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I apologise for a cut and paste job, but I think that many of you should read and digest the following:
Tim Byatt: you too are guilty of looking at incomparable numbers;
Regarding your comparison of the FRS17 figures applied to 2003 numbers, the FRS17 comparable figures are in fact set out in the accounts alternatively under FRS17 on pages 57 and 59 of the 2004 and 2005 accounts respectively, with the 2003 comparison clearly at a lower value - these are combined APS, NAPS figures (this increases in size if the other pension schemes are included e.g. other group companies and overseas DB schemes):
2003: £1,037m
2004: £1,067m
2005: £1,282m
It has not gone down despite increased contributions.
Your second points - I think - is confused - I cannot conceive that Watson Wyatt LLP would sign off upon incorrect mortality figures for NAPS - perhaps you could provide some proof of that and post here for us to assess?
Out of pocket
Nov 3rd 2005
From The Economist print edition
The true cost of Britain's corporate pension schemes
WHEN Gordon Brown, the chancellor of the exchequer, raised employer national-insurance contributions by £4 billion ($7 billion) a year in his 2002 budget, British business cried foul. But on October 31st, David Norgrove, chairman of the Pensions Regulator, set out proposals that will involve a cash call double that amount to get rid of company pension-fund shortfalls over the next ten years, and there was no great fuss. Instead, the stockmarket was galvanised by a takeover spree by foreign bidders for some big British firms.
A sanguine interpretation of this week's events is that prescient markets had already taken on board the scale of action needed to address pension-fund deficits. More likely, however, they have not woken up to the full impact of the regulator's proposals. That would be par for the course. There is a long, worrying history of government meddling in company pensions whose full impact is only appreciated years after the event.
The failure to grasp the impact of new measures arises from the complexity of arrangements for funding private defined-benefit (DB) pensions, which are linked to final salary and years of service. This has grown enormously in the past year, as a new insurance and regulatory framework for company pensions has been constructed. The groundwork was completed in April when the Pension Protection Fund (PPF) started and the Pensions Regulator became a force in the land, replacing OPRA, its feeble predecessor.
The PPF, supported by compulsory levies on company schemes, provides compensation for members of underfunded DB pension plans whose sponsoring employers go bust. From the outset, the government has sought to avoid the financial problems afflicting America's 30-year-old company pension-insurance system. At the latest count, the Pension Benefit Guaranty Corporation (PBGC) had a record deficit of $23 billion on its books, which many believe will require a government bail-out.
One distinctive feature of the British approach is that the PPF will rapidly make the levy mainly risk-based. Its charges will take into account both the funding of pension schemes and the risk that their companies may become insolvent. Another is that the regulator has been armed with powers to counter moral hazard—the temptation for companies to behave more riskily towards their pension funds once there is an insurance safety-net.
But these policies will prove ineffective as long as Britain's private DB plans remain perilously under-funded. The PPF does not provide full compensation: working-age members get 10% less in their prospective pension, which is also capped at a mere £25,000 a year; and indexation arrangements for pensions in payment are restricted. As a result, the benefits guaranteed by the PPF are worth some 30% less than the full value that would be secured through a buyout from an insurance company if a scheme had enough money, estimates Nigel Bodie of Watson Wyatt, an actuarial consultancy. Even so, the PPF revealed in July that the total deficit in company pensions under its valuation rules is £134 billion.
That estimate is broadly equivalent to the £130 billion deficit that companies are registering under the FRS17 accounting standard, according to new figures this week from the regulator. That gap has emerged in the past few years because falling stockmarkets, rising longevity and declining interest rates have together battered pension-scheme finances. The deficit has proved stubbornly difficult to shift, despite the recent recovery in stockmarkets.
On October 31st the regulator served notice, in effect, that companies must get rid of these deficits within ten years. It is saying that the trustees of schemes and sponsoring employers must now, in general, draw up recovery plans to eliminate their deficits by around 2015; otherwise it is likely to intervene. It argues that this is a reasonable timetable, since over a ten-year period the financial health of firms is more likely to deteriorate than to improve.
The regulator's plan is out for consultation, but its broad thrust is unlikely to change very much. Business regards the funding stipulations as onerous. In 2004 employers pumped £25 billion—equivalent to 2.2% of GDP—into pension funds, more than double the amount in 2001 (see chart on previous page). Around a third of this—almost £8 billion—was comprised of special contributions to reduce deficits. According to Mr Bodie, the regulator's proposals will require companies to stump up about a further £8 billion a year.
