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West Thames HR Exchange Club 11 th April 2002

West Thames HR Exchange Club 11 th April 2002. Agenda. Membership Update Minutes of Last meeting “A curious time to talk Strategy” Training Update Benefits Survey. Round Robin The Pensions Dilemma Any other business and items for next meeting. Slough 28 February 2002. GDP growth.

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West Thames HR Exchange Club 11 th April 2002

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  1. West Thames HR Exchange Club11th April 2002

  2. Agenda • Membership Update • Minutes of Last meeting • “A curious time to talk Strategy” • Training Update • Benefits Survey • Round Robin • The Pensions Dilemma • Any other business and items for next meeting

  3. Slough 28 February 2002

  4. GDP growth Percentage changes 4.0 Latest quarter on a year ago 3.5 3.0 2.5 1.9 2.0 Latest quarter on 1.5 previous quarter 1.0 0.5 0.2 0.0 1998 1999 2000 2001

  5. Contributions to Manufacturing pp contribution to 3 on 3 growth Output Growth 2 Transport Equipment 1 0 Other -1 -1.9 Electrical & Optical -2 -3 Jan-00 Jul-00 Jan-01 Jul-01

  6. UK and US ICT output % change, 3 month on 3 month earlier 20 US 15 10 5 0 UK -5 -10 -15 -20 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01

  7. Retail sales percentage change 7 latest quarter on 6.2 1.3 6 same quarter a year ago 5 4 3 2 1 0 latest quarter on previous quarter -1 1995 1996 1997 1998 1999 2000 2001

  8. Household expenditure on vehicles % change oya 30 25 20 SMMT private car 15 registrations 10 5 0 -5 ONS household -10 expenditure on vehicles -15 -20 1999 2000 2001

  9. House prices 3 month on 3 month growth rate Balance RICS expectations 75 5.0 Nationwide months, LHS) (lagged 3 (RHS) 60 4.0 45 3.0 30 2.0 Halifax 15 1.0 (RHS) 0 0.0 -15 -1.0 2000 2001 2002

  10. LFS employment rate Working age population Per cent 75.0 74.6 74.5 74.0 73.5 73.0 1998 1999 2000 2001

  11. Unemployment rate Per cent 7 6 LFS 5.1 5 3.2 4 Claimant count 3 2 1998 1999 2000 2001

  12. Chart 1: Current GDP projection based on constant nominal interest rates at 4%

  13. Chart 2: Current RPIX inflation projection based on constant nominal interest rates at 4%

  14. “A curious time to talk Strategy” • The heroes of the economy are the purchasers of DVD’s and Per Una! • But we all need to save more for retirement • If we all did, then the economy could plummet!

  15. Reading the economic runes… • Is difficult: • Redundancies have been heavy, but unemployment is low • Retail prices are low, but inflation is holding • House prices are soaring, consumers are unlocking house value, but debt is also soaring • We could be in recession, but we could not!

  16. So what does it mean for HR? • Discussion points: • Impact on long term strategy • Managing performance • Aligning with the business • Investing in the future • Core versus Outsourcing • Designing and Defining Reward Strategy (e.g.High pay for high quality (internal and external))

  17. Training Update • Debbie Alexander has contacted people and essentially funds are tight, so this is a back burner issue.

  18. Non Financial Benefits Survey • Delayed because of • another survey clashed • What will the Chancellor do • Will run this quarter

  19. Round Robin

  20. The Pensions Dilemma • Types of Pensions • Final Salary or Defined Benefit Schemes (FS or DB) • Defined Contribution schemes (DC) • Personal Pensions • Stakeholder Pensions • Basic State Pensions • Serps

  21. The Pensions Dilemma – the Problems • The Maxwell affair – tighter rules on fund operations • Pension Fund Mis-selling • Abolition of tax relief on dividends cut income by 18% • Stock market has declined by 25% in 2000/01

  22. The Pensions Dilemma – the Problems • FRS17 introduction requires pension assets and liabilities for FS Schemes to be in Balance sheet, preventing actuarial “smoothing” • Iceland found in their triannual valuation that the shortfall went up from £4M to £14M – 25% of group profits.

  23. The Pensions Dilemma – the Problems 6. Level of charges made by Providers – sometimes over 10%, as well as stamp duty on trades 7. Low Annuity rates – only 50% of value in 1980 8. Compulsory Annuities

  24. The Pensions Dilemma – the Problems • Increased Life Expectancy • Reduced chances of Lifetime of service • (A check I did at Honeywell showed that of all employees who had ever joined the DB Plan only 3% actually became Honeywell Pensioners!) • Need for Greater Flexibility

  25. The Pensions Dilemma • Result: • Companies are closing DB schemes and opening DC schemes – transferring risk from Company to employee. • Eg IBM, ICI, M&S, Abbey National, J Sainsbury, HSBC, Mencap, Birmingham University • Iceland and Ernst and Young have closed schemes to existing members as well! • DC schemes get lower contribution rates

  26. The Pensions Dilemma • What does that mean? • Take employee earning £15,000 on starting work and earning £90,000, 40 years later • DB scheme – 2/3rds pension =£60,000 • DC Scheme – would typically yield £22,848 at current annuity rates at 65 • (Assumes 5% contribution from both and 5% fund growth pa)

  27. The Pensions Dilemma • What does that mean? • Take your current salary • Multiply by 2/3rds to get IR Max Pension • Take the result • Divide by 5 • Multiply by 100 • Answer is approximately how much you would need now to fund it!

  28. What about the State Pension? • Basic Pension - £3770 pa • SERPS – Income related (eg earned average earnings SERPS is worth Approx £3700pa) • SSP (State Second Pension ) from April 2002 (Same as SERPS but better for low earners under £24600pa) • Opting out gave a better deal, but no more, for same reasons – low returns, stealth tax etc)

  29. What About Stakeholder? • Low charges – non earners could contribute up to £3600pa • Take up is pathetic - same problems • Rich have been using to create tax effective pensions for spouses and children)

  30. Which is best? – it depends….. Value of £100 invested after Higher rate tax added to pension, tax free returns for unit trust Standard and Poors / Halifax

  31. What should employees do? • Continue to join company schemes to get company contribution • Make additional contributions to AVC’s or stakeholder (check who pays charges)

  32. What should they save? Age To get 2/3rds To get £30,000 Percentage of salary now to get pension at 65

  33. What else should they do? • Opt back in to SERPS / SSP • Look at other options (ISA’s) • Use free market option at retirement – this can increase pension by up to 20%

  34. Annuity Rates Based on Pension Fund of £100000 William Borrows Annuities

  35. Conclusions • Many people will not have the pensions they expect when they retire • Taking action as young as possible limits the damage

  36. Any Other Business • Items • Things for next meeting • Potential Speakers • Work Life Balance • Data Protection / Employee Monitoring • Personal and Group Motivation • Selecting and Managing Benefit Providers

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