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politicalbetting.com » Blog Archive » Alastair Meeks gives his thoughts on university pensions
politicalbetting.com » Blog Archive » Alastair Meeks gives his thoughts on university pensions
My first boss was the source of many wise words, some of which I use to this day. “Alastair”, she would often say, “there is no problem in the world that cannot be made to go away with money”. It’s not strictly true, of course, but it is truer more often than is usually appreciated.
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One thread where we can all keep away from the Brexit wars?
There are hardly more generous schemes anywhere else if one stood back. So for new joiners it should be a non issue surely?
Democrats talk about the years since 2010 as the Lost Decade, a time when a generation of future leaders was wiped out by a pair of devastating midterm elections and the absence of a strategic plan to recoup from those losses. That’s one reason this year’s gubernatorial elections are the most important in years.
Most of the current political focus, understandably, is on the upcoming congressional elections... But the Democrats need significant gains in the gubernatorial elections this November if they want to begin a broader rebuilding effort to restore the party to the kind of strength it once enjoyed. Without vitality in the states, the Democrats will remain what they became in recent years: a hollowed-out political institution.
From the Washington Post
Transport for London's scheme is still final salary, still uprates benefits by RPI, allows retirement at 60 without actuarial reduction and has a contribution rate of only 5 per cent of salary with an employer contribution topping it up of over 30 per cent. And it has a huge deficit as well.
http://content.tfl.gov.uk/tfl-pension-fund-member-guide.pdf
And it can't be changed unless pension scheme members approve it - because its legally a private not a public sector pension scheme even though TfL is a monopoly entirely funded by taxes and fares.
Just shows the power of some unions over others.
“Defined benefit schemes give cross–subsidies all over the place, with the bulk of the cost of future service provision going towards providing the benefits of those close to retirement.”
To me - defined benefit has the large attraction that I know how much I will get more or less.
Yet these schemes always seem to get branded unaffordable?
But surely it depends at what the defined benefit level is.
The money purchase scheme Alistair recommends means I don’t know how much I will get?
And it makes it tricky to calculate how a promotion will affect my pension?
WHO ?
On your general point - we would soon go bankrupt!
Ummm.
"the frightening and volatile reports of the level of the deficit between valuations are based on a fundamentally different and less reliable “gilts plus” method for estimating investment returns on the assets in the scheme. Between valuations, changes in the market yield on gilts are solely responsible for any changes in the discount rate that USS employs.
If USS’s portfolio were invested almost entirely in gilts and other assets that behave like gilts, it would make sense for their discount rate to track the gilt yield. But only 17% of USS’s portfolio consists of gilts, and a majority is invested in return-seeking assets such as equity and property whose performance do not track the gilt yield. Therefore, investment returns on such a diversified portfolio will not track the gilt yield, nor will they exhibit the volatility of changes in the gilt yield."
https://medium.com/@mikeotsuka/alarming-deterioration-in-uss-funding-is-based-on-an-incoherent-valuation-methodology-3f0a0cc07229#.7wxpsyixd
[my bolding]
http://blogs.warwick.ac.uk/dennisleech/
"First, the [USS] scheme is not in deficit in the ordinarily meaning of the term."
If the USS pension changes do go through how would that affect those who've already retired?
I guess traditionally you wouldn't expect any changes there, but the this is pensions we are talking about, a notorious topic from R. Maxwell to the present.
i.e. those in work today are paying contributions which are paid out to today's retirees.
iirc if it all goes utterly wrong and is bankrupt then pensions rescue scheme will pay something like 90%.
Messrs Otsuka and Lech are right. The deficits are mostly phantom in nature, arising out of the dodgy accounting required by the actuaries and accounting standards setters. Quoting deficit figures of £6bn or £12bn and focusing on those to the exclusion of everything else is entirely unhelpful and will lead to poor outcomes for everyone.
What matters is whether the USS scheme can continue to meet its pension liabilities into the future. In 2017, the scheme received £1.5bn in investment income (i.e. excluding capital gains), £1.9bn from the university employers, and £0.2bn from staff members, for a total cash income of £3.6bn.
It paid out £1.8bn in benefits (in the form of pensions) and costs. So in cash terms, its pension payments were twice covered by its income, a very healthy state of affairs that is likely to last long into the future.
