So Near, and Yet…..

I was watching Eddie Izzard trying to run his 27 marathons in 27 days for Sports Relief and felt the tension growing as he neared his goal. As he came into the last mile, I wondered if he was going to suddenly have a heart attack, an asthma attack or a major panic attack that would drop him to the ground and prevent him from finishing. I was almost becoming as tense as he was. I knew the psychological torment and panic that would be going through his head as he neared his goal because, increasingly, I find myself experiencing the same nerves over my pensions. The closer I get to being able to draw on them, the more worried I become that some disaster will happen to prevent me taking them. After all, although I haven’t run 27 marathons, I have been saving for almost 27 years into pensions and, as the finishing line approaches, I find myself wondering if I’ll make it?

Let’s be honest, there’s so much that could go wrong. Will Brexit wreck equity markets across the Western world? Will there be a repeat (or when will there be a repeat) of the 2008 crash? Will ISIS dirty bombs in New York and London paralyse the financial industry? Outside of finance, will some exotic disease appear from nowhere to strike me down? Will I cash in my first pension cheque on one day and cash out with dementia on the next?

I found a new worry at the weekend when reading about the collapse of BHS and the Port Talbot steel industry, where the pensions debts of both are a massive part of the problem. It seems to me that the “entrepreneurs” who might be interested in buying the assets will only step forward if someone else – i.e the Government – takes on the pension liabilities. But surely the Government’s emergency Pension Protection Fund isn’t some bottomless money pit? As more and more liabilities are piled into it, my worry grows that if my private pensions ever need this life support system there might be a lot, lot less cash available in the fund than there is today. The BHS pensioners might have to take a 10% cut in their pensions, but that’s maybe 90% more than they would have got if it was left to people like Robert Maxwell. I wonder if the existence of the Government’s pension fund allows these so called entrepreneurs to be even more aggressive when driving for a deal? Let the taxpayer take the risk while the spoils can be creamed off to Monaco.

I just can’t see a government continually picking up the tab from the wreckage of businesses that have been mismanaged, trashed by global economic forces or that have simply just passed their sell by date. It’s more likely that a future government might stump up 10% of what you’re owed on the basis that this will still be more than the state pension is doling out. (And remember Robert Maxwell.)

My plan is that I will take one of my pensions at 55 and the other aged 60. Both are private pensions and therefore vulnerable to who knows what potential financial disasters and shenanigans. Perhaps we’ll never see the likes of Robert Maxwell again, but I wouldn’t bet on it and at least Maxwell was British. What if your pension fund is owned by some obscure American venture capital firm or some shady non-dom entrepreneur? How much protection do you have going forward? I think if I had the option today I’d be taking the cash out my pension funds and investing them myself, preferably in gold bars that I can stick under my bed. At least I’d have a sense of control. Right now, my funds really don’t feel like my money at all and, as such, I worry that someone else has their beady eye on them – the Chancellor, the pension fund manager, the owners of the businesses that built them up. “Possession is nine tenths of the law” is an old chestnut of a phrase, but only recently have I applied it to my pension fund. I don’t have possession of the money. I mean, I “know” the funds are “there”, but they’re not actually in my hands. They’re in someone else’s.

Perhaps you could say this about finance in general. You don’t have money in the bank any more, you have a set of digits on a screen. If everyone turns up at the bank tomorrow and demands to have their physical cash handed over out of the vault, then the game’s up. If I actually do manage to get my gold bars then it means that you have less chance of getting yours, because there’s a lot more “cash” out there than gold.  Thinking this way leads to madness of course, and the only solution to it is to go and have a nice cup of tea and a sit down, while telling yourself that somehow we’ll muddle through. After all, if that isn’t good practice for being a pensioner, then nothing is.

(P.S. I’ve just read that BHS bosses have taken £25m for themselves out of that business since buying it for £1.00. The best practice for being a pensioner, therefore, is to be a Chief Executive.)

9 thoughts on “So Near, and Yet…..

  1. The pension bailout fund is paid for by a levy on private pension schemes generally. Only if that levy is insufficient (and the fund has been rising recently), would the government need to consider whether it should put public cash in.

    But it shows the problems of company pension schemes, if the company goes down, you lose your job and pension. SIPP schemes, for all their problems, allow you to decouple the 2 failure modes.