Estimates for the regulator by PWC, an accountancy firm, demonstrate the potential burden. These show that for 65% of companies, the cost of paying off their FRS17 shortfall would amount to less than 25% of their free cash flow (profits plus depreciation). But for 15% of firms, it would absorb 25-100%; and for 20% of companies, it would exceed the free cash that they can generate.
Furthermore, companies are also facing another financial strain, the payments they must make for pension insurance. Within a few weeks, the PPF will reveal the total bill that it will charge private DB schemes next year—the final building-block in the new structure for company pensions. The levy is likely to be double the government's original estimate of £300m a year, says Raj Mody of Hewitt, a human-resources consultancy.
Even with such a boost to its resources, there are doubts about whether the PPF will prove viable in the long run without recourse to the taxpayer. In America the PBGC has been overwhelmed by huge claims from foundering industries such as steel and airlines. “It's become painfully clear that policy towards pensions has become industrial policy,” says Olivia Mitchell, executive director of the Pension Research Council. When this happens, she says, “the system ceases to be insurance and becomes bail-out”.
The immediate danger is that firms may conclude that the load on them is too much to bear. “If you push too hard, employers will give up,” says Robin Ellison, chairman of the National Association of Pension Funds. Already about 70% of DB schemes are closed to new employees. The NAPF is now expecting a second wave of closures, in which firms would stop the future accrual of pension benefits for existing members of DB schemes. Alternatively, they might make accrual less generous, so that each year of future service builds up less benefit.
With so many schemes already closed to new employees, the traditional company pension is a dying species. The worry about the regulator's approach is that if business decides the pressure is excessive it can and will advance that date with the undertaker.
Tim Byatt: you too are guilty of looking at incomparable numbers;
Regarding your comparison of the FRS17 figures applied to 2003 numbers, the FRS17 comparable figures are in fact set out in the accounts alternatively under FRS17 on pages 57 and 59 of the 2004 and 2005 accounts respectively, with the 2003 comparison clearly at a lower value - these are combined APS, NAPS figures (this increases in size if the other pension schemes are included e.g. other group companies and overseas DB schemes):
2003: £1,037m
2004: £1,067m
2005: £1,282m
It has not gone down despite increased contributions.
Your second points - I think - is confused - I cannot conceive that Watson Wyatt LLP would sign off upon incorrect mortality figures for NAPS - perhaps you could provide some proof of that and post here for us to assess?
Out of pocket
Nov 3rd 2005
From The Economist print edition
The true cost of Britain's corporate pension schemes
WHEN Gordon Brown, the chancellor of the exchequer, raised employer national-insurance contributions by £4 billion ($7 billion) a year in his 2002 budget, British business cried foul. But on October 31st, David Norgrove, chairman of the Pensions Regulator, set out proposals that will involve a cash call double that amount to get rid of company pension-fund shortfalls over the next ten years, and there was no great fuss. Instead, the stockmarket was galvanised by a takeover spree by foreign bidders for some big British firms.
A sanguine interpretation of this week's events is that prescient markets had already taken on board the scale of action needed to address pension-fund deficits. More likely, however, they have not woken up to the full impact of the regulator's proposals. That would be par for the course. There is a long, worrying history of government meddling in company pensions whose full impact is only appreciated years after the event.
The failure to grasp the impact of new measures arises from the complexity of arrangements for funding private defined-benefit (DB) pensions, which are linked to final salary and years of service. This has grown enormously in the past year, as a new insurance and regulatory framework for company pensions has been constructed. The groundwork was completed in April when the Pension Protection Fund (PPF) started and the Pensions Regulator became a force in the land, replacing OPRA, its feeble predecessor.
The PPF, supported by compulsory levies on company schemes, provides compensation for members of underfunded DB pension plans whose sponsoring employers go bust. From the outset, the government has sought to avoid the financial problems afflicting America's 30-year-old company pension-insurance system. At the latest count, the Pension Benefit Guaranty Corporation (PBGC) had a record deficit of $23 billion on its books, which many believe will require a government bail-out.
One distinctive feature of the British approach is that the PPF will rapidly make the levy mainly risk-based. Its charges will take into account both the funding of pension schemes and the risk that their companies may become insolvent. Another is that the regulator has been armed with powers to counter moral hazard—the temptation for companies to behave more riskily towards their pension funds once there is an insurance safety-net.