In that context, closing the defined benefit scheme because of phantom deficits is completely misguided.
Pension deficits are valued the way they are because schemes move into gilts to account for retiring members. Therefore the fund is £6bn off where it would need to be to fund existing members. It must out-perform the gilt market, year on year, to close the £6bn gap.
Ahem. Well, not me, obviously ...
The problem is actually that for some subjects, £50k a year for somebody of that level of expertise is very low, for others it is a significantly more than what they would get elsewhere.
For example, somebody from a top UK university with BSc, MSc, PhD, and 2-3 years of post-doc say in machine learning could easily end up working with a big tech firm or a bank on £150k+ a year pretty much straight away. Somebody with that in history of art on the other hand.
British Airways are about to have more retired pilots than current pilots. The vast majority of the retired pilots will be higher rate taxpayers for life.
Samir Nasri set for six-month ban following drip treatment in 2016 - lawyer says
http://www.bbc.com/sport/football/43189672
The civil service is adjusting its rules for new members to help close that gap, and rightly so.
The Telegraph is an absolute mess these days.
The actual article is about two steps short of that, i.e. slightly more sane. The writer effectively prefers carrots to sticks, voluntary action over compulsion
As it turns out it was a good plan. I didnt expect the private sector pension schemes to get worse and worse so quickly .
I retired at 54 on about 2/3rds of what i would have got at 60 if i had stayed which was a good job as we had 3yrs of good holidays before Mrs BJ became permanently paralysed.
The other thing i hadn't totally realised is that my state pension will be over £30 a week less on current numbers compared to someone on a private scheme forever.
Although actually now i am a carer that £30 a week gap is erroding. I understand someone who has been unemployed all their life get NI Contributions paid so they get the £30 more full state pension.
Overall my age group is relatively lucky compared to the young. Public Sector schemes are based on average salary now and my minimum contribution would be treble in % terms compared to what it was 40 years ago.
In fairness none of us know what the future holds and my plans for life after work have been shattered because of Mrs BJs health and thoroughly shit life she now has.
The fund is £6bn off where it would need to be only if all future pension liabilities were crystallised and suddenly became payable today. That is so far from the reality of the situation that it makes no sense to think in such terms.
For a long term, stable scheme, where retiring/dying members are continually being replaced
(possibly into perpetuity) by new members coming in, looking at the scheme's cashflow makes perfect sense and comparisons to a ponzi scheme are not appropriate.
The present value of investments already reflects their future earning potential.
If you are confident for example that gilt yields will be higher in ten years, then the pension fund should not be in equities let alone bonds. It should be in gilt options and futures.
Except the fund isn't and therefore they aren't. A fund cannot know which horses to back today. It has a degree of time on its side, which is helpful, and it can expect to outperform gilts by a margin
But that does not make a pension deficit "nonsense". A fund has to be closely monitored and well managed.
The result of these complications (plus of course the urgent need for actuaries to be very well paid indeed) mean that there are a large number of different ways that a fund can be valued with very different results. I am one of the trustees for a pension scheme. It is a closed scheme in that the staff were switched to DC some years ago now but there are still accrued rights. According to our actuary we are in the very happy position of having a fund that is 103% funded. According to FRS102 we have a deficit of something like £3m, approximately 10%. This sum now requires to be on the balance sheet of the service company that employs or employed the members of the scheme and it makes that company absolutely insolvent.
So which is right? 103% or £3m deficit? Who know? They are both just mathematical guesses of how things might end up, one more obviously cautious than the other. What is clear to me is that this is not just a problem for the USS. These deficits, which may or may not exist, are so large that they put enormous pressure on companies that have or more likely had DB schemes. They are having macroeconomic effects reducing investment and dividend payouts and also growth.
Having different valuations for different purposes really makes no sense at all. Most of these deficits were created by the collapse of gilt rates after 2008. If gilts returned to more "normal" levels of 3-4% the deficits would largely disappear but I have been hearing expectations of that for as long as I have been a trustee and you begin to wonder if this is the new normal that we have to adjust to. The surpluses of 20 years ago were based upon assumptions of growth of the underlying assets that look wildly optimistic now but the crisis in pensions has been caused by many governments, including ours, rigging their gilt markets so that they can borrow absurdly cheaply, whether by QE or otherwise. There is no such thing as a free lunch.
