Sigh

Ahem:

Defined contributions pension were made legally possible in the UK by Margaret Thatcher’s government in 1986. Workers were told these new kinds of pensions would give them more individual choice. But individuals proved to be much less economically rational than Thatcher assumed. When given control over their pensions, people tended to make naive financial decisions based on rules of thumb, which led to smaller pension pots. Workers on defined contributions pensions also found themselves at the mercy of the market. If they happened to have the back luck of retiring during a recession, their income was going to be far lower than it might have been. Finally, many employees with defined contributions pensions found their employer was putting much less towards their pensions. According to one analysis, employers spent on average 15% of their earnings on people with defined benefits pensions and just under 3% on people with defined contributions.

This leaves today’s young people with four options. The first is exit. Many skilled young people have realised that things are getting worse in the British workplace, and have decided to head for more attractive places such as Australia – which also happens to have one of the world’s best pensions systems.

The Australian superannuation system is defined contribution……

26 comments on “Sigh

  1. The usual “feckwits can’t be trusted with their own money” narrative from the Left. Only they have the knowledge and intelligence to tell everyone what to do for their own good.

    More specifically to extract a tithe from the productive to piss away on their pet projects.

    I like my SIPP – it means I get the fun of ‘gambling’ rather than some spiv investment banker or idiot SJW in a state sponsored scheme who doesn’t want to hold tobacco stocks.

    Plus it’s well above the predictions of what I need to retire – early retirement at 55 is a strong possibility.

  2. “According to one analysis, employers spent on average 15% of their earnings on people with defined benefits pensions and just under 3% on people with defined contributions.”

    Does that analysis include Public Sector employers, who are spending taxpayers money on pension contributions rather than their own?

  3. She also used to bang on about the demographic time bomb and the DC schemes were primarily aimed at those who weren’t lucky enough to work for generous employers like the State.

    It would be interesting to know what would be happening now if she hadn’t legislated for them because I know most of my employers wouldn’t have been able to afford let alone administer DB schemes.

    And if the Guardian wants to point fingers at DC schemes not performing well they should go back and have a look at Brown’s shenanigans.

    “I’ll never be able to retire now.” I overheard this familiar refrain while standing in a crowd of thousands of striking university staff marching on parliament in a snow storm

    What they mean is I won’t be able to live in the style I imagined, which is a wholly different thing. I’ll’ bet when they add their DC pension to the State pension they’ll still be amongst the richest people in the world.

    Retirement is a trade off, income Vs time, and certainly not compulsory at any age. There’s at least two at 65+ in our pub drinking circle who still work because they want to fund a certain lifestyle, in one case for his disabled daughter’s lifestyle. I and a couple of others preferred trading off income to get more time time, in my case to sail and play golf, but I have made other sacrifices like no more luxury holidays.

  4. There were DC pensions before Fatcha. As a young academic I joined FSSU, a DC scheme founded in 1913. Fatcha did time travel, eh?

    Moreover, WKPD:

    “A retirement annuity plan (RAP) is a UK pension plan designed to build a lump sum for retirement. Part of the lump sum must be used to buy an annuity and part can be taken a tax free lump sum.

    The plans were introduced under section 226 of the Income and Corporation Taxes Act 1970 and are often referred to as section 226 contracts.”

    Do people writing for the Guardian peddle falsehoods deliberately, or are they just ignorant and stupid twats?

  5. @ dearieme

    From Wikipedia (probably):

    The Grundian is a British daily newspaper staffed with ignorant and stupid twats.

  6. Defined benefit pensions are indeed fantastic. They’re also hopelessly unaffordable. Hence the switch to defined contributions. The only scandal is the ruling classes still enjoy DB pensions.

  7. Defined benefits are now ridiculously unaffordable, especially the public sector ones. The time for which the pension needs to be paid (if you retire at 65) has roughly doubled since 1979.

  8. I know a number who were planning to retire at 65. However, the shock to their lifestyle was such that, when the fateful day came, they continued in post. Generation X must be a little miffed at having their route to the top frustrated by so many desk blockers.

  9. Defined benefit plans are also dependent upon the market. There have been examples of when defined benefit plans have not been able to meet their obligations. There are considerable number of examples where defined benefit plans are not expected to be able to meet their obligations but their managers are not ready to admit it – notably among municipal pension plans.

    Ergo, to argue that there is too much risk in defined contribution plans is to refuse to acknowledge the risk that is also inherent in defined benefit plans.

  10. Not helped as I mentioned earlier that the municipal (or state sponsored) schemes tend to be the one’s with left wing interference that only invest in ‘ethical’ companies – hence not making so much money and not being able to keep up the benefits they promised.

    I admit some sympathy for the poor people in the scheme’s who aren’t SJWs but for the rest – eat your own dog food. You’ll be poorer in monetary terms but richer knowing that your hardship has had no effect on tobacco consumption.

  11. Defined benefit pensions are indeed fantastic. They’re also hopelessly unaffordable. Hence the switch to defined contributions.

