The Politics Thread

[Bruce Rioja]

you saw Cameron's remarks - but you don't think he was joining in with Goldsmith's smear-by-association campaign?

I haven't said whether he is or he isn't. I know nothing of Goldsmith's so-called smear campaign as, and as I pointed out, BBC WN chose only to show Cameron's comments, in no context whatsoever.

oh - sorry - I thought it was common knowledge!!

It probably is, just not for me. Let me have a read-up on it.

[Worthy4England]

Intended as an apolitical discussion, but should businesses be allowed to run huge pensions deficits? Today we see BHS probably going into administration with £571m pensions deficit. Some of that will be picked up by PPF (Pension Protection Fund) - maybe 90%. Isn't it about time that business solvency was viewed with a business' pensions commitments ring fenced?

12 months ago, FirstGroup, who won the pension scheme of the year award in 2009 - (I bet they did) was reported as having pensions commitments of £4.9Bn - nearly 4 times the value of the company (at the time). It reckons it's deficit wasn't a problem particularly at a mere £240m so - so around a quarter of it's capital value.

[thebish]

Intended as an apolitical discussion, but should businesses be allowed to run huge pensions deficits? Today we see BHS probably going into administration with £571m pensions deficit. Some of that will be picked up by PPF (Pension Protection Fund) - maybe 90%. Isn't it about time that business solvency was viewed with a business' pensions commitments ring fenced?

12 months ago, FirstGroup, who won the pension scheme of the year award in 2009 - (I bet they did) was reported as having pensions commitments of £4.9Bn - nearly 4 times the value of the company (at the time). It reckons it's deficit wasn't a problem particularly at a mere £240m so - so around a quarter of it's capital value.

dunno how it works - but I think there are extensive powers for them to go after people previously linked - I forget what the phrase is - I think Sir Philip Green should be expecting a call...

I am a little bit surprised that companies ARE allowed to run huge pension deficits - I know the URC (who I work for) recently had to take a fairly big initiative to top up the pension fund because legislation compelled us to (for which I am very grateful!)

[bobo the clown]

It's a very complex ... & long tale which I'm happy to bore people with at length if it's wanted.

But to answer the specific question ... "yes, and no". A fund will be audited. Typically every 5 years or so. At that the Company fund will be reviewed for its fitness to meet its obligations. If it cannot then the Company, one way or another, has to meet the deficit.

In short ... they can run at a deficit for a period but not in the long term.

That can come by either the Company or the members increasing their input. Many of us will have seen our contributions rise from a typical 3% to maybe 6% or 7%. In recent years. Less obviously Companies have also, at the same time, have had to input vastly more. My former Company has been inputting between 25-30% each year from its one-time comfort zone of 3% (they've never been allowed to put in less than the employees).

If the Company can't afford that then it has a few choices. It can raise contributions yet further; it can close the scheme to new members ... or even to everyone ... and open a new one with new terms. Members haven't lost the value of what has been put in, but it's frozen. Frozen for a year or so won't damage anyone too much really. But frozen when you have to wait 20 or 30 years before you can access it and inflation and upward wage drift will make it a small deal. Imagine your wages today compared with what it was say 20 years ago and you'll get the picture.

So why will it be in deficit ? Largely due to the fact those contributions are collectively put into share plans or property by the investment funds. Shares have been pretty stodgy for the past 10 years. Plus the outgoings (especially if you're in a Defined Benefit 'DB' or "final salary" schemes) are rising as people have the to start paying in after University at say 22yr old and will then have the audacity to live far longer and so take their pension for longer. So less money going in, for a shorter period and taken as pension for longer despite the funds investments returning less.


Now. Who wants the long explanation ???

[Lord Kangana]

I'll give you the short version of administration/liquidation....

Whatever there is left now will be spent, almost to the penny, for them to conclude that there really is no money left now.

