UKC

A thread to keep Postmanpat happy (since he was childishly accusing unfunded government schemes of being Ponzi schemes as a hijack on this thread:

http://www.ukclimbing.com/forums/t.php?t=588306&v=1#x7793605 )

It seems pretty obvious to adults that such schemes are managed, even though some argue about how well this is done. Of course the liabilities are associated with pension payments made into government that very efficiently fund government expenditure and are still receiving ongoing payments (overall currently running in profit).

Finally on his assertion the biggest single effect on pensions has been errors in longevity estimates. Firstly these 'errors' are overstated as the best guestimates are already included in the recent calculations (and recently changed contributions and benefits) so are already factored in and secondly any future changes will require even more adjustments one way or another. I also wonder sometimes if I am the only person suspicious about a steady march of increased longevity given the poor public health related behaviour of the young and the inevitable tightening of the NHS budget.

In reply to Offwidth:

Ponzi schemes collapse if there are no new "investors". If future generations choose not to fund public sector pensions through tax, that would leave those currently building up public sector pensions without any income because (most of) the schemes aren't invested in shares or similar. So in that sense they are similar to Ponzi schemes..

In reply to Offwidth:

In light of previous discussions of this issue, what do you make of rumours that USS is going to be heavily in deficit at the next review?

In reply to Coel Hellier:

USS has always been in deficit recently given the recession and worst case measurements they are forced to employ. If the economy takes off things will shift fast. Irrespective the pension fund is required to adjust and will do so.

In reply to MG:

Does anyone know what proportion of public sector schemes are unfunded, my local government scheme is funded, which probably accounts for 20% of public sector employees. Which ones are and which ones are not?

In reply to MG:

Ponzi schemes are fradulent, in what sense are these pensions fraudulent? They are regularly measured and adjusted and irrespective of tax take it is a government liability on their balance sheet that will be legally very difficult to write off. Given the rate of shift of government functions into idependnat or semi independant organisations even that government liability is vastly overstated. Given how furious the unions are with recent changes on unfunded schemes and the current 'colour' of the government it is hard to imagine anything significant has been overlooked.

In reply to Coel Hellier:

I think it's highly likely to be true - but that the "truth" is more due to technical changes (for example growth assumptions) than any seismic shift in liabilities or asset values.

Lots of schemes are in deficit technically - the well known example would be British Airways (which is more realistically described as a large pension deficit with a small airline attached).

How will it all play out? I think that actuaries will put pressure on organisations to increase funding into schemes... which will mean that this money is not available for other things (so the all round squeeze will go on). However the biggets shift will be thta the state pension will become means tested (I suspect within the next 10 years), so those that have saved hard privately and those on (pretty generous) government final-salary schemes will not receive state pension. Both groups will howl, but it's unaffordable as cast currently.

In reply to The New NickB:

Some older ONS stuff here:

http://www.ons.gov.uk/ons/rel/pensions/pensions-in-the-national-accounts/uk...

In reply to Offwidth:

>

What does "they are managed" mean beyond that there are (regularly changing) estimate of the outstanding pension liabilities?

With the exception of the local government scheme all major public sector pension schemes (and the State pension) are unfunded i.e..they are paid for out of current income not out of assets accumulated by the pension beneficiaries or the State at large. They promise defined benefits but deppend on difficult to forecast surest incomes to pay those benefits.

How does that differ from "a scheme that does not invest the money it receives but simply pays existing investors out of the contributions from new investors."?

>

Just to clarify, my comment on the cause of underfunding were with relation to private secotr pensions which is what you seemed to be referring to. You seem to be saying that because these funding shortages have now been incorporated into current calculations they are "overstated". Why?
It became apparent over the past decade that for a number of reasons the private secor pension sector was becoming underfunded and needed restructuring. Simply saying that this has been acknowledged and partly executed doesn't change or lessen the extent of the causes of the underfunding.

In reply to Offwidth:

Thanks, those figures suggest that 58% of obligations are related to funded schemes.

In reply to MG:

I seem to recall there was a firemaster in the press a while agao who was asking the local board whether they wanted him to pay pensions or put out fires because he couldn't do both.

In reply to Offwidth:


Independent analysis of the liabilities tend to be bigger than official estimates. More to the point, government doesn't pretend that current incomes projected forwards are sufficient to meet projected liabilities. They are just making whatever adjustments are politically variable and "kicking the can down the road".

In reply to The New NickB:


How do you get that?

Excluding State pensions (the biggest unfunded pension liability), unfunded pension funds for pubic sector employees totalled £852bn and funded DB schemes totalled £313bn on which basis unfunded schemes represented 73% of the total.

Unfunded State pensions dwarve them at £3.84 trillion.

In reply to Postmanpat:

Apologies, misread the figures on small phone screen.