As far as proper newspapers are concerned the only ones worth reading these days are the Times and the Guardian.
They have a market "WILL TRUMP BE IMPEACHED IN HIS FIRST TERM?" which used to have the subtitle (House of Representatives to successfully vote to impeach" or words to that effect, but they are gone. Are they hiding somewhere?
Somebody with a BSc, MSc, PhD and 2-3 years of post-doc in machine learning would be in their late 20s/early 30s, will have learned C++/Java in school, and will have recently transitioned to R and probably won't have Python.
Whereas somebody with just a BSc and MSc will be in their early 20's, will have been coding in R and Python for most of their career and will accept jobs around the 30-40K outside London and 40-50K in London.
You get old fast in this business and can get outbid very quickly.
Over the past 18-24 months both the UK Government and Scottish Government have been throwing money into Data Mining/Machine Learning and there's going to be quite a few bright young Tillys emerging blinking into the employment worlds and will walk into 40-50K jobs. Which is great (and at that age is damn good) but it's not the hookers-and-coke level salaries you describe.
You can challenge the assumptions about investment returns, you can challenge the assumption about how long beneficiaries are going to live, you can trim at the edges in respect of widows rights, lump sum entitlements, death in service benefits etc but ultimately like must be matched with like.
Same to your daughter and Grand daughter I feel so much for them at least my life only came to a grinding halt in my late fifties.
Sounds like your daughters situation is even more tragic than ours.
NHS Superannuation has been very good, though now on career average earnings. The NHS has been a pretty crappy employer otherwise.
b) I wasn't saying they will get £150k as soon as they leave. Although, I personally know of a number of people who have gone to work for the big boys on that kind of money.
c) Those will the kind of background I describe aren't simply looking for work in the UK
d) Evidence...
"typical AI specialists, including both Ph.D.s fresh out of school and people with less education and just a few years of experience, can be paid from $300,000 to $500,000 a year or more in salary and company stock."
https://news.slashdot.org/story/17/10/24/0644254/tech-giants-are-paying-huge-salaries-for-scarce-ai-talent
[S]killed cloud and backend developers, as well as those who work in emerging technologies including Internet of Things, machine learning and augmented/virtual reality can make more money than frontend web and mobile developers whose skills have become more commoditized... The top 10 percent of salary earners in AR who live in North America earn a median salary of $219,000
https://it.slashdot.org/story/17/04/03/0416223/salary-comparing-survey-identifies-top-paid-developers-discovers-north-america-pays-better
True yet that is also the basis of the State Pension.
I really think the Triple Lock has to go but without cross party support will it??
Really sorry to hear about your troubles. I very much hope things improve for Mrs BJO.
Mrs BJ gets put to bed at 8
So I can be over after that!!!
And even if they had, then - given their existing skillset - they could pick up Python in a couple of hours.
If you were forced to make a guesstimate what age would you predict my youngest daughter (age 22) would get a state pension.
She is working on never and hoping to save circa 0.5m in todays money in next 40 years.
At best that means that the young pay up more than their forebears did, and break even on the necessary membership; or they pay what their forebears did and it is expansive.
my favourite is the cheese shop
The reason - I suspect - that ratios have remained healthy in the Universities scheme, is that our education sector has continued to expand. We have more academics than ever before paying into a scheme.
Now imagine that the UK population becomes fixed at 65 million. That means that the number of people going to university will be falling going forward, as a consequence of our ageing society. This in turn means we'll need fewer academics. At the same time, rising life expectancies and the recent increase in the number of academics, means the number of people supported by this diminishing number of workers.
If the number of academics falls by a half, while the number of retirees double (and the second of these is a near certainty), then that positive funding ratio disappears very quickly. (And with it the assets of the scheme.)
Many private schemes created their own problems by taking contribution holidays in the Eighties and Nineties.
FWIW, I just received my notice (it's still a long way off), 68 years, 8 months. I'm sure it'll go up further.
There's a rising consensus that the inter-generational gap is morally wrong. My generation (I'm the last of the boomers), won on the swings and the roundabouts. Green has proposed an 'over 40 tax' for social care, the triple lock is daft, and I'd be delighted to see means testing for other pensioner freebies.