Royal Mail Union Threatens Strike to Protect Pension Plan

[fishtank]

The business says it would cost an extra £400 million to keep the pension open.
Does anyone really know this is a fact?

Are we really living longer?

Average life expectancy is increasing but that's really just the average from birth, this is mostly down to a massive reduction in infant mortality rates, an improvement in cancer recovery rates and a general improvement in medical care but can a 65 year old expect to live much longer than he/she did 50 years ago?

The average improvement in life expectancy at 65 for a man is roughly 3 years.
If you're from a working class background it reduces to around 2 years.
If you have a manual/physical job it's around 1.7 years.
If you work until 67 (the new state retirement age) it's not much more than a year.

This reduction in our pay, which is exactly what it iwould be is almost entirely the result of over reliance on the gilt market which has provided very poor returns for the pension fund or fund mismanagement and a change to accountancy practice which means pension fund liabilities now have to be fully reported in the annual accounts which creates a level of volatility that can badly affect share price, something financial directors can't be having.

[RobertT]

All the literature I’ve seen says it’s £500 Million extra to keep the scheme open, but whatever the figure I suppose we do only really have RM’s word for it. Although I assume the CWU negotiators will see the detailed figures during their talks?

The average life expectancy of a male born today is 79, while back in the 1960’s is was only 68. And on average a man who is currently 65 can now expect to live to 84. So it’s quite clear that we are living longer and there will be a cost to that.

Fifty years ago men weren’t expected to draw their state pension for more than 3 years on average, now it’s 19 years. Hence the increase in state pension age, with the idea being that not only are you drawing your pension for less time, but you’re also working and paying taxes for longer. If you don’t want to do that, then that’s ultimately down to you.

That increased life expectancy is the main reason pension schemes are in trouble and have been for years.
The gilt market issue is a shorter term problem. While the accounting changes put more pressure on companies to balance their books, resulting in poor financial outlooks and market worries. Both these issues exacerbate the overall life expectancy problem even more.

Let’s say I run a hypothetical company employing 100,000 people and they all have DB pensions worth £10k per year. If life expectancy goes up by 1 year, that increases the liabilities for that pension by £1 Billion. To a certain extent you could say in the short term that it’s just ‘virtual money’ if you like because it doesn’t have to be found immediately. But it will have to come from somewhere sometime and so just continuing with a with a pension scheme that is constantly putting more and more strain on that company, due to things they have no control over, is unsustainable.

[cloherty1976]

All the literature I’ve seen says it’s £500 Million extra to keep the scheme open, but whatever the figure I suppose we do only really have RM’s word for it. Although I assume the CWU negotiators will see the detailed figures during their talks?

The average life expectancy of a male born today is 79, while back in the 1960’s is was only 68. And on average a man who is currently 65 can now expect to live to 84. So it’s quite clear that we are living longer and there will be a cost to that.

Fifty years ago men weren’t expected to draw their state pension for more than 3 years on average, now it’s 19 years. Hence the increase in state pension age, with the idea being that not only are you drawing your pension for less time, but you’re also working and paying taxes for longer. If you don’t want to do that, then that’s ultimately down to you.

That increased life expectancy is the main reason pension schemes are in trouble and have been for years.
The gilt market issue is a shorter term problem. While the accounting changes put more pressure on companies to balance their books, resulting in poor financial outlooks and market worries. Both these issues exacerbate the overall life expectancy problem even more.

Let’s say I run a hypothetical company employing 100,000 people and they all have DB pensions worth £10k per year. If life expectancy goes up by 1 year, that increases the liabilities for that pension by £1 Billion. To a certain extent you could say in the short term that it’s just ‘virtual money’ if you like because it doesn’t have to be found immediately. But it will have to come from somewhere sometime and so just continuing with a with a pension scheme that is constantly putting more and more strain on that company, due to things they have no control over, is unsustainable.

The business says it would cost an extra £400 million to keep the pension open.
Does anyone really know this is a fact?

Are we really living longer?

Average life expectancy is increasing but that's really just the average from birth, this is mostly down to a massive reduction in infant mortality rates, an improvement in cancer recovery rates and a general improvement in medical care but can a 65 year old expect to live much longer than he/she did 50 years ago?