[Worthy4England]

Ta! I got all that bit So understand the general mechanics - but the BHS one was runing a deficit, last time I had dealings with them, in the early noughties...It's hardly not been in deficit since... I can see the 5 year bit (+/- 1 year) - they reported a surplus in 2002, then again in 2008 (with defecits all the years in between) - 2008 they managed to "wipe off" a £50-odd million defecit from two years earlier, before reporting a huge jump in the defecit in 2009 - as many companies would have done what with the crash n'all that. So they've had a hole for pretty much every year this century apart from 2 years - which puts it in the realm of makey uppy to me...

[bobo the clown]

I don't know the BHS details but the business has been on the edge for a long while and they've not known their niche for a decade or more.

I'd be surprised if their pension was any great shakes but with 11,000 members (mostly on or near minimum wage, many part time) it'd need explaining how it's got itself £500m+ overrun. But 11,000 employees is a lot I suppose.

You can, on audit, be found to be below your requirements and you then have to formulate a plan to recover the debt. You'd be unlikely to be expected to stump up there & then or you'd go insolvent straight away and it'd be a bit self-defeating.

Maybe they didn't get that sorted out. Possibly because business continued to struggle. Certainly Philip Green selling up for £1 would suggest that. I'm surprised that he's still seen to be liable as that'd come under caveat emptor for the acquirers I'd have thought

[bedwetter2]

I don't know the BHS details but the business has been on the edge for a long while and they've not known their niche for a decade or more.

I'd be surprised if their pension was any great shakes but with 11,000 members (mostly on or near minimum wage, many part time) it'd need explaining how it's got itself £500m+ overrun. But 11,000 employees is a lot I suppose.

You can, on audit, be found to be below your requirements and you then have to formulate a plan to recover the debt. You'd be unlikely to be expected to stump up there & then or you'd go insolvent straight away and it'd be a bit self-defeating.

Maybe they didn't get that sorted out. Possibly because business continued to struggle. Certainly Philip Green selling up for £1 would suggest that. I'm surprised that he's still seen to be liable as that'd come under caveat emptor for the acquirers I'd have thought

During the 80s and 90s a lot of company defined benefit schemes had a declared valuation surplus according to the independent audits.This gave an excuse to some schemes to agree that the employer could take a contributions "holiday". Note that this did not apply to employee contribution.
Following on from this Gordon "Prudence" Brown decided to tax dividend income to pension schemes from their investments.
This double whammy sent many schemes into deficit from which they have not recovered due to stagnant shares and gilts prices.

[Lord Kangana]

The BHS pension fund had a surplus as recently as 2008.

[Worthy4England]

The BHS pension fund had a surplus as recently as 2008.

For one year...it hadn't for the previous 5. If Bobo is correct (and I don't doubt that he is) regarding the audit timeframe being 5 years - then I find that kind of convenient.

[Worthy4England]

I don't know the BHS details but the business has been on the edge for a long while and they've not known their niche for a decade or more.

I'd be surprised if their pension was any great shakes but with 11,000 members (mostly on or near minimum wage, many part time) it'd need explaining how it's got itself £500m+ overrun. But 11,000 employees is a lot I suppose.

You can, on audit, be found to be below your requirements and you then have to formulate a plan to recover the debt. You'd be unlikely to be expected to stump up there & then or you'd go insolvent straight away and it'd be a bit self-defeating.

Maybe they didn't get that sorted out. Possibly because business continued to struggle. Certainly Philip Green selling up for £1 would suggest that. I'm surprised that he's still seen to be liable as that'd come under caveat emptor for the acquirers I'd have thought

During the 80s and 90s a lot of company defined benefit schemes had a declared valuation surplus according to the independent audits.This gave an excuse to some schemes to agree that the employer could take a contributions "holiday". Note that this did not apply to employee contribution.
Following on from this Gordon "Prudence" Brown decided to tax dividend income to pension schemes from their investments.
This double whammy sent many schemes into deficit from which they have not recovered due to stagnant shares and gilts prices.