But these policies will prove ineffective as long as Britain's private DB plans remain perilously under-funded. The PPF does not provide full compensation: working-age members get 10% less in their prospective pension, which is also capped at a mere £25,000 a year; and indexation arrangements for pensions in payment are restricted. As a result, the benefits guaranteed by the PPF are worth some 30% less than the full value that would be secured through a buyout from an insurance company if a scheme had enough money, estimates Nigel Bodie of Watson Wyatt, an actuarial consultancy. Even so, the PPF revealed in July that the total deficit in company pensions under its valuation rules is £134 billion.
That estimate is broadly equivalent to the £130 billion deficit that companies are registering under the FRS17 accounting standard, according to new figures this week from the regulator. That gap has emerged in the past few years because falling stockmarkets, rising longevity and declining interest rates have together battered pension-scheme finances. The deficit has proved stubbornly difficult to shift, despite the recent recovery in stockmarkets.
On October 31st the regulator served notice, in effect, that companies must get rid of these deficits within ten years. It is saying that the trustees of schemes and sponsoring employers must now, in general, draw up recovery plans to eliminate their deficits by around 2015; otherwise it is likely to intervene. It argues that this is a reasonable timetable, since over a ten-year period the financial health of firms is more likely to deteriorate than to improve.
The regulator's plan is out for consultation, but its broad thrust is unlikely to change very much. Business regards the funding stipulations as onerous. In 2004 employers pumped £25 billion—equivalent to 2.2% of GDP—into pension funds, more than double the amount in 2001 (see chart on previous page). Around a third of this—almost £8 billion—was comprised of special contributions to reduce deficits. According to Mr Bodie, the regulator's proposals will require companies to stump up about a further £8 billion a year.
Estimates for the regulator by PWC, an accountancy firm, demonstrate the potential burden. These show that for 65% of companies, the cost of paying off their FRS17 shortfall would amount to less than 25% of their free cash flow (profits plus depreciation). But for 15% of firms, it would absorb 25-100%; and for 20% of companies, it would exceed the free cash that they can generate.
Furthermore, companies are also facing another financial strain, the payments they must make for pension insurance. Within a few weeks, the PPF will reveal the total bill that it will charge private DB schemes next year—the final building-block in the new structure for company pensions. The levy is likely to be double the government's original estimate of £300m a year, says Raj Mody of Hewitt, a human-resources consultancy.
Even with such a boost to its resources, there are doubts about whether the PPF will prove viable in the long run without recourse to the taxpayer. In America the PBGC has been overwhelmed by huge claims from foundering industries such as steel and airlines. “It's become painfully clear that policy towards pensions has become industrial policy,” says Olivia Mitchell, executive director of the Pension Research Council. When this happens, she says, “the system ceases to be insurance and becomes bail-out”.
The immediate danger is that firms may conclude that the load on them is too much to bear. “If you push too hard, employers will give up,” says Robin Ellison, chairman of the National Association of Pension Funds. Already about 70% of DB schemes are closed to new employees. The NAPF is now expecting a second wave of closures, in which firms would stop the future accrual of pension benefits for existing members of DB schemes. Alternatively, they might make accrual less generous, so that each year of future service builds up less benefit.
With so many schemes already closed to new employees, the traditional company pension is a dying species. The worry about the regulator's approach is that if business decides the pressure is excessive it can and will advance that date with the undertaker.
Last edited by Re-Heat; 23rd Dec 2005 at 10:39.
Couldonlyaffordafiver
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...but would you rather see the scheme go...or the company?
Wingswinger
I think you have things round the wrong way. Insurance companies do not buy out on wind up????
A company announces (I might add that I do not believe that this will happen at BA anytime soon) that it wants to wind up the scheme. The trustees consult the scheme actuary. The actuary consults with the market (in fact in the case of BA I doubt very much that the market is big enough for this to happen) and tells the trustees how much money is required from the company to buy out ALL the liabilities. There is no difference between pensioners,deferred or actives. They ALL get annuities bought for them with their widows benefits and RPI etc. This is the law.
Now if the company was bust then that is a whole new ball game.
BA are not going to wind up or are about to close to future accrual. Wind up would be very expensive for the company along with the industial angst just as closure to future accrual would have huge industrial repercussions. No what you are going to get is increase your contribution substantially or except lower accrual - plain and simple.