    It isn’t that they’re unaffordable (the current interest rate levels make them look expensive, but that won’t continue forever) – it’s that they’re only effective if you can put in 20-30 years in the same scheme. That may be OK for teachers and medics, but the days of joining an employer out of school/uni and retiring from the same employer 40 years later with a a gold watch and a nice pension have gone.

  12. “Many skilled young people have realised that things are getting worse in the British workplace, and have decided to head for more attractive places”

    Yes, the problem for young people in Britain is that they won’t get expensive defined benefits pensions, but they’ve still got to pay for the ones the older generations gave themselves.

    No wonder they’re clearing off to Australia; if everyone there is on defined contribution schemes, all generations are on the same footing.

  13. Like my Defined Contribution pension administered by the Government has done so well. Social Security has invested those funds (15% of wages) in…. oh yeah! …Congressional IOUs!

  14. Would you look at that, a City academic spewing economically illiterate crap! Andre should probably stick to stunts like undressing on the tube.

  15. About half of the comments on the Guardian web site are correcting factual errors or omissions from that sloppy piece of journalism.

    That a professional journalist is willing to put their name to that nonsense is amazing.

    E.G. people used to retire at 65 and die at 68.

  16. “E.G. people used to retire at 65 and die at 68.”

    And going back to Thatcher and the demographic time bomb, if she’d had her way retirement age would have been 70+ by now.

  17. “Workers on defined contributions pensions also found themselves at the mercy of the market. If they happened to have the back luck of retiring during a recession, their income was going to be far lower than it might have been. ”

    Meanwhile those who retired on defined benefit plans during the same recession found their income to remain the same – until the supporting businesses went under and then they found they were getting nothing at all.

  18. Defined Contribution schemes existed long before 1970 – it is just that a new Act of Parliament in1970 regulated Pension in the ensuing years. It was possible to have two pensions from the same employer one governed by section 226 and the other by another section (230 iirc) which had even more favorable tax treatment so you got the 25% tax-free lump sum under section 226 and the 75% annuity under section 230.

  19. @ Chris Miller
    The change in employers hits those with Final Salary schemes climbing up the greasy pole but the newish rules about index-linking deferred pensions means that those on the shop floor – and those on average salary schemes – get much the same pension whether they move jobs or stay in the same one for forty years.

  20. My grandmother and grandfather had defined contributions pensions as teachers, my other grandfather had a defined contributions pension as an accounts manager, my great-grandmother had a defined contributions pension through the Forresters, her mother had a defined contributions pension through the Oddies. More fake news.

  21. The final salary schemes were the worst for blocking promising younger staff. People stayed on in jobs they didn’t like because not just a few years but their whole pension depended on it.

  22. “Chester Draws
    March 18, 2018 at 5:26 am

    The final salary schemes were the worst for blocking promising younger staff. People stayed on in jobs they didn’t like because not just a few years but their whole pension depended on it.”

    I can testify. I did 21 years in the US Navy when I was done at 15. But if you walk away at 19 years, 11 months, and 30 days you get nothing.

    In the mid 2000’s the US military implemented a quasi 401k (defined contributions) to go along with the conventional defined benefits pension. It was optional, not widely pushed, and I don’t know if they’re still doing it.

  23. My father’s in the Independent Schools Pension scheme – portable DB (cos he started in the 70’s). He had no idea that his pension would have cost half a million quid or more to buy as an annuity.

  24. @ChrisMiller “t’s that they’re only effective if you can put in 20-30 years in the same scheme. That may be OK for teachers ”

    It isn’t ; most of the money is paid by the employer. The changes in the early 2000s improved things only slightly. Even then, if you have a single promotion it collapses in a heap again.

  25. Yes re Aus.

    It’s different too, though. Contributions are taxed but income in retirement isn’t (which is worse than the UK system). Also, Australia is dominated by large not-for-profit funds which do out perform the for-profit offers consistently and strongly enough to suggest that they are investing well and not pissing away/stealing the surplus that would otherwise go to shareholders.

    There’s also compulsory enrolment and 9.5% Ers contributions. Which is incident on the employee, of course, but does guarantee a certain level of investment.

  26. Australian public servant defined benefit pensions were closed off in 2005, even for new politicians. Even most recipients didn’t know how well off they were because they were so complex. However, the vast bulk of these only pay out small pensions.

    Australian defined contribution super funds were dreamed up by the Trade Union Party in the early 1980s as a compulsory savings scheme they could impose to plunder at will in the future. There are three types, ‘Industry’ (Trade Union run) Funds, Financial Products Funds (providing them with a gravy train of compulsory cash on which they can charge rediculous fees) and Self Managed Funds (roll your own and keep your money), all have peculiar rules about how they must be run. The Trade Union party understandably wants to destroy Self Managed Funds because they can’t get their hands on it.

    Both political parties have virtually destroyed their benefits by ‘moving the goalposts’ and pushing out when you can get your money out.

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