Don't disagree with what you're saying particularly - the pensions deficit is around £360Bn according to the PPF - based on quite a large volume of schemes (PPF 7800 Index)

http://www.pensionprotectionfund.org.uk ... ary_15.pdf" onclick="window.open(this.href);return false;

What this report shows is that the assets were generally higher than the liabilities through to Jan 2012 - which suggests that previous significant decisions had sort of been compensated for. Even as late as Jan 14 they're showing broadly parity - although that looks like a bit of a one-off. I'm not suggesting that I would expect Companies to stump up straight away. What I am suggesting is there should be no need for them to stump up straight away as they've got the deficit pretty much covered.

[bedwetter2]

I don't know the BHS details but the business has been on the edge for a long while and they've not known their niche for a decade or more.

I'd be surprised if their pension was any great shakes but with 11,000 members (mostly on or near minimum wage, many part time) it'd need explaining how it's got itself £500m+ overrun. But 11,000 employees is a lot I suppose.

You can, on audit, be found to be below your requirements and you then have to formulate a plan to recover the debt. You'd be unlikely to be expected to stump up there & then or you'd go insolvent straight away and it'd be a bit self-defeating.

Maybe they didn't get that sorted out. Possibly because business continued to struggle. Certainly Philip Green selling up for £1 would suggest that. I'm surprised that he's still seen to be liable as that'd come under caveat emptor for the acquirers I'd have thought

During the 80s and 90s a lot of company defined benefit schemes had a declared valuation surplus according to the independent audits.This gave an excuse to some schemes to agree that the employer could take a contributions "holiday". Note that this did not apply to employee contribution.
Following on from this Gordon "Prudence" Brown decided to tax dividend income to pension schemes from their investments.
This double whammy sent many schemes into deficit from which they have not recovered due to stagnant shares and gilts prices.

Don't disagree with what you're saying particularly - the pensions deficit is around £360Bn according to the PPF - based on quite a large volume of schemes (PPF 7800 Index)

http://www.pensionprotectionfund.org.uk ... ary_15.pdf" onclick="window.open(this.href);return false;

What this report shows is that the assets were generally higher than the liabilities through to Jan 2012 - which suggests that previous significant decisions had sort of been compensated for. Even as late as Jan 14 they're showing broadly parity - although that looks like a bit of a one-off. I'm not suggesting that I would expect Companies to stump up straight away. What I am suggesting is there should be no need for them to stump up straight away as they've got the deficit pretty much covered.

Broad parity sounds like an average which can cover a multitude of deficits in certain industries. I was a director of two business units owned by larger FTSE100 groups. Neither group had run a db pension scheme in surplus since 2002. Both subsequently closed their main schemes to new employees (one in 2003 and the other in 2006) and have ever since been trying to eliminate the deficits with additional contributions of up to £22m per annum. Little progress has been made in either for reasons which seem to be down to reduced scheme income growth and greater pensioner longevity.
Aside from fraud such as perpetrated by Robert Maxwell (loopholes later closed by legislation) there have been a number of schemes which have folded completely. The PPF was started up after the scandal of the Allied Steel and Wire plc employees being left with nothing when the whole thing went belly-up.
The Equitable Life problem was rather different but it did still leave a lot of people semi-destitute.

[bedwetter2]

The BHS pension fund had a surplus as recently as 2008.

For one year...it hadn't for the previous 5. If Bobo is correct (and I don't doubt that he is) regarding the audit timeframe being 5 years - then I find that kind of convenient.

Actually, the actuarial valuation timescale is now once every 3 years.

[bobo the clown]

Now. It wasn't ... & even then it's never been to difficult to drag it out. In the years so hugely impacted by the crash and plummeting share prices it was simple enough to suggest that the audit would be "artificially" low.

In most, honest, cases that would have been correct. But a hole big enough for the unscrupulous to drive a coach & horses through.

[Beefheart]

I certainly don't miss auditing defined benefit pension plans.

[Worthy4England]

I certainly don't miss auditing defined benefit pension plans.