I think you have things round the wrong way. Insurance companies do not buy out on wind up????
A company announces (I might add that I do not believe that this will happen at BA anytime soon) that it wants to wind up the scheme. The trustees consult the scheme actuary. The actuary consults with the market (in fact in the case of BA I doubt very much that the market is big enough for this to happen) and tells the trustees how much money is required from the company to buy out ALL the liabilities. There is no difference between pensioners,deferred or actives. They ALL get annuities bought for them with their widows benefits and RPI etc. This is the law.
Now if the company was bust then that is a whole new ball game.
BA are not going to wind up or are about to close to future accrual. Wind up would be very expensive for the company along with the industial angst just as closure to future accrual would have huge industrial repercussions. No what you are going to get is increase your contribution substantially or except lower accrual - plain and simple.
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Reheat,
Thanks for your FRS17 deficit numbers from the annual accounts.
If I can refer to my second point first, regarding the use of different mortality tables for the 2003 actuaries valuations of APS and NAPS by Watson Wyatt.
If you go to www.mybapension.com homepage, and click on "scheme documents" on the right hand side, you should get a list of pdf files. Compare the "NAPS full valuation 2003" report page 9, point 4.3 with the "APS full valuation report 2003" page 6, points 4.2 4.3 and 4.4, you will see the difference between the mortality table used (1992 in APS and 1980 in NAPS). Both valuations were signed off on 18th Nov 2003 and yet use different data.
This is highlight by John Ralfe on page 7 of his 03 Nov 2005 report "Corporate Pensions : Spotlight on British Airways" published as Volume 21 on the RBC Open Forum Notes.
If you forgive me, I will come back to my first point late this evening as I need to get some more reference and also don't want to make this post too long.
Regards,
Tim Byatt
Thanks for your FRS17 deficit numbers from the annual accounts.
If I can refer to my second point first, regarding the use of different mortality tables for the 2003 actuaries valuations of APS and NAPS by Watson Wyatt.
If you go to www.mybapension.com homepage, and click on "scheme documents" on the right hand side, you should get a list of pdf files. Compare the "NAPS full valuation 2003" report page 9, point 4.3 with the "APS full valuation report 2003" page 6, points 4.2 4.3 and 4.4, you will see the difference between the mortality table used (1992 in APS and 1980 in NAPS). Both valuations were signed off on 18th Nov 2003 and yet use different data.
This is highlight by John Ralfe on page 7 of his 03 Nov 2005 report "Corporate Pensions : Spotlight on British Airways" published as Volume 21 on the RBC Open Forum Notes.
If you forgive me, I will come back to my first point late this evening as I need to get some more reference and also don't want to make this post too long.
Regards,
Tim Byatt
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I can only assume that what he mentioned in 4.2 of the NAPS scheme more than accounts for it - bear in mind that WW is independent of BA pensions, and WW LLP's selection is up to them.
I would have assumed that whatever enhancements are made behind paragraph 4.2 would have made '80 figures more appropriate to the demographic profile of NAPS members perhaps? I can't help any more than that however, since I am not an actuary but a chartered accountant.
Page 4 for more details that you may find interesting as well:
http://www.pwcglobal.com/uk/eng/ins-...urvey_2005.pdf
I would have assumed that whatever enhancements are made behind paragraph 4.2 would have made '80 figures more appropriate to the demographic profile of NAPS members perhaps? I can't help any more than that however, since I am not an actuary but a chartered accountant.
Page 4 for more details that you may find interesting as well:
http://www.pwcglobal.com/uk/eng/ins-...urvey_2005.pdf
Last edited by Re-Heat; 23rd Dec 2005 at 19:07.
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RHINO,
Yes I know that. I was just keeping my posts economical! Insurance companies may buy-out a scheme but I doubt that any would want to. Many of them have been in trouble of some sort too.
The main worry has to be if the company crashes while there is a deficit or runs into trouble which hits the share price and there is a resulting take-over bid by foriegn interests. That, as you say, is a whole new ball-game.
What we should be directing our energies at is the political interference in long-term retirement investment. I firmly believe that GB's raid on pension funds had far greater consequences than anyone thought possible. It has occured to me that he may have known exactly what he was doing. He is, after all, a declared enemy of the well-off middle classes.
