Frustrating figures

I’ve been trying to get to the bottom of the figures that are being used to justify all the key statements the BBC is making about the pension fund situation: that getting rid of the deficit will mean 10% of the licence fee going on pensions, what assumptions have been made about future market performance, what other options have been considered to try and reduce the deficit?

The result has been frustrating. None of my questions have really been answered.

But there have been some interesting discoveries along the way.

As far as I can see the entire case is based on a 1.5 billion pound deficit – the figure at the 2009 valuation. Since then the value of the pension fund has increased dramatically, so the assumption must be that the liabilities have also jumped – otherwise there wouldn’t still be a deficit.

Yet according to the documents I’ve been sent the demographic assumptions being made are “consistent” with those made in 2007. In other words despite all the words about demographics worsening the situation, this doesn’t seem to be a factor in the calculations. So what has changed? Either the documents I’ve been sent aren’t the right ones to answer the question I’ve asked, or there’s a degree of guesstimation going on.

Also, the assumption on market performance hasn’t changed (which is a surprise).

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5 Responses to “Frustrating figures”

  1. Chris Says:

    Hi Jonathan

    You may well be right in stating that there has been an increase in liabilities on the fund this year. Clearly the deficit doesn’t seem to have changed much. Page 8 of the recent Financial and Governance statement says:

    “The BBC Pension Scheme is subject to a formal actuarial valuation every three years, which is used to determine the employer’s contributions. A formal valuation is being undertaken as at 1 April 2010, and whilst the results will not
    be known for some time, our estimate is for a deficit of around £1.5billion.”

    But I wonder what the source is of your comment that the value of the fund has increased “dramatically” since 2009? Are you just extrapolating (possibly quite rightly) from stock market improvements?

    Good luck with your investigations!

    Chris

    • renouj21 Says:

      Hi, the source is simple: the latest pension statement. It shows the following valuations:
      2000: 7153 million
      2006: 7922
      2007: 8205
      2008: 8131
      2009: 6526
      2010: 8223
      Note that this last figure is the highest ever. It’s very frustrating that we can get no sense of the supposed increased liabilities that have been identified – they’d have to have increased an awful lot to justify the statements that are being made about the increase in the deficit.

  2. Chris Says:

    Ok, thanks for this: I’ve found a reference to these figures on p 60. But the next section 23 c i refers to the liabilities. It is clear from this that the big change (£2.2bn) is due to “Changes in assumptions underlying plan liabilities”

    This appears to be explained on p 8:

    “In order to value the pension, future pension payments (liabilities) are discounted back to today’s money using current market interest yields on highly-rated corporate bonds. This yield fell from 7.2% in 2009 to 5.5% in 2010, increasing pension liabilities by £2.2billion.”

    So, do these increased liabilities result from following general pension management best practices – which I assume is what these are?

  3. renouj21 Says:

    Thanks for adding that; I hadn’t seen that info on plan liabilities. But like everything else, it only raises more questions. This makes it seem that the increase in liabilities is nothing to do with raised life expectancy, and everything to do with changes in yields. And then these yields are themselves not quite what they seem; what was the yield back in 2008 and 2007? I’d have thought that 7.2% is a very high yield, and likely to have been unique to 2009… In which case 5.5% would simply represent a return to a more normal yield – and so liabilities wouldn’t be that much different from a few years back.

  4. Chris Says:

    mm, not sure: the BBC scheme has been very skewed towards equities – and has been criticised for this – so it is not surprising that it has taken a major hit from blue chip companies (eg BP, the banks?!) cutting their dividends in the last couple of years. It’s not in any way comparable, of course, but I’d be quite pleased with a 5.5% real return on my own portfolio at the moment!
    I will be interested to see what risk profile the (effectively closed) scheme will adopt going forward from next April, assuming the unions don’t force a major climbdown from management on their announced plans over the autumn. Given the current political downward pressure on the licence fee, I, for one, don’t rate their chances.

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