provider or adviser.

      • You have to leave your employment in order to pursue such a claim and only about 5% of all such claims succeed.

    • Steve Waterhouse 4th March 2017 at 8:18 am

      Harry, I love your good old fashioned values, you talk a lot of sense on these forums and make great reading, you get my vote for Prime Minister

  6. Steve I could not agree anymore. Spot on.

  7. Pensions are NOT deferred pay – what nonsense. Harry makes the point above that pensions are a privilege. By all means promote saving in a pension – by both employer and employee – but don’t then promise a defined income that somebody else has to fund …

  8. I can assure you I knew nothing of the 1995 until August 2009 , 4years 5 months before I turned 60
    , and it was word of mouth from someone I knew so I called DWP in turn the sent out a forecast informing me my retirement date was November 2017 aged 63years 10 months, then in December 2014 I received another letter telling me that my new retirement date was May 2019 aged 65 years 4 months. And you think this is sufficient notice to make alternative arrangements!!!’

  9. Sascha K

    There are many of us born in the mid fifties (me ’54) who do not support the full Waspi Ltd ‘ask’ but do fiercely object to having a state pension age 6 years later than those born 4 years 4 months earlier and (for those born in ’53) object to waiting until 2019 to reach SPA when women born earlier the same year reach SPA in 2015. I object even more on behalf of those who have paid into SERPS/SP2 all their working lives, were not ‘contracted out’ and therefore do not have private/public sector pensions to cushion the blow.

    When I read about the changes to state pension ages in 2011 (This was the first I had heard of the 1995 Act.) I wrote to the Prime Minister explaining why the age changes should have been phased in over half as fast a timescale.

    The Government will not ‘cave in’ as you put it and let all 50s born women have some transitional amount of money backdated or collected from 60 (this would be very unfair if those born in 1959 were treated much more favourably than those born in 1960) but I sincerely hope that they will agree to a fairer timetable.

    I don’t agree that we should all continue to bankroll the massive deficit for those in Government backed pensions. Is it fair that I should have 6 years added to my SPA with 2 years (written) notice (or 3 because I read about it in the press in 2011) when I have 44 years contributions most of which include SERPS/SP2?

    I am not in the dire straits of many of the women who Waspi Voice (not Waspi Ltd) are seeking to help with their SOS (Save our Sisters) fundraising campaign. I don’t know how to post links or send tweets but if you look on the Waspi Voice Facebook page or on Tim Loughton or Ian Blackford’s Facebook or twitter pages you should find it.

  10. Steve Bee – Very many thanks for continuing to bring attention to this major injustice.

  11. Govt will do what Govt wants to do, always has and always will. E.g Govt finally acts against unfair pension penalties from providers and then introduces the LISA which is full of penalties? WE, as taxpayers, cannot afford 600 MPs’, Govt DB Schemes, The House of Lords, Quangos, Prisoner compensation claims, the NHS, settling WASPI claims, Charitable Donations to overseas dictator regimes, Wars, Independent Schools classed as Charities, The Triple Lock, To pay index linked pensions to people who have left this country, Brussels, HS2 etc etc. I am not saying that I am in favour of or against any of these but what is a stark fact is that we cannot afford all of them and Govt will take no notice of the general public in this regard.

  12. Women born in 1953 reach State Pension Age in 5 different years
    2015 – 2019

    Date of Birth Date SPA reached State Pension Age

    5 January 1953 6 September 2015 62 years 8 months 1 day
    6 January 1953 6 November 2015 62 years 10 months
    6 February1953 6 January 2016 62 years 11 months
    6 March 1953 6 March 2016 63 years
    6 April 1953 6 July 2016 63 years 3 months
    6 May 1953 6 November 2016 63 years 6 months
    6 June 1953 6 March 2017 63 years 9 months
    6 July 1953 6 July 2017 64 years
    6 August 1953 6 November 2017 64 years 3 months
    6 Sept 1953 6 March 2018 64 years 6 months
    6 October 1953 6 July 2018 64 years 9 months
    6 Nov 1953 6 November 2018 65 years
    6 Dec 1953 6 March 2019 65 years 3 months

    Date of Birth State Pension Age
    5 May 1950 60 years and one day
    6 September 1954 66 years

    State Pension Age for women had been 60 since 1940. The age now increases by 6 years over a period of 4 years 4 months creating massive inequalities between women born a short time apart.

  13. The spacing in my table above vanished when I posted it. The main point is the SPA moves too fast!!

    DOB 5 May 1950 – SPA 60 years and one day
    DOB 6 September 1954 – SPA 66 years

  14. So post Brexit, what happens if Article 120 no longer applies.

  15. I have fun (…and obviously mischievously inaccurately) informing ladies that, to be equitable, state pensions are moving to a ‘life expectancy’ basis i.e. given that women, on average, are expected to live three years longer than men, then their state pension age are going to be put back even further so it is later than for men!