YachtNo1,
Where did you get the estimated £850m cost to APS/NAPS of GB's raid? That is something which, if true, we should shout from the rooftops. We can justifiably take the view that it has been transferred directly from BA pensioners/future pensioners to public-sector employees on guaranteed index-linked FS pensions.
Yes I know that. I was just keeping my posts economical! Insurance companies may buy-out a scheme but I doubt that any would want to. Many of them have been in trouble of some sort too.
The main worry has to be if the company crashes while there is a deficit or runs into trouble which hits the share price and there is a resulting take-over bid by foriegn interests. That, as you say, is a whole new ball-game.
What we should be directing our energies at is the political interference in long-term retirement investment. I firmly believe that GB's raid on pension funds had far greater consequences than anyone thought possible. It has occured to me that he may have known exactly what he was doing. He is, after all, a declared enemy of the well-off middle classes.
YachtNo1,
Where did you get the estimated £850m cost to APS/NAPS of GB's raid? That is something which, if true, we should shout from the rooftops. We can justifiably take the view that it has been transferred directly from BA pensioners/future pensioners to public-sector employees on guaranteed index-linked FS pensions.
Last edited by Wingswinger; 24th Dec 2005 at 07:56.
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Reheat,
Sorry for the delay, Had a very long day yesterday and didn't get back to the first point about the FRS17 deficit.
Significant play has been made in internal presentations to BA staff that £928mil deficit in the 2003 valuation has now risen to a £1.4bn deficit, and the point I was making was these two figures are not comparing like with like.
John Ralfe's paper "Corporate Pensions : The Actuaries' Magic Pencil" RBC Open Forum Notes Vol.3 , published 11 Dec 2003 and viewable on his website www.johnralfe.com highlighted that if the full NAPS actuaries valuation had been an actuarial valuation to FRS17 criteria the deficit in NAPS would have been £1.6bn in 2003. See page 5 of this report.
BA through their internal intranet website have only just admitted this, despite the fact for the past 2 months presentations to staff have been comparing £928mil in 2003 with £1.4bn now.
From the BA intranet :-
"19th Dec [2005] Response from Robert French - BA Pensions Risk Manager.
To pick upon a few recent comments. The £1.4bn deficit figure is the FRS17 deficit on all BA pension schemes (of which NAPS is by far the majority) as shown in the company accounts for 2004-05. The last actuarial valuation of NAPS in 2003 had a deficit of £928mil. These figures are not comparable. The FRS17 figure gets mentioned a) because that's the measure many of the external communtators use and b) it gets shown in the accounts each year. We believe the 2006 actuarial valuation of NAPS will show an increased deficit, despite by then having received around £270mil of extra deficit payments from BA. Thats because of the significant fall in interest rates and further improvements in life expectancy."
What I and many others would like to know is how the 2006 actuarial valuation figure to be released in the autumn of 2006 compares with the £1.6bn FRS17 figure from the 2003 valuation. Of course the 2003 figures were using older mortality data (1980) than that which the 2006 valuation will have to use, as the PPF requires the use of 1992 data.
NAPS is very sensitive to changes in life expectancy ( I presume this is because many many staff in BA have long lengths of service with BA and have higher pensions on retirement accrued from just BA service) and it has been estimated that a 2 year increase in NAPS life expectancy would increase NAPS liabilities (and therefore currently its deficit) by £500mil. (Source : RBC Open Forum Notes Vol.21 )
If this increase life expectancy was forecastable in 2003 but the acturies chose not to use it then, why not ?
Presumably because they did not HAVE to use it then, and BA's contributions would have been even higher over the 2004-06 period. Interestingly, for the first time in 2002, the contract to appoint a scheme actuary for NAPS was put out to competitive tender with 3 firms, one of whom was the incumbant Watson Wyatt bidding. Watson Wyatt won the three year contract and therefore carried out the 2003 valuation. (Source: In Focus Nov 2004 newsletter )
Speculation I know , but Watson Wyatt would not have wanted to overstate the liabilities and hence the deficit if it didn't have to, and face BA's wrath, with BA having to pay even larger contributions at a difficult time . Incidentally BA also appoint its own independent actuarial advisors, again presumably to challenge Watson Wyatt if they started making too many expensive assumptions that they don't absolutely have to.
BA's timeline for 2006 is something like this.
Having overstated the deficit to staff and tried to scare them into believing BA will fold along with your accrude pension if we don't make massive cuts to your future contractual pension entitlement, BA approach the unions for large pension concessions .
