BBC Radio 4 "Money Box" - D.B. Pensions. 14/04/18.

[Celgar]

The following link will take you to yesterday's edition of the "Money Box" programme on BBC Radio 4. Scroll down and click the third chapter which features a discussion on defined benefit (DB) pensions. Apparently there is a upsurge in responsible companies offering defined benefit pension schemes to their employees. These companies are starting up these schemes because they care for their staff and believe it will improve retention. Food for thought RM......

http://www.bbc.co.uk/programmes/b09z06z7" onclick="window.open(this.href);return false;

[BELIAL]

RM do not want retention. They fail to recognise the cost savings achieved by experience and detailed local knowledge, it is difficult to quantify ; but it will cost them dearly in terms of pure profit and quality.
The reign of terror will continue and the holy grail of attrition will accelerate.

[Driver74]

Not sure Royal Mail has a problem with retention I don’t think there is a company with anywhere near as many long serving staff as we have there are thousands that’s done 20,30 and 40 years service probably why they have downgraded the long service awards

[Navalron]

The reason so many have long service is because it was a good job for years until the way forward or probably around96/97. Now that the pensions gone a lot will just jack. DO know this and that's why they have downgraded exit ever payments. They want high staff turnover so that they can pay the minimum money for new starters. He'll they want new staff to be on minimum wage for 3/4 years before coming up to current pay. They will go for all the suit they wanted like sick pay, walk ownership blah blah because it's all about the money men in London markets now. Bunch of w.....s.

[Aquarius]

There is no food for thought regarding DB pensions - they could not wait to get rid of the DB pension.

Also the amount of staff turnover is only going to increase from now on(esp in D.O's) - the days of 20 to 50 year service will disappear from here on in.

RM is turning into Amazon in all but name - speed/targets/efficiency/profit is ALL they care about - to hell with us.

[Celgar]

I linked the 'Money Box' article more to point out it is still feasible for companies to start defined benefit rather than defined contribution pension schemes. Defined benefit schemes are able to give a forecast on pension returns and some kind of guarantees which people prefer. The government realise this hence their apparent lack of interest in the plan to give a CDC scheme to us which relieves RM of responsibility for the outcome.
I realise that RM and other companies took years of 'pension holiday' which resulted in the wave of current pension scheme failures and changes. I realise that RM is not that bothered about retaining staff and is more interested in weakening working practices & conditions. I wonder if the CWU/RM looked into maybe increasing the percentage posties pay into the DB scheme with a view to keeping it active ? Or asking RM to pay in some of the money they didn't pay in during their 'pension holiday' ?

[Aquarius]

I linked the 'Money Box' article more to point out it is still feasible for companies to start defined benefit rather than defined contribution pension schemes. Defined benefit schemes are able to give a forecast on pension returns and some kind of guarantees which people prefer. The government realise this hence their apparent lack of interest in the plan to give a CDC scheme to us which relieves RM of responsibility for the outcome.
I realise that RM and other companies took years of 'pension holiday' which resulted in the wave of current pension scheme failures and changes. I realise that RM is not that bothered about retaining staff and is more interested in weakening working practices & conditions. I wonder if the CWU/RM looked into maybe increasing the percentage posties pay into the DB scheme with a view to keeping it active ? Or asking RM to pay in some of the money they didn't pay in during their 'pension holiday' ?

I have wondered this as well - is/was there a reason why employee contributions were fixed at 6% - i would have been happy to have paid an extra few %
I am guessing tax/admin reasons/excuses.

In fact with this Cash balance/CDC why can i not pay in more than 6% if i choose too ?

[BELIAL]

I linked the 'Money Box' article more to point out it is still feasible for companies to start defined benefit rather than defined contribution pension schemes. Defined benefit schemes are able to give a forecast on pension returns and some kind of guarantees which people prefer. The government realise this hence their apparent lack of interest in the plan to give a CDC scheme to us which relieves RM of responsibility for the outcome.
I realise that RM and other companies took years of 'pension holiday' which resulted in the wave of current pension scheme failures and changes. I realise that RM is not that bothered about retaining staff and is more interested in weakening working practices & conditions. I wonder if the CWU/RM looked into maybe increasing the percentage posties pay into the DB scheme with a view to keeping it active ? Or asking RM to pay in some of the money they didn't pay in during their 'pension holiday' ?

I have wondered this as well - is/was there a reason why employee contributions were fixed at 6% - i would have been happy to have paid an extra few %
I am guessing tax/admin reasons/excuses.

In fact with this Cash balance/CDC why can i not pay in more than 6% if i choose too ?

Why should you pay more ? Dividends are rising , how much more lapsing are "shareholders " doing ?
It's a simple trade off ,money lenders get more PROFIT ,you do more work for less money.

[RobertT]

I linked the 'Money Box' article more to point out it is still feasible for companies to start defined benefit rather than defined contribution pension schemes. Defined benefit schemes are able to give a forecast on pension returns and some kind of guarantees which people prefer. The government realise this hence their apparent lack of interest in the plan to give a CDC scheme to us which relieves RM of responsibility for the outcome.
I realise that RM and other companies took years of 'pension holiday' which resulted in the wave of current pension scheme failures and changes. I realise that RM is not that bothered about retaining staff and is more interested in weakening working practices & conditions. I wonder if the CWU/RM looked into maybe increasing the percentage posties pay into the DB scheme with a view to keeping it active ? Or asking RM to pay in some of the money they didn't pay in during their 'pension holiday' ?

