Fighting Back

The only serious way to defeat the BBC’s arguments for changing the pension scheme is to challenge the assumptions. The assumptions set the terms of the debate, and they are designed to severely restrict the possible outcomes, and create a sense of inevitability around the ending of final salary pensions.

Assumption 1: The BBC pension scheme will not be able to meet its future obligations unless the final salary link is scrapped.

Assumption 2: To cover the funding deficit in the scheme the BBC’s contribution would have to rise to 10% of the licence fee (from the current 3.5%)

Assumption 3: The licence fee payer won’t stomach the BBC’s contribution to the pension fund increasing to 10% of the licence fee

The first thing to say is that none of these have been proved. In fact, there’s been no attempt to prove them. They have simply been asserted, and we have been asked to accept them. The least we can do is insist on some justification, some evidence to support the assumptions.

In this post I’ll look at Assumption 1 (I’ll return to the other assumptions in later posts)

The last full fund valuation was in April 2009, when the fund’s value stood at £6.5 billion, the liabilities were £8.5 billion, and the deficit was £2 billion. But the annual accounts show that in the year to April 2010 the fund was valued at £8.2 billion. We don’t know yet what has happened to the liabilities, and the markets have fallen again since April 2010, but at the very least this suggests that the deficit will have reduced significantly since the 2009 valuation. We should therefore refuse to accept the £2 billion deficit as part of the argument; it is 18 months out of date and the fund’s value has improved significantly since then.

The BBC’s argument goes further however. They argue that the very volatility which has allowed the fund to recover is part of the problem! There is a risk that the markets could fall again. And indeed there is. But volatility has always been inherent in stock market investments, it is not a new invention. Is the BBC saying that in the past it ignored the possibility of market falls and ran the scheme on the assumption that the value of its investments would continue to rise indefinitely? And only now that the warning that comes with all financial investments (“your investment may go down as well as up”) has actually been demonstrated, have they woken up to the dangers? One assumes they are not quite so hopeless. Rather I think that in the past the view was taken that in the long run investments will rise in value, canceling out short term drops. Now it seems that the BBC has lost faith in the potential long term gains available through their investments, so they’re going to transfer out of stocks into “safer” bonds and guilts, and in doing so transfer the risk of underperformance to us by reducing pension payouts.

The key point here is that we have seen not a single figure to justify this position. We don’t know what the projected future returns are for the fund under different scenarios. We have no idea what projections of future liabilities are being used, and whether these have recently changed. We’ve not even seen any figures showing how much liabilities will be reduced by adopting the new scheme. In short, we are being sold a story, long on apparent common sense, but short on any facts. The only facts that are in the public domain suggest that the fund is not in as serious a position as the BBC is trying to make out. Rather the issue is to transfer risk from the fund to future pensioners. That is a choice that we do not have to accept.

PS Incidentally, there’s one argument that is being used that we can dismiss immediately. It is said that the changes to pension benefits are because people are living longer, and this increases the liabilities of the fund. No-one is denying that we are living longer. It’s just that this was the argument Mark Thompson used in 2006 to justify increasing staff (and BBC) contributions to the fund. It’s hard to believe that life expectancy has jumped so much that a scheme that had taken steps to deal with the issue just 4 years ago has now been caught out again. Clearly this is a smokescreen; an attempt to create a common sense rationale for changes that makes them seem inevitable, when under closer inspection the argument disintegrates.

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