BA hope staff will be too scared/ divided to fight, so unions agree to at least some major reduction in future pension accrual.
BA then approach NAPS trustees with new proposals for staff pension.
Valuation in 2006 carried out using new assumptions for future service which results in lower liabilities and hence lower deficit.
Trustees agree not to force higher contributions from the BA as deficit now much reduced, the Pensions regulator is happy as deficit will be cleared by 2015 using new realistic assumptions, BA's PPF (Pension Protection Fund) payments reduce over time, BA able to reduce pension contributions back to normal sooner, and future dividend payments resume as threat of contribution notice being served on BA by Pensions Regulator withdrawn, and the only losers are
**BA employees in NAPS with future service until retirement.**
Oh and whatever the outcome of the pension talks, the next pay round is due in Sept 2006, so BA tell staff/unions they can't afford inflationary payrise as the outcome of the pension negotiations in spring 2006 with the unions was to expensive.
BA do not want/expect us to fight this. How wrong they are.
Tim Byatt
Sorry for the delay, Had a very long day yesterday and didn't get back to the first point about the FRS17 deficit.
Significant play has been made in internal presentations to BA staff that £928mil deficit in the 2003 valuation has now risen to a £1.4bn deficit, and the point I was making was these two figures are not comparing like with like.
John Ralfe's paper "Corporate Pensions : The Actuaries' Magic Pencil" RBC Open Forum Notes Vol.3 , published 11 Dec 2003 and viewable on his website www.johnralfe.com highlighted that if the full NAPS actuaries valuation had been an actuarial valuation to FRS17 criteria the deficit in NAPS would have been £1.6bn in 2003. See page 5 of this report.
BA through their internal intranet website have only just admitted this, despite the fact for the past 2 months presentations to staff have been comparing £928mil in 2003 with £1.4bn now.
From the BA intranet :-
"19th Dec [2005] Response from Robert French - BA Pensions Risk Manager.
To pick upon a few recent comments. The £1.4bn deficit figure is the FRS17 deficit on all BA pension schemes (of which NAPS is by far the majority) as shown in the company accounts for 2004-05. The last actuarial valuation of NAPS in 2003 had a deficit of £928mil. These figures are not comparable. The FRS17 figure gets mentioned a) because that's the measure many of the external communtators use and b) it gets shown in the accounts each year. We believe the 2006 actuarial valuation of NAPS will show an increased deficit, despite by then having received around £270mil of extra deficit payments from BA. Thats because of the significant fall in interest rates and further improvements in life expectancy."
What I and many others would like to know is how the 2006 actuarial valuation figure to be released in the autumn of 2006 compares with the £1.6bn FRS17 figure from the 2003 valuation. Of course the 2003 figures were using older mortality data (1980) than that which the 2006 valuation will have to use, as the PPF requires the use of 1992 data.
NAPS is very sensitive to changes in life expectancy ( I presume this is because many many staff in BA have long lengths of service with BA and have higher pensions on retirement accrued from just BA service) and it has been estimated that a 2 year increase in NAPS life expectancy would increase NAPS liabilities (and therefore currently its deficit) by £500mil. (Source : RBC Open Forum Notes Vol.21 )
If this increase life expectancy was forecastable in 2003 but the acturies chose not to use it then, why not ?
Presumably because they did not HAVE to use it then, and BA's contributions would have been even higher over the 2004-06 period. Interestingly, for the first time in 2002, the contract to appoint a scheme actuary for NAPS was put out to competitive tender with 3 firms, one of whom was the incumbant Watson Wyatt bidding. Watson Wyatt won the three year contract and therefore carried out the 2003 valuation. (Source: In Focus Nov 2004 newsletter )
Speculation I know , but Watson Wyatt would not have wanted to overstate the liabilities and hence the deficit if it didn't have to, and face BA's wrath, with BA having to pay even larger contributions at a difficult time . Incidentally BA also appoint its own independent actuarial advisors, again presumably to challenge Watson Wyatt if they started making too many expensive assumptions that they don't absolutely have to.
BA's timeline for 2006 is something like this.
Having overstated the deficit to staff and tried to scare them into believing BA will fold along with your accrude pension if we don't make massive cuts to your future contractual pension entitlement, BA approach the unions for large pension concessions .
BA hope staff will be too scared/ divided to fight, so unions agree to at least some major reduction in future pension accrual.
