Thursday, June 1, 2017

UK’s State Pension Shame?

John Rogers of The Express reports, UK’s state pension SHAME: How millions born in 'abandoned decade' were 'ROBBED' of £106bn:
Controversial state pension changes which saw retirement ages pushed back have meant 1950s women have have lost out on a staggering £106 billion, the Express.co.uk can reveal.

Official parliamentary figures show that a total of 2.66 million women have lost out due to the changes introduced in the Pension Acts of 1995 and 2011, affecting women born between April 1953 and April 1960.

Shocking statistics show women in this age bracket have lost on average, according to the figures, £40,000 due to having their retirement age being pushed back.

Under the 1995 Act, the government decided that the pension ages of both men and women would be equalised by 2020, but under the later 2011 Act the coalition government speeded up the latter part of the timetable.

From 2020 both men and women will be entitled to the state pension when they are aged 66, increasing to 67 between 2026 and 2028 and then after that it will be linked to life expectancy.

The changes introduced can mean that just a one year difference in age can result in a three-and-a-half-year difference in being able to claim the state pension.

Previously, women retired at 60 while men had to wait until 65 to do the same.

The average weekly state pension for the women affected is £125 per week, equating to £6,500 per year.

The figures mean the Treasury has saved a colossal £106bn.

That sum does not include any money possibly saved by the Treasury by having to pay out any possible pension credits as it cannot be claimed by these women without being in receipt of a pension.

However, the total sum saved does not take into account any potential revenue the Treasury may have gained from such things such as tax revenue from those women working or paying out any in-work payments.

Evidence from the Department of Work and Pensions provided to the Work and Pensions Select Committee in February last year revealed keeping the women’s state pension age at 60 for women born in the 1950s would cost £77 billion up to the 2020-21 tax year and that costs would continue to be accrued.

The changes have caused a large amount of outrage from the women affected with many forced into financial hardship having planned to retire originally at 60.

Some have had to resort to using food banks in attempt to make ends meet and have struggled to find work due to their age.

Francesca Trownson, one of the ladies affected by the changes, told Express.co.uk: "Of course I've been robbed. I've been left vulnerable at a time in my life when I thought I had worked hard and long enough to qualify for the tiny cushion of a pension.

“I have been robbed - of my dignity, my hard earned contributions and my security. I live in constant fear that my health will break and I will lose my home. I never thought that this country would do that to women of my generation."

Another, Liz Patterson, said: “I feel robbed of my pension money as the reason I put in for over 40 years was so I had something in my old age. Sixty this year and not informed the SPA had changed in 1995.

“No chance to do anything about it now. Another six years of working and to add insult to injury, also have to continue paying NI contributions on my earnings when people before me stopped doing this when they hit 60.

“So feel very unfair, unjust, penalised because I was born in the 50's and have paid over and above my fair share of NI contributions.

“Am I going to get anything extra for paying another 10 years worth of NI contributions before I can now claim my pension. No, nothing extra. So where is the fairness when the goalposts are moved without even telling you or giving you a chance to do something about it. Yes, I do feel robbed and will continue to feel this for the next 6 years.”

Not only having been hit by various pension changes over the years those affected have also criticised the way they have been implemented, often without informing those affected or only telling them at the last minute leaving them unable to make financial arrangements.

In October 2016, the former Pensions Minister Baroness Altman told the BBC the government had failed in its attempt to communicate many years ago with the women who had been affected.

She said: "It perhaps misled them or lulled them into a false sense of security, and if they did believe that their state pension age was 60, partly that was because the government led them to believe that.”

Leader of the campaign group 63 Is The New 60, Mariana Robinson, told Express.co.uk that the treatment of these women amounted to a “scandal”.

Ms Robinson said: “’63 is the new 60’ was written by me to try and address the lack of notice, unfair 2011 act timetables and preserve the birth date as the trigger for State Pension Age, (SPA), for 1950s born women.

“It is a fair compromise offer to the government to meet them half way in terms of lost money and age.

"Had I known all these constant changes were coming, I could have adjusted my finances and plans accordingly. To have one SPA moved from age 60, to 62, to 63 and 11 months, to 66 and then back to 65 and five months, all without notice, in the space of 10 years is just unacceptable.

"Theresa May is wholly disingenuous when she says no-one has had to wait longer than 18 months.

"Why pick on just one 10 year group of women only to correct a problem previous governments have failed to address over the years.”

