GREAT EXPECTATIONS!
| DOI | https://doi.org/10.1108/eb057130 |
| Published date | 01 October 1980 |
| Pages | 6-6 |
| Date | 01 October 1980 |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
GREAT EXPECTATIONS!
Derek
Bandey,
President,
Society of
Pension
Consultants,
explains
why high hopes must
lead
to
disappointment
MUCH IS written today about the
iniquitous treatment under the terms
of pension schemes of those who
change jobs, whether voluntarily or
compulsorily. This is denoted as a fail-
ing of pension schemes. It is, of
course, nothing of the sort.
A pension scheme is capable only
of the deployment of the resources
available to it. If those resources are
deployed in one direction to a greater
extent than another, then the first
direction will benefit at the expense of
the latter. The only other solution is to
make more resources available to
pension schemes; which perhaps in
the present economic climate is
slightly unrealistic.
The problem of early leavers from a
scheme is often brought about
through expectations exceeding the
rights of the member. Expectations
are of infinite scope. But until April of
this year, to know the rights them-
selves under the terms of a scheme
(and the concomitant legislation) was
a daunting proposition. Fortunately,
certain relaxations have occurred
within the statutory provisions which
now makes it comparatively easy to
draw up a flow chart identifying a
member's rights.
There will be some schemes which
retain the "£5,000 rule", placing a bar
on refunds of contributions where
earnings have exceeded that amount.
In such schemes, a contribution
refund is not persmissible and thus,
before considering the above options,
it is necessary to establish whether or
not the sceme retains that rule.
There is no pat answer to this prob-
lem. It is claimed that by being able to
take a cash value from a pension
scheme in lieu of the pension rights,
the person will achieve a better ans-
wer by investing that cash than if the
assets are retained in the fund from
which the member has seceded. This
again is an over-simplification of the
problem. Whether or not the invest-
ment performance of one medium is
better than the investment perfor-
mance of another medium, is simply a
question of fact, the knowledge of
which cannot be known in advance.
What is involved is the extent to
which the resources available to one
individual members are permitted to
be invested effectively on his
behalf.
If the earning capacity of the fund
from the member has seceeded is gre-
ater than the earning capacity of the
medium into which he would have
paid the cash value of his benefits had
he been given it, then the former will
yield a greater return than the latter.
But the difference relies upon the dis-
tribution of those earnings. In the
former case, the distribution of the
earnings is for the generality of the
members of the fund as a whole. If
that is not so, and if to match the two
aspects the fund deploys its earnings
individually for the benefit of the
employee who has left, then you come
back to square one; either the
resources of the fund are being re-
deployed within the fund, or addi-
tional financial resources are being
made available to the fund.
Having outlined the problem in
very broad context, it may be con-
cluded that there is no broadly applic-
able solution. This is not to say that
everybody must throw up their hands
in despair, but as it is a problem, and a
recognised one, appropriate solutions
must be allowed to evolve. Indeed,
basic aims must be reconsidered
because, as we have said, the greatest
hardship arises in the case of redun-
dancies. But is it right that a pension
scheme should be the appropriate
vehicle to accommodate redundancy?
Is this not more a proper function of
the redundancy provisions with
appropriate relaxations of taxation
requirements and education of the
recipients to enable redundancy pay-
ments to be deployed to maintain
pension values? ■
6 INDUSTRIAL MANAGEMENT + DATA SYSTEMS
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