The average improvement in life expectancy at 65 for a man is roughly 3 years.
If you're from a working class background it reduces to around 2 years.
If you have a manual/physical job it's around 1.7 years.
If you work until 67 (the new state retirement age) it's not much more than a year.

This reduction in our pay, which is exactly what it iwould be is almost entirely the result of over reliance on the gilt market which has provided very poor returns for the pension fund or fund mismanagement and a change to accountancy practice which means pension fund liabilities now have to be fully reported in the annual accounts which creates a level of volatility that can badly affect share price, something financial directors can't be having.

It's amazing how wide apart these quotes are!

[TrueBlueTerrier]

Amazing ?, that in a debate 2 people have different positions.

[cloherty1976]

Amazing ?, that in a debate 2 people have different positions.

A billion pounds worth.we don't talk in millions anymore

[jetblack]

£100million=£0.1billion.

Let's call it £450million. Per year extra required.

That's still 1700 times less than they have put into the banks to keep them afloat.

BTW - if anyone's interested, following up on my earlier post where I wondered about the benefit to the commercial banks of a lower interest rate (that is screwing us/the pension scheme over - as well as pensioners relying on the interest on savings) - turns out that the net interest margin for the banks was boosted for the period of maybe 5 years (which, given a percent or 2 boost, would amount to a very large subsidy courtesy of the central bank(the BofE). [The net interest margin is, roughly, the difference between what they pay out in interest to what they take in in interest - doesn't really matter what the base rate is so long as the margin is sufficiently large(from the banks point of view)]
The benefit was only temporary, but real nonetheless - and it seems we are paying the price.

Some good points made by Fishtank above. I've mentioned myself the difference in life expectancy before between social classes, so I'm not going to go over it again.

Suffice to say, the increased life expectancy issue is not quite as clear cut as it might first appear.


The interest rates issue definitely isn't.

Why did the Govt. need to borrow cheap money (from us) ?

Why, to bail out the banks of course

What is going on here ?

Edit. We are being asked to pay the price for a credit fuelled binge. Us, that have been saving for the future via our pension scheme.
We shouldn't be saving you see - not as far as the Govt./corporate powers that be see it- we should not only be spending every penny we have to keep the economy afloat - we should be taking out debt to spend what we haven't got to keep the economy afloat also (the banks that is).

[Tman]

They borrowed money to keep the banks afloat in 2008. What should they have done, let banks collapse through insolvency?
It's hard to believe that anyone can't see the disaster and social upheaval which would have occurred had there been a run on the banks, and the people at the bottom of the heap (as always) would have suffered the most in that scenario.
Two meals away from food riots and anarchy, as they always say...

[RobertT]

Some good points made by Fishtank above. I've mentioned myself the difference in life expectancy before between social classes, so I'm not going to go over it again.

The difference in life expectancy between classes and types of work is a valid point, but these things are also down to lots of other factors too like lifestyle, diet, family health history, etc. So to just say the working class or manual workers will die early and there’s nothing we can do about it is rather short sighted.

Suffice to say, the increased life expectancy issue is not quite as clear cut as it might first appear.

So you think an increased life expectancy of 16 years for the average 65 year old isn’t a major factor? The money needed to pay for those pensions, both from the state and personal provision, isn’t going to appear out of thin air.
Market conditions have made the issue worse, but the underlying problem is that we are all living longer.

[jetblack]

So you think an increased life expectancy of 16 years for the average 65 year old isn’t a major factor?

I think there's a lot of smoke and mirrors going on with regards life expectancy.
As I say, I have mentioned it all before in previous posts so if anyone is interested they could easily find them - and in addition FT made some good points above.

But I think that this passage by Mark Weisbrot in The Guardian kind of sums up what I have been trying to say about pensions/life expectancy/economic growth. He's talking about France, but the effect is exactly the same here in the UK :-

“France's retirement age was last set in 1983. Since then, GDP per person has increased by 45%. The increase in life expectancy is very small by comparison. The number of workers per retiree declined from 4.4 in 1983 to 3.5 in 2010, but the growth of national income was vastly more than enough to compensate for the demographic changes, including the change in life expectancy.”

The life expectancy thing is easy for people to get their heads around - easy enough to give it credibility amongst the people its supposed to convince.
But it fails as an argument, for me at least, if its meant to be the reason that we should all accept being poorer in old age.