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  2. The big difference in the way the PPF treats people who have pension benefits in schemes with bankrupt employers is whether they are past retirement age and taking benefits or not (not sure if this is statutory retirement age or the scheme retirement age)

    People who are past retirement age and taking benefits get the same pension they would have got other wise, bu their inflation annual adjustments are limited

    People who are not past retirement age (including early retirees) and/or are not taking benefits yet are capped at taking a pension of less than £3,000 a month (gross) maximum from the fund plus their inflation at age 65. If you retired before 65 the max pension you can get from the PPF is reduced pretty sharply, at 55 its something like £2,500 per month (gross)

    Not so much fun for people with big notional defined benefit pensions who retired early

    However, the number and value of defined benefit pensions schemes that exist to fund the PPF is constantly falling – you can expect payments to existing retirees to be capped real soon

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  3. Neverland, it is the scheme’s Normal Retirement Age, and there is relatively strong inflation protection for those who have not yet started to receive their pension for the period between the scheme going into the PPF and the scheme’s Normal Retirement Age (inflation up to 5% for pre-2009 service, up to 2.5% for service since).

    The PPF is therefore only worse for those yet to reach Normal Retirement Age (due to the 10% haircut), particularly those with very valuable pensions due to good pay and/or long service (due to the cap), and for all members if there is a lot of inflation after you reach Normal Retirement Age. But still a whole lot better than nothing (which used to be the way).

    The PPF fund is well funded and should be easily able to swallow BHS scheme whole, and if the remaining pool of DB schemes gets smaller and/or riskier, then the levies on those DB schemes increase to reflect this. It is worth noting that even if a DB scheme is closed to new members, or to future accrual, it is still subject to levies.

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    • If you think about it though the cap of £3,000 a month is about all you could buy from an index linked annuity with a spouse’s pension with a defined contribution fund around the level of the lifetime allowance of £1m

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  4. I understand what you mean about pension security. Hubby and I have just gone into deaccumulation. We have small bits of DB, DC, SIPPs, shares and ISAs all over the place to look after, due to changing jobs. Diversified, sure, but sometimes it is tedious keeping an eye on it all, as things have gone wrong in the past. There was the DB pension the company closed and transferred to Equitable Life, never satisfactorily resolved. The ISAs with the Icelandic banks where the government gave us our capital back but no interest that year. The DC fund in lifestyling mode that sold funds at the bottom of the market in the last recession; they wrote and told me 6 months after they did it. High fund charges. Don’t mention falling stock markets. Remember to keep on the right side of the taxman. Oh yes, I’m female born 1954 so the government kept pushing back my state pension with relatively short notice.
    I’m not really complaining as we have been lucky enough to be able to save up for retirement, but it does take attention and interest in the subject to keep it safe, and apparently the majority of the population aren’t really interested in doing that……………

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    • @Rowantree

      At another level you can see why people are attracted by the superficial simplicity of buy to let as a pension solution

      I personally think its nuts risky

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    • Yes,sometimes the amount of change that has happened or could happen is daunting. That’s why I tell myself not to get too caught up in it and stick to the core principles of regular saving and passive investing. Doing that saw me through the internet bubble, the crash of 2008, Gordon Brown and the rest.

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  5. @ Sex Money Health Death – I have a DB pension in payment, a public sector DB pension to come shortly, savings, no debt, and the ability to continue to work if I choose. I am incredibly lucky (I refuse to ascribe to wisdom or foresight, I know by what random walk I ended up here), and yet I have the same fears you do. Trusting that you have enough and will survive to enjoy it seems to be difficult for many people. I am trying to train myself to fear less and enjoy more. It’s hard.

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  6. I worry about my pension scheme too. I have a deferred DB one that is with a retailer and what chance have I of getting any benefit from it when I reach 67? I will not get a lot from it now (if I had not been made redundant, I would have accrued about 50% of my salary as an annual return at retirement). The company is strong at the moment but with 20 years to go, what is to say it doesn’t happen to that fund too? BHS was healthy a few years ago?

    I have also worked for a company that was sold for a song. The first thing the ‘asset strippers’ did was sell off all the stock and pocket £35m. They then made 90% of the staff redundant, avoided paying pension contributions (pension regulator had to get involved to try and get something out of them). It seems that these equity companies make good money out of failing companies and dump any bad assets by breaking them apart. They take the flack and get paid handsomely to do so. None of this money makes it into the pension fund.

    I now have lots of little pots of pensions all over the place which will be worth nothing as they get eaten away by excessive charges. I have ISAs and personal pension schemes to try and avoid the potential of no pension pot at all but it will not be worth much. At the moment, all my pension pots forecasts at about 20% of my current annual salary, if that. It will be well below the UK average salary and not much above the tax threshold. The joys of retirement in my future.

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