Source : Forum Attendee
The Report............................
Matters concerning the Members of NUMAST - Pensions
The NUMAST National Pensions Forum
Held: 17th February, Oceanair House, London
Panel:
Chairman Chris Jones (NUMAST Council Vice Chairman & MNOPF Trustee)
Secretary Peter McEwan (NUMAST Deputy General Secretary)
Brian Orrell (NUMAST General Secretary)
Geoff Henry (Chief Executive MNOPF)
Watson Wyatt (MNOPF Actuary)
The following questions were asked of the panel and the answers are given underneath as understood, others attending and reading this page, your comments on correctness and understanding welcome.
1. The utmost priority for of all concerned is the continued growth of the Fund and its ability to meet all its commitments present and future.
Question: Does this require the present value of pensions to fall and if so for how long?
Answer: The Old and New funds can meet all its commitments for the present and future, the present value of pensions is unlikely to fall, but, yes, they could fall.
2. It would seem that in the past decisions have been made that are to say the least questionable, i.e. a) Levels of contributions? reduced in the 80's when contributing members had no objection to existing levels b) Distribution of windfall. A@50,000,000 discovered in the early 1990s
Question: Are these decisions seen as contributing to today's inability to maintain the value of pensions?
Answer: Due to the returns of dividends exceeding projection, it was considered that the reduction of contributions including keeping a reserve to combat fluctuations was sufficient to maintain the value of the fund. The A@50m windfall of the early '90's was questioned.
3. It has been stated that the funds performance is above average in relationship to other funds.
Question: Can statistics be supplied to back up this statement?
Answer: The two management companies employed by the fund have proved to be the leaders, when compared with others, the fund has the two leaders representing them. (The names of these management companies I regret were not noted, help would be appreciated to recall names)
4. The trustees keep quoting the rules, i.e. as Trustees we are bound by funding rules 2nd paragraph letter dated December 1999.
Question: Are these rules statutory requirements of the industry or are they Fund rules that can be amended?
Answer: This question was not asked due to not being party to the 2nd paragraph.
5. NUMAST's position. The Union's responsibility for its members.
Question: As most pensioners were union members when they were employed and contributing to the fund, does the MNOPF feel the union should represent ex members interests in pension matters?
Answer: It was requested by another speaker that one of the trustees should be a fund pensioner.
6. Approximately 3/5th of the Fund is deferred.
Question: What percentage in monetary terms does this represent? (I've already asked this question and it was ignored)
Answer: Old fund about 60%, new fund about 40%.
7. Much is made of the low levels of inflation, interest rates and their effect on our investments. Often they are given as the main reason for not increasing pensions. These same constraints do not seem to affect those making the decisions as the Fund's makes unspecified pay awards to its employees. Whilst they are justified as payments for increased efficiency and overall reduction in administration costs they are financed from the same investment returns as the pensions.
Question: Do the managers of the Fund think it is morally and financially acceptable to pay themselves increases whilst saying the same investment returns are insufficient to maintain the value of pensions?
Answer: Yes. We have a very skilled team, are in a market that has its price for skill, if we do not pay we lose the expertise. (In other words, if we pay peanuts, we get monkeys. The shipping industry comes immediately to mind)
8. Openness and dialogue with the members. When a meeting takes place concerning matters as contentious as whether or not to maintain the value of Pension minutes should be published.
Question: Are the Fund managers prepared to put the options they are considering in writing for the members to comment on before they are finalized and would they be prepared to publish minutes of the meetings when a course of action is chosen?
Answer: This question was not asked.
9. Something seems to be wrong if the Fund cannot increase pensions to match inflation. (Interest rates have been steadily climbing and it naturally follows that inflation will rise as a result. Not correct EU rates are low, Ed). It has been said by the Pension Fund that low inflation has prompted insurance companies to warn customers that continuing (low inflation, should read mis-selling, Ed) and low investment returns may not deliver the maturity values to their customers. These companies have now admitted that it is their fault as managers of said funds, and that most including the giant CGU have said that they, the companies, will make up the shortfall (out of profits, Ed). Fact! (Source: The Times)
Question: Whilst the Fund cannot draw assets from other sources to makeup the shortfall as these companies can, would the managers consider they have any responsibility in creating a situation where pensions cannot even be maintained at there existing levels.
Answer: This question was not asked but the opening explanations said they cannot keep pensions inflation proof. The Old Fund is a money purchase scheme of sorts and the investment/returns equal outlay. The New Fund is a Defined Benefit Scheme where the Pension is a Promised benefit as laid down, and any shortfall is made up by Employers.
10. A few years ago the Government informed us that the working population could no longer support its pensioners and we should seek alternative ways of funding our old age. A lot of us thought that we had done that now the PF are saying exactly the same as the Government did.
Question: Should the PF not now inform its members to seek further top ups to support them in their old age?
Answer: Similar question by another member, yes. Although past advice has been that this is not necessary, today it seems this would be a very good idea for Members to do.
My questions:
11. We keep hearing about inflation and how it affects investment.
Question: Inflation, when its high - its no good, when its low - its no good, well when is it good?
Answer: Investment is not controlled by inflation, but by dividends, during the years of high inflation (mid 80's) the investments returned higher than forecast dividends, this then gave a surplus. However, the returns were not sufficient to keep the pension for those taking it inflation proof, but allowed the fund to cover itself for contributing member. (This is avery simplified answer to a very complex question as there are too many sides to the question, depending which side you are on!)
12. We see that the Fund has been crippled by A@90,000,000 due to the "pension tax"
Question: This tax was to cover a loop hole whereby companies could use their pension funds as a tax deductible item, as our pension fund is a multi-company fund no one company can use this as a loop hole due to not running the fund, can the fund not get exemption from this tax?
Answer: No, the reason was not given except I did not understand the tax!
Other questions:
Please define how pensions are calculated:
The old section is a money purchase system of a sort where gilts have been purchased to cover expenditure, the new section is a benefit system where the employers make up the shortfall if any.
Pension Holiday in 80's:
Yes, the reduction of contributions.
Pensioner as Trustee:
The answer was somewhat vague.
New (new 1997) scheme:
In order to maintain inflation and benefits, contributions must go up, see handout.
Employers defaulting:
See handout.
Move pension abroad:
No, the UK tax laws prevent this.