The 2016 Budget, and unfunded public sector pensions.
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The 2016 Budget, and unfunded public sector pensions.
It's fair to say, more upheaval.
"It is government’s policy is to review the discount rate used to set employer contributions to the unfunded public service pension schemes every 5 years. The discount rate is based on the OBR’s long term projections of GDP growth. Budget 2016 sets out that the recent assessment has resulted in a reduction in the discount rate which will increase the contributions employers pay to the schemes from 2019-20 onward. This will ensure that the costs of providing pension benefits in the future are fairly reflected in the contributions paid by employers, and that the pension promises made today are on a sustainable basis to ensure fairness to future tax payers."
Overall though, so much to be quite happy about. Especially if you own a business, are 'of means' and/or want to decumulation effectively, or 'simply' save for the future.
https://www.gov.uk/government/publications/budget-2016-documents/budget-2016
"It is government’s policy is to review the discount rate used to set employer contributions to the unfunded public service pension schemes every 5 years. The discount rate is based on the OBR’s long term projections of GDP growth. Budget 2016 sets out that the recent assessment has resulted in a reduction in the discount rate which will increase the contributions employers pay to the schemes from 2019-20 onward. This will ensure that the costs of providing pension benefits in the future are fairly reflected in the contributions paid by employers, and that the pension promises made today are on a sustainable basis to ensure fairness to future tax payers."
Overall though, so much to be quite happy about. Especially if you own a business, are 'of means' and/or want to decumulation effectively, or 'simply' save for the future.
https://www.gov.uk/government/publications/budget-2016-documents/budget-2016
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AFPS is a long-term commitment, funded by the MoD, which has no tangible assets. When you join it, you will probably receive it 40 years in the future, so it's difficult to know how much money to set aside to fund it, now. One method used is to calculate the present value of your future pension by using an appropriate discount rate; eg, if the RAF promises you a payment of £100 in 10 years time, what is the cost of that promise right now to the defence budget?
If we assume that a company decides it needs to cost a future pension commitment, it could invest in government bonds (gilts) and expect that these will give a return of 4% (nominal) a year. The cost to it of providing £100 in 10 year's time is therefore: £100 ÷ 1.0410 = £67.56. Effectively, the discount rate used is 4%, which is equal to the expected return on government bonds. Alternatively, investing in equities, where it may expect a return of say, 8% (nominal! and for the maths) a year, the cost of providing the promise of £100 in 10 years time (using a discount rate of 8 per cent) will then be; £100 ÷ 1.0810 = £46.32
So it may appear as though a 'company', or entity, should invest in equities. This isn't always the case, because as we have seen - (especially this year!) - equities are more volatile and/or risky than government bonds. So if the company invests in equities there is an increased chance that the £46.32 they invest now may be less than £100 in 10 years time and they may need to make up the difference.
The concept of a discount rate becomes more difficult with AFPS as there are no tangible assets to back the pension promise. So, care is vital. What Osborne is saying, is that the discount rate will change (almost certainly, go down) and that therefore, the hypothetical cost of setting aside money now, means that more will have to be ring fenced. This will mean, savings will need to be made elsewhere and/or else how - by reducing benefits further, delaying age when it gets paid etc.
If we assume that a company decides it needs to cost a future pension commitment, it could invest in government bonds (gilts) and expect that these will give a return of 4% (nominal) a year. The cost to it of providing £100 in 10 year's time is therefore: £100 ÷ 1.0410 = £67.56. Effectively, the discount rate used is 4%, which is equal to the expected return on government bonds. Alternatively, investing in equities, where it may expect a return of say, 8% (nominal! and for the maths) a year, the cost of providing the promise of £100 in 10 years time (using a discount rate of 8 per cent) will then be; £100 ÷ 1.0810 = £46.32
So it may appear as though a 'company', or entity, should invest in equities. This isn't always the case, because as we have seen - (especially this year!) - equities are more volatile and/or risky than government bonds. So if the company invests in equities there is an increased chance that the £46.32 they invest now may be less than £100 in 10 years time and they may need to make up the difference.