BA then approach NAPS trustees with new proposals for staff pension.
Valuation in 2006 carried out using new assumptions for future service which results in lower liabilities and hence lower deficit.
Trustees agree not to force higher contributions from the BA as deficit now much reduced, the Pensions regulator is happy as deficit will be cleared by 2015 using new realistic assumptions, BA's PPF (Pension Protection Fund) payments reduce over time, BA able to reduce pension contributions back to normal sooner, and future dividend payments resume as threat of contribution notice being served on BA by Pensions Regulator withdrawn, and the only losers are
**BA employees in NAPS with future service until retirement.**
Oh and whatever the outcome of the pension talks, the next pay round is due in Sept 2006, so BA tell staff/unions they can't afford inflationary payrise as the outcome of the pension negotiations in spring 2006 with the unions was to expensive.
BA do not want/expect us to fight this. How wrong they are.
Tim Byatt
Last edited by Tim Byatt; 24th Dec 2005 at 15:32.
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I have to say Tim, you appear much better informed than I - I hope for all our sakes that you are right. My only major doubt is the info I had from my own actuary/adviser, who led me to belive that any Company can wind up the scheme if it can show that repayment of the deficit would cause sufficient pain to actually imperil the future of the Company itself. That is the method I would use if I were the BA board, having first gone through the softening up exercise which you so aptly describe above. My other understanding which seems to be queried on here is that in the event of wind up, then present pensioners always take precedence over deferred and active contributors - some on here seem tio think this is wrong as well. Nothing would give me more pleasure than to believe it, but I have serious doubts. Finally, I understand that a scheme can only be wound up when the Company is insolvent, other than the case I mentioned above, when deficit repayment threatens the Company's future - any informed comment? (Of course, in the case of closure, all liabilities have to made in full, which is why i don't believe thatis an option!
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Cornflake,
What would help would be if the 2006 actuarial valuation is carried out using the assumption future accrual continues as contracted to NAPS serving staff members. i.e at the benefit level we get at present, 1/52 per year of service for flying staff with a 55 retirement age.
That way we would know by how much the deficit has changed on a like for like basis with the new realistic mortality figures and bond rates of growth.
Then any negotiation with staff groups could be based on fair and correct assumptions.
Instead BA wants to gain the pension concessions before the valuation takes place, so that it gains the benefit, through its negotiated contribution rates with the scheme trustees.
There is no reason why a valuation could not take place now, before next years required one. If you remember valuations must take place every 3 years, but BA brought the 2001 valuation forward to 2000 because it suited them when they were trying to merge APS and NAPS.
Merry Christmas all
Tim Byatt
PS Cornflake, I'll try and find a link with the new Pensions Act 2004 order of payment of liabilities on. I know your AVC payments now have a very high priority compared with the old order.
Cornflake,
I'm not computer literate enough to create a link, but the new order of payments of pension liabilities following the winding up of a scheme is on a pdf by the pru.
Do a UK only Google search for "A new priority order pru" and the first result should be this Prudential pdf with all the details you require.
regards
Tim.
What would help would be if the 2006 actuarial valuation is carried out using the assumption future accrual continues as contracted to NAPS serving staff members. i.e at the benefit level we get at present, 1/52 per year of service for flying staff with a 55 retirement age.
That way we would know by how much the deficit has changed on a like for like basis with the new realistic mortality figures and bond rates of growth.
Then any negotiation with staff groups could be based on fair and correct assumptions.
Instead BA wants to gain the pension concessions before the valuation takes place, so that it gains the benefit, through its negotiated contribution rates with the scheme trustees.
There is no reason why a valuation could not take place now, before next years required one. If you remember valuations must take place every 3 years, but BA brought the 2001 valuation forward to 2000 because it suited them when they were trying to merge APS and NAPS.
Merry Christmas all
Tim Byatt
PS Cornflake, I'll try and find a link with the new Pensions Act 2004 order of payment of liabilities on. I know your AVC payments now have a very high priority compared with the old order.
Cornflake,
I'm not computer literate enough to create a link, but the new order of payments of pension liabilities following the winding up of a scheme is on a pdf by the pru.
Do a UK only Google search for "A new priority order pru" and the first result should be this Prudential pdf with all the details you require.
regards
Tim.
Last edited by Tim Byatt; 24th Dec 2005 at 16:35.
