DC and DB: no, they don’t go together like a horse and carriage

Putting DB and DC under (supposedly) a single set of rules led to the LTA and the valuation factors. That didn’t seem to do either type of scheme a favour in my opinion.

For DC (my background) the LTA suddenly meant that you would not only be limited on what you put in, you’d be limited on what you could take out. It’s not quite heads the Treasury wins, tails you lose but if you’re taking on the investment risk, it seems wrong in principle that you could lose everything you put in if your investments are utterly disastrous but if your investments perform particularly well, you won’t necessarily get all the gain.

Moving off my home turf, it always seemed slightly ludicrous that a single valuation factor be used for the LTA as if it made no difference whether you retired at 50 (as the rules at the time still permitted) or 75; as if men and women have equal life expectancy, which I’m afraid we don’t; as if inflation and interest rates would remain at the level prevailing at the time, which they haven’t.

I’m probably being foolish and indulgent griping about what was put into legislation over 4 years ago but I’ve said it now.

I cannot understand why the valuation factor for the AA was changed but the one for the LTA was left alone. I suspect a further change in due course – spreading the bad news. This also seems to open the door to repeated future fiddling with the valuation factors – which is why I droned on above about what I perceive as the mistake of putting 2 fundamentally different types of scheme under a common set of rules.

I do pity George Osborne for having to grapple with Gordon Brown’s monumental mess – all the filthy skeletons in “Prudence’s” closet. But I don’t want to see him continue the previous government’s eyeing up of pensions as sources of revenue for the Treasury. If he’s going to cast his eye over pensions, it should be those for the public sector. “Fairness” and “equality” are popular words with all politicians: now they need to lay it on the line to the public sector just what that means in pension terms.

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About sipphound

Chewing over pensions, saving and retirement issues. Sniffing around financial planning, personal finance, investing and behavioural influences. All personal opinions, no company represented and no advice given.
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