The concept of a discount rate becomes more difficult with AFPS as there are no tangible assets to back the pension promise. So, care is vital. What Osborne is saying, is that the discount rate will change (almost certainly, go down) and that therefore, the hypothetical cost of setting aside money now, means that more will have to be ring fenced. This will mean, savings will need to be made elsewhere and/or else how - by reducing benefits further, delaying age when it gets paid etc.
You three have just reminded me of a "gin and tonic" the lovely Peter ("Six Feet Over") Charles one poured for me. Coughing and spluttering I realised he had poured me a "gin and gin"!
Last edited by Wander00; 16th Mar 2016 at 19:54.
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Does tonic water have sugar in it?
If they were serious, then they simply needed to legislate to reduce the sugar content in soft drinks sold in the UK.
It's like the failed and flawed bin tax, that little pearl would have resulted in increased fly tipping and people dumping their garbage in other people's bins, it's no good going after the consumer who gets all this packaging foisted upon them, they needed to hit the source and fine the manufacturers for using excess packaging, what is the point of fining consumers and recycling the waste excess paper products when the simple cure is to leave it all growing as a tree in the first place...
Rant over.
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Ah,ha! A bit like ASI! And, the tonic costs more than the Gin. 
We used to leave the lemon slices in the glass and when it was full of lemon slices, you had had enough! Joining you now! 
OAP
We used to leave the lemon slices in the glass and when it was full of lemon slices, you had had enough! Joining you now! OAP
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Today's Budget accompaniment..
https://twitter.com/raf_ifa/status/710084292928524289
"Mildly" Eccentric Stardriver
I realised he had poured me a "gin and gin"!
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Gin with a splash of gin sounds good. My daughter has invited me to the Cambridge Gin Festival next month. Dear god, what's that all about.. your daughter inviting you to a gin festival??
Anyway, for anyone who's remotely interested, these are my Budget thoughts. I have paid particular attention to the SCAPE issue which has been largely overlooked in the mainstream media (because it's not sexy and the impact is going to be insidious and many moons hence).
Anyway, for anyone who's remotely interested, these are my Budget thoughts. I have paid particular attention to the SCAPE issue which has been largely overlooked in the mainstream media (because it's not sexy and the impact is going to be insidious and many moons hence).
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Maybe I'm in a mid-life crisis but I've moved-on from G&T to Vodka Martini.
Before anyone asks, Mrs CGB would laugh, very loudly, at any thought of a James Bond link.
Before anyone asks, Mrs CGB would laugh, very loudly, at any thought of a James Bond link.
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Another bit of ludicrous legislation that will have squat impact, all it will result in is a raised cost to the consumer to offset the increased taxation.
If they were serious, then they simply needed to legislate to reduce the sugar content in soft drinks sold in the UK.
It's like the failed and flawed bin tax, that little pearl would have resulted in increased fly tipping and people dumping their garbage in other people's bins, it's no good going after the consumer who gets all this packaging foisted upon them, they needed to hit the source and fine the manufacturers for using excess packaging, what is the point of fining consumers and recycling the waste excess paper products when the simple cure is to leave it all growing as a tree in the first place...
Rant over.
If they were serious, then they simply needed to legislate to reduce the sugar content in soft drinks sold in the UK.
It's like the failed and flawed bin tax, that little pearl would have resulted in increased fly tipping and people dumping their garbage in other people's bins, it's no good going after the consumer who gets all this packaging foisted upon them, they needed to hit the source and fine the manufacturers for using excess packaging, what is the point of fining consumers and recycling the waste excess paper products when the simple cure is to leave it all growing as a tree in the first place...
Rant over.
So who knows?
Not convinced that Tonic should count though.
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the aim with the Sugar tax is to add it to the list of Sin Taxes - so it both raises money and reduces usage - just stopping them adding sugar would help the second aim but not the first and in these troubled times the Chancellor needs every £ he can extort. And of course in the future he can just keep piling the tax on..............
One thinhg that no-one has commented on is the almost total lack of ANY mention about defence spend in the Budget - just something about a commission to look at where ships might be built as far as I can see...............
One thinhg that no-one has commented on is the almost total lack of ANY mention about defence spend in the Budget - just something about a commission to look at where ships might be built as far as I can see...............