In reply to Offwidth:

For the record, Postmanpat is far from the first person to describe the UK old age pension system as a Ponzi scheme - it is almost a cliché to describe it as such in the financial press.

http://blogs.telegraph.co.uk/finance/ianmcowie/100006636/state-pension-ponz...

http://www.moneymarketing.co.uk/news-and-analysis/pensions/tony-byrne-the-g...

http://blog.moneysavingexpert.com/2009/03/27/is-the-state-pension-a-ponzi-s...

etc etc . . .

In reply to Offwidth:



Assuming this is true (it isn't) the reason for any profit, should there be one (there isn't), is because the public sector has expanded massively since '97 and so there are many more people paying into the pension pot at the moment. When they reach retirement age the only way it will be sustainable will be if the public sector has continued to expand.

In reply to The New NickB:


I work for a organisation in the public sector for which there is no pension pot. Our pension is funded out of general taxation. So it is pretty much impossible to know if it is in deficit. All I do know is the increase in my contribution is simply a tax, aimed at some public sector workers.

The benefits of our pension were a side effect of thatcher era agreements with the public sector. There we're pay reviews which clearly showed that in general the public sector were payed much worse than private sector comparators. The lag was such that it was not possible for thatcher government to bridge it. So, they offered up a good pension scheme as a sweetener. So down the line our salaries still lag behind, and we are being asked to pay more for less.

Fortunately most of my benefits are in tact, due to age, but the future is pants for newer employees.

In reply to John2:

Being not the only childish labeller doesn't forgive it.

In reply to kipper12:


Unbelievable!

Is this true?

In reply to kipper12:

Its not a tax, it is deferred pay. If the public sector shrinks fast (as some of the more conservative commentators would like) the liability remains with the government as does the requirement to pay you when you retire..

In reply to Offwidth:

I think Kippers point is that his contribution goes in to general taxation revenue, because his scheme is unfunded, whereas my contribution goes into a pot that is essentially run like a private pension scheme. It does raise the issue that members of unfunded schemes are actually funding them.

In reply to Offwidth:

But apart from apparently quibbling about the precise definition of "fraudulent" you haven't explained why it shouldn't be regarded that way. You seem just to keep misrepresenting how most State and public sector pensions are funded and accounted for (they are not treated as part of the State's debt despite quite obviously being liabilities).

In reply to Tyler:
You are right that 'profit' in my post should have been in inverted commas as it is currently just a surplus of payments in over payments out and this will change with time (probably reversing given the way successive governments are shrinking the public sector and privatising parts of it). Apologies. Pensions are still deferred pay and to ensure the nominal pot is enough the contributions and benefits do get adjusted from time to time: my monthly payments on an unfunded pension have recently increased by 50%; my employer's contributions have increased by a similar amount; the scheme has shifted to CARE for all but the longest servers; the average benefits of the CARE scheme are slightly less generous than the old final salary scheme; in the new scheme you get to retire later or get actuarial reductions. Finally defferred pay like all pay is taxed when it is finally received.

Some more management abuses are decades of above inflation rises for senior manager pay (nearly all of whom are on the final salary scheme) giving unfair costs on all public sector pensions. Also before the loophole was closed giving enhancements to get rid of staff more easily.

In reply to kipper12:


If it is funded out of general taxation then there is zero pot and thus it is hugely in deficit, the deficit amounts to the entire future spending commitment.

(This is as oppose to a funded scheme, where the invested fund is there to meet the future spending commitment.)

In reply to Postmanpat:

Well it seems to me the person claiming fraud needs to make a stronger case first.

In reply to Offwidth:


Indeed the latter half of that sentence holds regardless of the first half.

In reply to Offwidth:

Do you disagree that the bulk of public pension funds meet this description "a scheme that does not invest the money it receives but simply pays existing investors out of the contributions from new investors." (the main exceptions being the local authority funds and USS)

As far as I can tell you are assuming that because your public sector pension is (partially) funded and has a "pot" that this is the norm. It isn't.

In reply to Offwidth:

and the governments liability translates into Tax's, as the population ages an increasing % of unfunded pensioners will be reliant on a decreasing % of Tax payers. This is true for the state pension and the 'Occupational' pension for those Public Sector Employees who are in unfunded schemes.

In reply to Postmanpat:

The government does invest the money: in government spending for the period we are all in work...its a huge benefit to hold large sums for long periods (just ask a bank they would love to look after such funds and do useful stuff with it).

I'm in TPS. it is an unfunded scheme.

In reply to ScaredShitless:
If the public sector stays roughly the same size pension payments in should roughly match pension payments out and it should hold an equilibrium and is tax neutral. If government grows the government gains more capital through the schemes but has to pay a lot more out on salaries; if it shrinks the government makes big savings in salary but holds liabilities on pensions (that are smaller than the salary savings). The overall costs are as you would expect smaller government costs less (excluding any secondary effects).

In reply to Offwidth:


Come on, surely we need to retain the distinction between current spending and "investment"?

In reply to Coel Hellier:

Seems right to me. We give the govermnent our deferred salary for decades, they invest it in useful shit and return it when due.