[baldrick]

If George Osborne hadn't taken the £29bn in the RM pension fund, and RM hadn't taken a contribution holiday when the fund was in surplus, there would be enough to fund staff pensions. They can't now do a Sir Phillip Green and wash their hands of any responsibility. pensions are deferred wages, if they were part of the employment contract they should be honoured. It's the same as RM saying to staff they want a lump of their past wages back.

[RobertT]

So you think an increased life expectancy of 16 years for the average 65 year old isn’t a major factor?

I think there's a lot of smoke and mirrors going on with regards life expectancy.
As I say, I have mentioned it all before in previous posts so if anyone is interested they could easily find them - and in addition FT made some good points above.

But I think that this passage by Mark Weisbrot in The Guardian kind of sums up what I have been trying to say about pensions/life expectancy/economic growth. He's talking about France, but the effect is exactly the same here in the UK :-

“France's retirement age was last set in 1983. Since then, GDP per person has increased by 45%. The increase in life expectancy is very small by comparison. The number of workers per retiree declined from 4.4 in 1983 to 3.5 in 2010, but the growth of national income was vastly more than enough to compensate for the demographic changes, including the change in life expectancy.”

The life expectancy thing is easy for people to get their heads around - easy enough to give it credibility amongst the people its supposed to convince.
But it fails as an argument, for me at least, if its meant to be the reason that we should all accept being poorer in old age.

So you’re using figures relating to another country and assuming they’ll be the same in the UK? I’m sorry but that makes your argument less credible straight away.

Each country will have its own national income, GDP per person figures, its own ‘old age support ratio’ and its own state pension age and amount, etc, etc.

So what are the figures relating to the UK?

[RobertT]

If George Osborne hadn't taken the £29bn in the RM pension fund, and RM hadn't taken a contribution holiday when the fund was in surplus, there would be enough to fund staff pensions. They can't now do a Sir Phillip Green and wash their hands of any responsibility. pensions are deferred wages, if they were part of the employment contract they should be honoured. It's the same as RM saying to staff they want a lump of their past wages back.

There was a time when pensions weren’t allowed to have a surplus, the problem really was that RM took a longer holiday than they should have done.

George Osbourne and the taxpayer took on £29Billion of RM pension fund assets plus another £10Billion worth of unfunded liabilities. If that hadn’t happened the RMPP would have closed sooner.

[jetblack]

So you’re using figures relating to another country and assuming they’ll be the same in the UK? .............
So what are the figures relating to the UK?

UK GDP per capita 1983= $8650
UK GDP per capita 2010=$38,363

By my calc.s thats a 44.4% increase in wealth produced per person - as compared to 45% in France.

Source = The World Bank

Re. burden on working pop. of pensions UK vs. France. I haven't looked into that, but I'd guess that the burden, in recent history at least, will have been greater for the French. Feel free to prove me wrong on that, but their pension age/state pensions IIRC have been way more generous than ours. And they have a greater life expectancy.
Which only goes to prove the point more I'd say.

Are you suggesting that we can't afford it Robert ? As a nation ?

[RobertT]

Considering the old age support ratio, i.e the number of workers per retiree is already 3.3 and is expected to reduce to 2.9 by 2050, then it's obviously going to be harder for the nation to afford it. My source: http://www.ft.com/cms/s/2/fda8675a-e82d ... z4J1CYn2xp" onclick="window.open(this.href);return false;

It's not just the cost of pensions but healthcare aswell. The NHS are going to find their budgets squeezed even more than now due to treating people in their 80's and 90's and beyond who perhaps wouldn't have even reached that age in the past. Something has got to give somewhere along the line.

Like you I'm just a postmen - so what do I know. But it seems to me that we can only expect the age at which UK nationals retire to slowly increase over the coming decades, as it doing already. And I don't think you can blame that on relatively short term volatility on the financial markets.

[jetblack]

..the number of workers per retiree is already 3.3 and is expected to reduce to 2.9 by 2050, then it's obviously going to be harder for the nation to afford it.

Not necessarily, no. In fact, far from it. It all depends on how much wealth those 2.9 people are producing in 2050. My contention is that they will be producing more than enough to fund a decent retirement for the elderly population at that time. In fact, they will be producing more than did the 3.3 people that are today carrying the burden. A lot more.
And, to be fair, this isn't just my contention, it is backed up by the facts I've quoted above with regards GDP per capita over time.