Hutton Pension report

It's interesting to follow the thoughts:-

- how much to pay
- how to cover the gap

Lord Hutton publishes his final report on the future of public service pensions

10 March 2011

Lord Hutton of Furness today sets out his proposals for comprehensive, long-term structural reform of public service pension schemes.

The final report of the Independent Public Services Pension Commission follows a comprehensive nine-month review. It sets out a number of detailed recommendations to the Government on how public service pensions can be made sustainable and affordable in the future, while providing an adequate level of retirement income.
The main recommendation of the report is that existing final salary public service pension schemes should be replaced by new schemes, where an employee’s pension entitlement is still linked to their salary (a “defined benefit scheme”) but is related to their career average earnings, with appropriate adjustments in earlier years so that benefits maintain their value.
The report suggests that it should be possible to introduce these new schemes before the end of this Parliament, in 2015, while allowing a longer transition, where needed, for groups such as the armed forces and police.
Other key recommendations in the report include:

• Linking Normal Pension Age (NPA) in most public service pension schemes to the State Pension Age;
• Introducing a Normal Pension Age of 60 for those members of the uniformed services – armed forces, police and firefighters – who currently have a NPA of less than 60;
•  Setting a clear cost ceiling for public service pension schemes – the proportion of pensionable pay that taxpayers will contribute to employees’ pensions – with automatic stabilisers to keep future costs under more effective control;
• Honouring, in full, the pension promises that have been earned by scheme members (their “accrued rights”) and maintaining the final salary link for past service for current members;
• Introducing more independent oversight and much stronger governance of all public service pension schemes;
• Encouraging greater member involvement in consultations about the setting up of new schemes, and in the running of schemes; and
• Overhauling the current legal framework for public service pensions to make it simpler.

Publishing the report, Lord Hutton said:
“These proposals aim to strike a balanced deal between public service workers and the taxpayer. They will ensure that public service workers continue to have access to good pensions, while taxpayers benefit from greater control over their costs.
“Pensions based on career average earnings will be fairer to the majority of members that do not have the high salary growth rewarded in final salary schemes.
“The current model of public service pension provision is clearly not tenable in the long-term. There is a clear need for reform. Getting the decisions right on the most appropriate structures and designs will be crucial to making any changes work in the future. This will only be achievable if there is effective dialogue between public service employers, employees and unions.”

The report is available from the Independent Public Services Pension Commission website.

Notes for editors

1. Lord Hutton of Furness was commissioned by the Chancellor, George Osborne, at the June 2010 Budget to carry out a review of public service pensions.
2. Further details on the Commission’s proposed Career Average Revalued Earnings (CARE) pension scheme can be found on the Commission website.
3. The Commission published an interim report on 7 October 2010 which found that the current public service pensions structure has been unable to respond flexibly to rising pensions costs in the past few decades, and that the current final salary design feature of public service pensions is fundamentally unfair to those without large salary increases during their career. It also acknowledged the growing gap between pensions in the public and private sector, yet asserted that public service pensions provision should not become “a race to the bottom”. It recommended long-term structural reform to public service pensions and ruled out traditional final salary defined benefit schemes and funded, individual account, defined contribution models for all employees. The Government accepted the report’s conclusions and affirmed its commitment to maintaining some form of defined benefit pension provision for public service employees. The interim report is available on the Commission website.
4. As regards the cost of implementing the new schemes, the report notes that additional resources – people and money – will be needed to implement these reforms, but the details will be for the Government to determine.
5. Pension Facts:

• About one in five UK citizens has some entitlement to a public service pension.
• Public service schemes paid out £32 billion in 2008-09, about two thirds of the cost of the basic State Pension.
• The average pension paid to pensioner members is around £7,800 per year.
• Around half of pensioners receive less than £5,600 per year.
• The highest-earning fifth of Local Government Pension Scheme pensioners get almost a third more in pensions per £100 of contributions than the lowest-earning fifth.
• Current pensioners can expect to spend about 40 to 45 per cent of their adult lives in retirement if they retire at 60, compared with about 30 per cent for pensioners in the 1950s. If scheme Normal Pension Ages are linked to the State Pension Age as the Commission recommends, the proportion of life in retirement is projected to remain at about a third over the next five decades.
• Around 85 per cent of public service employees have some form of employer-sponsored pension provision, compared to around 35 per cent in the private sector.

6. All media enquiries should be directed to Paul Mathews in the Independent Public Service Pensions Commission press office on 07823 536 581.

More stuffs here: http://www.hm-treasury.gov.uk/indreview_johnhutton_pensions.htm

My note:
1. What's your main objective? Football for fan or money?
2. Devise long term strategy (e.g. 10 years) supported by short term plans and medium term reviews and corrective actions
3. Balance up profit and social contribution always the best policy.

How the Bundesliga puts the Premier League to shame

With cheap ticket prices and sound financial management, the Bundesliga is the antithesis of the Premier League

Borussia Dortmund's Westfalenstadion is home to the world's largest stand, where the average ticket price is just €15. Photograph: Michael Sohn/AP

In Germany the fan is king. The Bundesliga has the lowest ticket prices and the highest average attendance of Europe's five major leagues. At Borussia Dortmund their giant stand holds 26,000 and costs little more than £10 for admission. Clubs limit the number of season tickets to ensure everyone has a chance to see the games, and the away team has the right to 10% of the available capacity. Match tickets double as free rail passes with supporters travelling in a relaxed atmosphere in which they can sing, drink beer to wash down their sausages, and are generally treated as desirables: a philosophy English fans can only dream of.