I have wondered this as well - is/was there a reason why employee contributions were fixed at 6% - i would have been happy to have paid an extra few %
I am guessing tax/admin reasons/excuses.

In fact with this Cash balance/CDC why can i not pay in more than 6% if i choose too ?

Based on the figures we’ve been given, RM pay around £400 million per year into our pensions and that would have increased by another £800 million if the RMPP had stayed open to future accrual. They aren’t prepared to pay in any more!

There’s around 90,000 employee members of the RMPP, so that would equate to an average increase in weekly contributions of around £170 – just a bit more than ‘a few extra %’!

The pension holiday took place between 1990 and 2003 when RM was still owned by the state. So the government effectively took the holiday – not the company!

The government/taxpayer then took on the liabilities of our pre 2012 pensions as part of privatisation, which going by reports have risen sharply since and far outweigh what wasn’t paid in during the holiday.

If you’ve joined the DBCBS then you can pay AVC’s via Bonusplan and/or Flexiplan.

The plan with CDC is that we can chose to pay in another 1% of our pensionable pay which will be matched by RM. But whether they’ll be any abilty to pay in more than that via AVC’s, is no known at the moment.

[BELIAL]

You seem well informed Rob T , any chance that you could enlighten me how this £800 million projected figure was arrived at?
I know this whopping £800 million is a bit of a mantra going forward in the way the business is going and all that.

What assumptions are used to calculate this sum ? Given they are ASSUMPTIONS ,what justifies their use?
Do we all live to 99? unlikely.
Do interest rates remain static?
Do bond and guild returns remain static?
Do property prices and rent return yields remain are static?
Are trends in these calculated over 3 or 20 years.

[RobertT]

The RM said that to keep the RMPP open to future accrual, it would cost around £1.2 billion per year – an £800 million increase. The last few years they’ve been making up the difference in funding from their £400 million contribution by using up the surplus that was in the scheme. That surplus has largely now gone!

To work out the future liabilities, they look at:

How much money is in the pot and how much they expect to be in the pot in future.
The expected investment returns on the money.
Average life expectancy.
Member numbers.
Inflation rates.
Etc, etc.

In practice nobody really knows what those figures are going to be too far into the future, so to a certain extent guesswork plays a big part. But they take the advice of their actuaries, who tell them what they can afford.

It’s fairly obvious that RM couldn’t afford another £800 million per year! Plus they seemed determined to avoid providing a DB scheme and the long term uncertainties that comes with it.
Although had the investments been not so heavily weighted towards bonds and gilts, there may well have been scope to keep the RMPP open for longer.

[fishtank]

The last few years they’ve been making up the difference in funding from their £400 million contribution by using up the surplus that was in the scheme. That surplus has largely now gone!

That's not true Robert.

The Company’s overall IAS 19 pension position at 26 March 2017 was a surplus of £3,839 million, compared with a surplus of £3,430 million at 27 March 2016.

That's according to the company's own financial report.

[RobertT]

The problem here is the accounting method you care to use to find the value of the scheme.

In practice there are yearly ‘audits’(for want of a better word) that give a short term view of how things are performing and are based on market values at the time. So either a good or bad year investment wise, would skew the figures to some degree. These are the figures you’re referring to.

And then there’s the triennial actuarial valuations which go into more detail and provide a better long term view of performance. The date of the most recent was 31st March 2015, which showed a surplus of around £1.7 billion(£1,700 million) for the RM section of the scheme.

In practice, it’s the latter method that’s been used to determine the future of the pension, because over the longer term, it’s likely to be more accurate.

[fishtank]

In practice there are yearly ‘audits’(for want of a better word) that give a short term view of how things are performing and are based on market values at the time. So either a good or bad year investment wise, would skew the figures to some degree. These are the figures you’re referring to

No they're not, IAS 19 is the internationally recognised accounting standard for financial disclosure (is that the better word you were looking for), it is prepared by the actuary themselves not some trainee in a back office. What it shows is that Royal Mail's pension situation is not in the precarious position we were told, nor was their any imminent danger of deficit. There would have been an increase in contributions this year to offset the poor performance of Corporate bonds in 2016/17 but there was nothing to suggest that this would have been an on going liability.

Of course another elephant in the room is why did the pension trustees continue to rely so heavily on gilts and bonds when it became obvious that they were so badly underperforming as an investment vehicle?

Why is that relevant now?
Who will the trustees of the CDC scheme be? The same risk averse numpties that drove this one and the previous one onto the rocks no doubt.

[RobertT]

No they're not, IAS 19 is the internationally recognised accounting standard for financial disclosure (is that the better word you were looking for), it is prepared by the actuary themselves not some trainee in a back office. What it shows is that Royal Mail's pension situation is not in the precarious position we were told, nor was their any imminent danger of deficit. There would have been an increase in contributions this year to offset the poor performance of Corporate bonds in 2016/17 but there was nothing to suggest that this would have been an on going liability.

But the problem is the liabilities also rose during the 2016/17 year – up by over £2 billion. Those liabilities would continue to rise over time if the scheme stayed open to future accrual. While more money going in doesn’t necessarily mean more surplus. Which leads to:

Of course another elephant in the room is why did the pension trustees continue to rely so heavily on gilts and bonds when it became obvious that they were so badly underperforming as an investment vehicle?

It’s those actuaries that advise the trustees where to invest – perhaps it was a trainee after all!

But I do agree and have said it a number of times over the years, the investment strategy has been abysmal.