    Light the blue touch paper…

    • Indeed Gavin, this is what gets me about the whole WASPI thing, yes maybe the rises are a bit fast, but I find a few things utterly beyond belief.
      1.) That people didn’t know this was happening. it was VERY well publicised, hell I knew it and I was a flipping mechanic at the time!
      2.) That it’s “unfair”? Please explain to me WASPI, how on earth women (who on average live longer and work for less years) should keep getting a state pension 5 -6 years earlier than men? I guarantee most “WASPI” people are raging feminists who would scream and shout if men were getting some “advantage”, but when the boots on the other foot and some of their advantage is going to be taken away, they scream like blue murder. So WASPI people, please explain to me, how you getting the same state pension age as men and still being likely to on average get your pension for 3 years longer than men, despite on average having “paid in” less is unfair?
      3.) We all know, or should know that it’s blindingly obvious that both the state pension and public sector DB pensions are utterly unsustainable, simply because people are living so much longer. So again WASPI ladies, please explain to me how you think it’s fair, that the government should wrack up yet more debt for your children and grandchildren to pay, simply because you voted for governments that made unsustainable promises to you? Are you honestly trying to tell everyone that you think you should work and pay NI at relatively low rates for circa 30 years, then receive a significant state pension for an average of 30 years, simply because someone made a promise to you and despite the fact that the world has changed massively?

      Before you answer, consider this point. When the state pension was introduced, the average life expectancy for men was 67 and for women it was 70. So men would get a state pension for 2 years, whilst women would get it for 10 years. Fast forward to now and average life expetancies are into the mid 80’s for men and later 80’s for Women, so men will on average receive the pension for 10 times longer than expected and women (who already got it for 5 times longer than men) with an SPA of 60 would get it for 3 times longer and nigh on 30 years?

      The numbers simply don’t add up, but the fact that you want to dump that cost onto your children and grandchildren speaks volumes for your character.

  16. I think the government understand this only to well, lets face facts

    The £1 trillion you refer to is a huge ponzi scheme the £30 billion is not ! it was……but now some-one, somewhere, needs to stump up the cash to put back in and that is like betting on a horse that has already lost !

  17. @Rob 3 March
    Rob, I take it you are not actually saying that pensions are “NOT deferred pay”. I guess that you just don’t think they should be. However, if they are (and I suspect Steve Bee is completely correct, going by his excellent reputation) then your assertion is just wishful thinking and you can’t change the fact that they are, however loud you shout it.
    If you want to live in a nation with a government, and companies, that are entitled to move the goalposts and break promises whenever it feels like it you might change your mind if you became a victim of it. Try putting a fiver on a horse and then being told by the bookies that they are to stretched to pay you. I thought that was called anarchy.

    • Patrick, not sure that your betting analogy is valid. My point is that people should absolutely save for a pension but the ‘income’ from that pension should be based on the value of the pension pot, not an arbitrary salary earned during the years that the person was adding value to the economy. Once someone retires and ceases to be productive, the value that they add is minimal. So why should a brain surgeon have a bigger pension than a street cleaner if it’s based on the salary that they earned, rather than the size of their pension pot (which, in any case, would be bigger for the brain surgeon). The concept of ‘deferred pay’ is utter drivel, promoted by those who try to defend the indefensible – having someone else helping to fund their pension payments in retirement…

  18. One other thing I’m curious about, is how having to work longer suddenly screws up people’s planning? Working longer, means earning more for longer, which would by definition HELP your planning, so basically what your moaning about is that it’s unfair that sexual eqaulity in state pension has finally happened. I didn’t see any complaints from women about how unfair it was to men, when women were given the same state pension rights as men despite living longer and paying in less.

    • Duncan, i am very much in agreement with the majority of what you say. I think we differ on two points;
      1) If we take the claim that the notification of change was poorly handled, as admitted by the Government and discovered by freedom of information requests, then actually their demands seem more reasonable. Indeed, the main gripe appears not to be the equalisation of men and woman, rather it is the relatively small timescale at which the timescales have been moved.
      2) Your point with regards to working longer is better. Consider individuals that may have already reduced their working hours and supplementing their reduced income from a small private pension, phased retirement as the government encourages us. To then find out that your state pension age has increased by a couple of years at the very least must be completely disheartening. Women of almost pensionable age that have already reduced their hours and will find it difficult to reverse that. I’d also wager that most employers would rather take on someone younger knowing that the older employee is just going to retire in a couple of years and you’ll have to start the process again.

      Against WASPI i will say this however, their claim that the goal posts have been moved removing sufficient time to plan for their retirement seems to be a bit of a contradiction to me. Clearly, if they had done any planning at all then they would have known that their state pension age had moved anyway.

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