In reply to Offwidth:


They don't "invest" it, they spend it. And then they expect the next generation to make good the money.

Now, much of government spending is a good and necessary thing, but it is still spending rather than "investment" unless we strip the words of all meaning.

In reply to The New NickB:

Almost forgot... those numbers look wrong to me... probably conflating current valuations of some pots with estimated total future liabilities of others. It should be at least ten percent funded as it includes USS and Local Government amongst others.

In reply to Coel Hellier:

Banks invest, governments spend, such sad loaded semantics. Infrastructure is an investment, funding education, health, policing, defence, welfare etc are all investments to me. The cost of borrowing that money would be a lot more.

In reply to Offwidth:


So, on this basis you would presumably regarded a corporate pension scheme with no "pension pot" as funded because it had used its revenues to "invest" in growing the business amongst tother things like salaries and gold plated rollers for the board?

In reply to Offwidth:

Of course it doesn't, if lifetimes are lengthening and the start age of working continues to get substantially later due to general university education. The ratio of working years to pension years is the big killer for defined benefit pensions, which is why they are virtually extinct in the private sector. Of course public sector employees do not in any real sense pay tax, as the tax is notionally taken from their (taxpayer funded) salary and then recycled to the government. It is basically taking money from one pocket and putting it in another, it creates no wealth or economic benefit.

Incidentally the argument that public sector pay rates are less than the public sector has long ceased to be true, equivalent salaries are substantially higher in the public sector than the private - before the gold-plated, defined benefit pensions ("deferred, but absurdly generous, pay" according to you), are taken into account. In any case, people should logically be paid what it needs to recruit and retain them, not the "rate for the job". Thus it is in the private sector, why not in the public?

In reply to MG:
Without working people willing to buy the assets sold today to pay pensions to retired people today a funded pension would collapse today (or very soon).

Without working people paying into a pension scheme today to pay pensions to retired people today an unfunded pension would collapse today (or very soon).

Any Ponzi factors are very similar.

In reply to elsewhere:



Don't be daft. On that basis no asset is worth anything and I'm as rich as Warren Buffet.

In reply to Postmanpat:
Please explain the worth of an asset, funded pension scheme or Warren Buffet if there are no buyers.

In reply to elsewhere:



Nothing,obviously. But as I implied, it's meaningless observation unless your point is that all saving, all accounting and all economic activity is pointless and we should simply load up on AK45s, canned food and retreat to the hills.

It adds precisely nothing to any real world understanding of pension schemes.

In reply to Postmanpat:
But it does show that any Ponzi like factors of needing new investors/contributors are due to the intergenerational factor that the young pay in and the old take out rather than a funded/unfunded distinction.

In reply to elsewhere:

Nonsense. One of the best managed economies in the world is that of Norway, where the proceeds of their offshore oil and gas industry have been invested in a well-run sovereign wealth fund. Future generations will enjoy well funded pensions based on the proceeds of investment.

In reply to elsewhere:


Only on the most extreme assumptions. It is rational to assume that a pot of assets yielding financial returns has an ongoing a estimateable value which can be related to the specific liabilities for which it is ring fenced.

Unringfenced portions of unknown streams of revenue on which other demands are also unknown are not calculable.

Is it your argument an actual ponzi scheme is just as financially viable as a fully funded pension fund or investment vehicle, because that what your line of thought implies?

In reply to Postmanpat:
My argument is that the logic in the post comparing public sector pensions to ponzi schemes which collapse if there are no new "investors" applies to all pension schemes.

In reply to elsewhere:


I know. Indeed, since the same logic applies to actual Ponzi schemes as funded pension schemes so we might as well encourage Ponzi schemes. Bernie Madoff is innocent, OK! We should certainly discourage any sort of saving or insurance or indeed investment because they all depend on assets which potentially have no value.

In reply to Postmanpat:
You're welcome to take that approach.

In reply to elsewhere:


What do you think the outcome might be?

In reply to Postmanpat:
Poverty

In reply to elsewhere:


Maybe not such a brilliant principle to base things on then wouldn't you say?

In reply to Postmanpat:
Yes, investments backed by bernie are dodgy.

In reply to elsewhere:


Just like investments in pension funds: worthless without buyers...

In reply to Postmanpat:
Correct

In reply to elsewhere:


You're welcome to take that approach.......big fan of poverty are you?

In reply to Postmanpat:
No. Are you?

In reply to elsewhere:


You're not getting this it seems. They're your principles. You really shouldn't duck the consequences. Start a "free Bernie" campaign. Maybe you have a pension fund he could take over for you.....

In reply to Postmanpat:
I don't advocate bernie. It's more that I reject the idea that a pension's requirement for some people to contribute whilst others get paid makes a ponzi.

In reply to elsewhere:


So it's a Ponzi if Bernie's doing it but not if the State is doing it? I see.

But anyway, funding is a waste because the assets may be worthless, right?

Enough I think.

In reply to Postmanpat:
No. It's ponzi if fraudulent rather than transparent.