Have you got the money and are now in Bermuda?

[Worthy4England]

I don't know the BHS details but the business has been on the edge for a long while and they've not known their niche for a decade or more.

I'd be surprised if their pension was any great shakes but with 11,000 members (mostly on or near minimum wage, many part time) it'd need explaining how it's got itself £500m+ overrun. But 11,000 employees is a lot I suppose.

You can, on audit, be found to be below your requirements and you then have to formulate a plan to recover the debt. You'd be unlikely to be expected to stump up there & then or you'd go insolvent straight away and it'd be a bit self-defeating.

Maybe they didn't get that sorted out. Possibly because business continued to struggle. Certainly Philip Green selling up for £1 would suggest that. I'm surprised that he's still seen to be liable as that'd come under caveat emptor for the acquirers I'd have thought

During the 80s and 90s a lot of company defined benefit schemes had a declared valuation surplus according to the independent audits.This gave an excuse to some schemes to agree that the employer could take a contributions "holiday". Note that this did not apply to employee contribution.
Following on from this Gordon "Prudence" Brown decided to tax dividend income to pension schemes from their investments.
This double whammy sent many schemes into deficit from which they have not recovered due to stagnant shares and gilts prices.

Don't disagree with what you're saying particularly - the pensions deficit is around £360Bn according to the PPF - based on quite a large volume of schemes (PPF 7800 Index)

http://www.pensionprotectionfund.org.uk ... ary_15.pdf" onclick="window.open(this.href);return false;

What this report shows is that the assets were generally higher than the liabilities through to Jan 2012 - which suggests that previous significant decisions had sort of been compensated for. Even as late as Jan 14 they're showing broadly parity - although that looks like a bit of a one-off. I'm not suggesting that I would expect Companies to stump up straight away. What I am suggesting is there should be no need for them to stump up straight away as they've got the deficit pretty much covered.

Broad parity sounds like an average which can cover a multitude of deficits in certain industries. I was a director of two business units owned by larger FTSE100 groups. Neither group had run a db pension scheme in surplus since 2002. Both subsequently closed their main schemes to new employees (one in 2003 and the other in 2006) and have ever since been trying to eliminate the deficits with additional contributions of up to £22m per annum. Little progress has been made in either for reasons which seem to be down to reduced scheme income growth and greater pensioner longevity.
Aside from fraud such as perpetrated by Robert Maxwell (loopholes later closed by legislation) there have been a number of schemes which have folded completely. The PPF was started up after the scandal of the Allied Steel and Wire plc employees being left with nothing when the whole thing went belly-up.
The Equitable Life problem was rather different but it did still leave a lot of people semi-destitute.

Agree - broad parity could cover up lots of things - what we're reasonably certain on, is that lots of businesses have such a black hole. I get that it's not necessarily "this year's" black hole - it's a hole against future outgoings. I'm not half as convinced that Directors should be allowed to run a deficit for a significant period of time on a future gamble - stocks n shares may go down as well as up etc. I just think it should be tightened up so that there's a lot less tolerance in the accountancy rules to allow for significant long term deficits.

BHS I think were in credit or around parity 2 years out of the last 14, took dividends then have the audacity to go bust and say "look no money in the pot for those people that delivered the divvies"

[BWFC_Insane]

I'm no big fan of Frankie Boyle. But he absolutely nails it here. It is also very funny, or would be if it wasn't all so sadly true.

http://www.theguardian.com/commentisfre ... mantle-nhs" onclick="window.open(this.href);return false;

Fantastic piece.

[jimbo]

https://m.youtube.com/watch?v=uK7DRJx9nbU&feature" onclick="window.open(this.href);return false;

This raised a smile this afternoon! Was disappointed JC didn't press the issue at PMQs today. Honestly no idea how this is all going to end.

[Prufrock]

Anyway, Happy Ed Balls day everyone. Let's forget the commercialisation to remember what this special day is truly about.