Ms Robinson added 1950s born women are being squeezed financially and socially.

She said: "Those born in 1953, 54 and 55 have been particularly hard it with as much as three years difference in SPA compared to their older or younger siblings.

"George Osborne boasted that speeding up women's pension age was such a huge saving to the Treasury that it dwarfed almost anything else they could do!

“So where has the money gone?

"We are the abandoned decade. Grandmas are important to families across all generations. We are unable to retire or unable get work, yet have all the care responsibilities thrust upon us.

“This is having a knock-on effect now to local council services who are having to accommodate children at breakfast clubs and after school clubs because grandma is not available.

“Elderly care costs are going up too because we are not able to assist with elderly parents whilst working.

"The difference in how one feels between age 43 and 63 is dramatic. We are neither as mentally alert, fit or healthy as we were in our forties.

"Couples planned their retirement based on two state pensions and maybe a small occupational pension - their retirement plans are now on hold."

"Women just can't move on with their lives and the extra wait feels like a prison sentence.”

She added while she thought gender equalisation was “sensible” she said many were not given any notice so were unable to make provisions.

The campaigner said: "I still often meet women today who are unaware that their pension age may have changed or that they now need 35 not 30 years of NI to qualify for the full new state pension.

“Many of those who qualify on contributions will not get the full amount because of the contracting out clause."

Group member Susan Pearson said this lack of notice caused “severe financial problems”.

She said: “I discovered in 1997 when I was getting divorced that my retirement date had moved from March 2014 to September 2016.

“This was manageable as I had a career and a private pension. However, as a result of the financial collapse in 2008 I lost my job in 2009 and due to my age and experience, I was unable to find another job in my field of expertise.

“In May 2011 I carried out an online check and discovered the date had been moved to March 2018, by which time I was a carer for three elderly parents, two of whom were 180 miles away.

“In February 2012 I received a letter from the DWP that the date had moved, yet again, to September 2019.

She has spent the last year at university but, now at the age of 63, she is finding getting a job difficult.

Mrs Pearson said: “The jump from September 2016 to September 2019 has caused my husband and me serious financial problems.

“None of the political parties are listening to what we are saying and I consider that we are being fobbed off.

“I worked from the age of 16 to 57 and I am credited with NI contributions for 41 years and I consider that the 1950s women are being abandoned."

A spokesman for the DWP said: “The decision to equalise the State Pension age between men and women was made over 20 years ago.

“Women retiring today can still expect to receive the State Pension for 25 years on average – several years longer than men.”

The Express.co.uk is awaiting a response from the Treasury.
What a disaster! How can you not feel for these poor women? They contributed to their state pension for years only to have the rug pulled under them, pushing some of them into financial hardship and pension poverty.

It all reminds me of that classic skit from the late George Carlin on The American Dream when he refers to the "vanishing pension the minute you go to collect it."

Except this isn't the American dream, it's a British nightmare for millions of women who were planning on retiring at the age of 60 but are now finding out that this has been pushed out to 65 or later.

The problem as I see it is the policy was introduced in a hasty fashion and wasn't communicated properly to give women ample time to prepare. I'm actually shocked because the Brits aren't known to be so reckless and careless with important policies.

Importantly, when introducing increases to the pension eligibility age, you need to do this gradually over a decade or more and make sure you properly comunicate why these changes are being implemented and how individuals are going to be impacted.

A lot of these women in their late fifties and early sixties are not able to work. The British government is basically telling them make do with what they have and for those that can't, let them eat cat food.

Earlier this week when I went over the $400 trillion pension time bomb, going over a report by the World Economic Forum that found the problem is worse for women:
As if the wage gap wasn't enough of a problem, women have it worse with the pension gap as well.

Globally, retirement balances for women are typically 30-40% lower than that of men.

Lower wages account for some of this imbalance, but coupled with longer life expectancies for women, these smaller balances then need to be stretched over a longer period of time as well (click on image).


In my comments, I stated this:
Pension crisis isn't gender neutral: No doubt, unless you are a female teacher or nurse working in Ontario where you're a member of two of the best defined-benefit plans in the world (OTPP and HOOPP), you're definitely not in better shape than your male counterparts when it comes to retirement because you are earning less and living longer. Women need to think about their retirement a lot more carefully than men, which is another reason why I'm for enhancing the CPP and US Social Security (provided they get the governance right).
I also stated a sensible proposal is to raise the retirement age gradually to 70 years old over the next decade (easier for some jobs, not for others).