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Final salary pension schemes are in crisis because of a lack of sound management by the companies concerned, inadequate legal constraints by government and because Chancellor "Robber" Brown has brazenly stolen £5bn a year from them for several years!
I do agree though the Stinger Brown has robbed us.
Tim - I think you're right.
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Maybe it would be of interest to us all to forward Tim Byatt's suggestion for a new Valuation to the BALPA representatives.
They can ask/demand the company to do so and then some more balanced discussion can be done on the subject?
Merry X-Mas
SZ
They can ask/demand the company to do so and then some more balanced discussion can be done on the subject?
Merry X-Mas
SZ
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Thanks for the heads-up, and a Merry Happy Christmas.
Personally, I think that dour Scots git has hit us 3 different ways:
1. The basic 5 billion theft per year.
2. Less fund money going into the stock markets because of 1).
3. Stock market poorer performance due to 2).
Knock on, knock on.......
And I think that therefore year on year, the 5 billion has a proportionately greater effect in real terms.
However, at the risk of being called a cynic, I notice none of this affects the MPs' pensions schemes............
Personally, I think that dour Scots git has hit us 3 different ways:
1. The basic 5 billion theft per year.
2. Less fund money going into the stock markets because of 1).
3. Stock market poorer performance due to 2).
Knock on, knock on.......
And I think that therefore year on year, the 5 billion has a proportionately greater effect in real terms.
However, at the risk of being called a cynic, I notice none of this affects the MPs' pensions schemes............
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And, do not forget it also affects the bonuses attached to endowment policies, which were already in deep trouble.
It will take a decade for people's personal financial planning to recover from the activities of this brigand. How they have the gall to tell us to save more for our retirement is beyond me.
It will take a decade for people's personal financial planning to recover from the activities of this brigand. How they have the gall to tell us to save more for our retirement is beyond me.
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With even huger cynicism, I suppose it is because they CAN. And, they know it's not OUR votes which are going to determine the swing which will propel most of them in or out of office, but not out of jobs next time around. We're no more than a frigging milch cow - why do we not make more of an issue out of it? Why is bloody BALPA not shrieking to the relevant minister about it???
Harrumph, (discontented of Gatwick!!!!)
Harrumph, (discontented of Gatwick!!!!)
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However, at the risk of being called a cynic, I notice none of this affects the MPs' pensions schemes
Tim, will have to leave the valuation question as I just don't know - I still would stress that they are professional and independent enough to apply their judgement without pressure as actuaries, rather than being tools of management's will. Certainly management will present data as they see fit to prove their point, but I still doubt that even with any management manipulation that it would materially change the extent of the underfunded nature of the scheme.
Last edited by Re-Heat; 26th Dec 2005 at 18:35.
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Company can wind up the scheme if it can show that repayment of the deficit would cause sufficient pain to actually imperil the future of the Company itself
There is a moral obligation to do this too. They have to pay back debt to banks because they promised to when they borrowed the money. They promised me a FS pension when I joined and so have to pay that too. Be in no doubt of my response if they renege on that promise.
There are 3 reasons to work for BA 1) Bid Line 2) FS Pension 3) Choice of career. WW is after 1 and 2. If either goes I don't care if BA survives. Why should I as any new firm I work for would offer me the same as BA would be doing so post WW, and indeed would probably mean a better standard of life without working at the dump that LHR is. I will follow any BALPA industrial action lead and I will enjoy the look on the face of the Flight Ops management team when I do.
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52049er
Could not echo your post further.
They (CG PD etc) should be under no illusion that the Pilots are absolutely united in keeping all three of those reasons.
If they wanted to test our resolve the FS pension is the wrong one to do it over.
I will go on strike to protect it and so will every single colleague I have consulted over this.
Interesting year to come.
Africacore
P744
Could not echo your post further.
They (CG PD etc) should be under no illusion that the Pilots are absolutely united in keeping all three of those reasons.
If they wanted to test our resolve the FS pension is the wrong one to do it over.
I will go on strike to protect it and so will every single colleague I have consulted over this.
Interesting year to come.
Africacore
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I couldn't agree more with Africacore and 52049er. So much for the drive on punctuality. BA sure know how to motivate me !
PD by the way is one of the BA appointed trustee's of NAPS.
Tim
PD by the way is one of the BA appointed trustee's of NAPS.
Tim
Last edited by Tim Byatt; 29th Dec 2005 at 18:29.