I understand, people want to retire at the same age as their parents but the reality is people are living longer and pensions cannot support the same retirement age or if they did, there needs to be another policy put into place to cut benefits whenever pensions run into major deficits.

Yesterday, I spoke with Leo de Bever, AIMCo's former CEO, about the big departures at Dutch pensions giants. Leo shared this me after reading that comment:

I know and respect both Eduard and Else.

Running a large fund in a heavily regulated environment can take you far away from making innovative long-term investments.

The Dutch central bank, the pension regulator, has some very restrictive ideas on what is prudent.

In the Netherlands and elsewhere, governance and risk management are becoming code words for not taking much risk. That gets tiresome after a while.

A lot of these decisions depend on non-financial factors. Doing the desirable as well as the profitable motivated me, and many pension managers I know, like Eduard and Else.

You have to have spring in your step when you go to work or it is not worth doing.

Or as a Dutch proverb says: a change of diet improves appetite.
In our conversation, Leo told me 'we need major increases in productivity to sustain pensions" but he also shared some interesting tidbits on the success of the Dutch pension system:
 "Almost 90% of workers are covered because pensions are organized by your job and industry you work in. They introduced Conditional Inflation Protection and Variable Pensions early on, which means inflation protection can be scrapped or benefits cut when pension run into trouble." (you can read more on the Dutch pension system here).
Interestingly, I told Leo that Jim Leech, the former CEO of Ontario Teachers', shared his insights on adopting Conditional Inflation Protection at  Teachers' in my comment on the pension prescription, stating the following:
A number of years ago I was asked by a troubled plan “How did we ever convince the Ontario Teachers’ unions to voluntarily introduce Conditional Inflation Protection”.

My response was/is: “You start 10 years earlier to educate the union leaders and members on the value of such changes. It takes time, trust and transparency.”

Of course, there is the added advantage that in a Jointly Sponsored Pension Plan, the unions/employees have a joint responsibility to ensure the Plan is sustainable – there is no “us and them”, there is only “us”.

But even in an employer-sponsored plan, employee leadership needs to take some responsibility to ensure employees have a sustainable plan – a “guarantee” is only as secure as the “guarantor”.
Leo de Bever told me he was at Ontario Teachers' when this was happening (he was the Head of Risk back then) and he admitted it wasn't a smooth process. "At one point, Bob Bertram (former CIO of Ontario Teachers') and I got kicked out of a meeting, it was that contentious. But eventually, everyone came around and agreed that on a jointly sponsored shared-risk model using Conditional Inflation Protection."

What else did Leo de Bever share with me? He said the compensation model at large Canadian pensions is based  80% on performance whereas in the Netherlands, it's based 20% on performance.

He also told me that compensation at Canada's large pensions based on the four-year performance should be increased to a longer period:
 "We were the ones [at Teachers] that introduced this four-year period based on erroneous tax information from Revenue Canada. We should be compensating people for taking very long-term risks. The problem is how do you structure it to make it fair. One entity in Boston I advised said they decided to compensate people that left their organization for decisions that paid off handsomely after they left. You need to properly compensate people for taking good long-term decisions."
Every time I talk with Leo de Bever, I find myself jotting down notes. He's scary smart and reads a ton of books (he's currently reading Clayton Christensen's book, Competing Against Luck). I actually told him he needs to write a book of his own to share all his wise insights on pensions, investments and the economy.

Anyway, getting back to the UK's state pension shame, I was struck by something else I read this week which again pertains to British pensions. It looks like BT is considering closing its defined-benefit pension scheme, the latest former state-owned business to close – or move to close – so-called “gold-plated” retirement plans for existing employees.

BT now faces a strike threat after unions said they will consider industrial action if the company presses ahead with the closure of its final salary pension scheme.

The firm's defined-benefits pension scheme has more than 300,000 members, and although the scheme had been closed to new entrants in 2001, existing members continue to build up benefits.

As you can read, there is a lot of pension tension in the UK and understandably so. Women getting screwed on their state pension and BT employees getting screwed as their company looks to scrap their defined-benefit plan.

And what do I keep warning of? The global pension crisis is deflationary and will ensure low growth and low returns for a very long time.

Below, the BBC reports on the UK's triple lock pension system. In my opinion, British policymakers need to review these new pension rules that are unfairly impacting millions of women and carefully rethink their entire state pension system and make it more like the ones in the Netherlands and Canada.

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