The Bundesliga may be Europe's only fit and proper football league – the sole major domestic competition whose clubs collectively make a profit – yet no German team has won the Champions League for nine years. This success rate, though, could be about to change following Bayern Munich's advance to the semi-finals, following their thrilling disposal of Manchester United last week at Old Trafford.

"The Bundesliga as a brand, a competition, is in good shape. We have a very, very interesting competition, a stable and sustainable business model that relies on three revenue sources," the Bundesliga chief executive, Christian Seifert, tells Observer Sport. A holy trinity comprising match-day revenue (€424m), sponsorship receipts (€573m) and broadcast income (€594m) is the main contributor to the Bundesliga's €1.7bn turnover.

A glance at the continent's other major leagues confirms the state the sport is in. On these shores Portsmouth dice with extinction, while Manchester United and Liverpool build mammoth debt mountains. In Spain, where debts are just as high, La Liga players may strike because of unpaid wages in the lower divisions. The stadiums of Italy are half-filled, and in France their clubs spend more of their income (71%) on players' wages than those of any country.

Seifert says the success of the Bundesliga is because of the "core value" of the supporter coming first at its clubs. This is why tickets are kept so cheap. "Because the clubs don't ask for more money," he explains. "It is not in the clubs' culture so much [to raise prices]. They are very fan orientated. The Bundesliga has €350m less per season than the Premier League in matchday revenues. But you could not from one day to another triple prices.

"Borussia Dortmund has the biggest stand in the world. The Yellow Wall holds 26,000, and the average ticket price is €15 (£13) because they know how valuable such a fan culture and supporter base is.

"We have a very interesting situation. First, tickets are cheap. Second, many clubs limit the percentage of season tickets. For instance, Borussia Dortmund, Schalke 04, Hamburg, Bayern Munich. They want to give more fans the chance to watch games live. If you have 80%, 100% then it is all the same people in the stadium. Also in Germany the guest club has the right to 10% of the tickets for its fans."

Last season La Liga attracted an average of 28,478 fans, Ligue 1 21,034, Serie A 25,304 and the Premier League 35,592. These figures are dwarfed by the Bundesliga's average of 41,904. Its soaring attendances are matched by a balanced approach to salaries. "The crucial thing in last year's €1.7bn turnover and €30m profit was that Bundesliga clubs paid less than 50% of revenue in players wages," Seifert says. This is the continent's lowest. In 2007‑08 [the most recent available year] the Premier League paid out 62%.

All this prudent financial management is achieved despite the Bundesliga's television income being a modest €594m compared with the Premier League's lucrative return of €1.94bn. Seifert explains the disparity. "The TV market in Germany is very special. When pay-TV was introduced in 1991 the average household already received 34 channels for free. Therefore we had the most competitive free TV market in the world, so this influenced the growth of pay-TV very much. We were forced to show all of the 612 games of the Bundesliga and second Bundesliga live on pay-TV. So we have to carry the production costs of this."

No Bundesliga team has won the Champions League since Bayern Munich beat Valencia in 2001 and its last finalist was Bayer Leverkusen, eight years ago. But Seifert disputes whether the small return from television rights has been a defining factor in this record. "Money-wise, Bayern Munich is ranked in the first four clubs of Europe. And bear in mind even Chelsea, which spent a hell of a lot of money in the last years, didn't win it. Sometimes you could have the feeling that the ability to win the Champions League goes in line with your willingness to burn a hell of a lot of money. For that reason I think Uefa is on very good track with their financial fair play idea."

Deloitte's accountancy figures for the 2007-08 season show all but one Premier League club (Aston Villa) to be in debt. Compare this with the Bundesliga report for last season, which offers a markedly disappointed tone when recording that "only 11 of the 18 clubs are now in the black".

Pressed further on the lack of success in Europe's premier club competition Seifert argues for sport's cyclical nature. "At the end of the 1990s the Bundesliga was the strongest in Europe. In 1997 we had won the Champions League [Borussia Dortmund] and the Uefa Cup [Schalke]," he says.

"Then in 1999, 2001 and 2002 we were in the final at least. In those days the Premier League had more money, too. It depends not only on money but the quality you have – if it only depended on money then Porto wouldn't have played Monaco in the 2004 final."

Seifert also points to German football's success in producing its own players. This is borne out by Germany being European champions at under-17, under-19, and under-21 level. "The Bundesliga and German FA made a right decision 10 years ago when they decided that to obtain a licence to play you must run an education camp [academy]. The Bundesliga and second Bundesliga spend €75m a year on these camps.

"Five thousand players aged 12-18 are educated there, which has now made the number of under-23-year-olds in the Bundesliga 15%. Ten years ago it was 6%. This allows more money to be spent on the players that are bought, and there is a bigger chance to buy better, rather than average, players," Seifert says of a league in which the stellar performers currently include Bayern's Frank Ribéry and Arjen Robben.

"When Bayern played against Manchester United Philipp Lahm, Bastian Schweinsteiger, Holger Badstuber and Thomas Müller were all homegrown," Seifert says. "So yes, it's a cyclical environment and you have to deal with that. Therefore I'd deny that you could really say whether a league is strong or weak just because one club wins or does not win the Champions League."

Seifert's view is supported by Arsenal having followed United out of the competition last week, when Arsène Wenger's team were dismantled by Barcelona, to leave no Premier League presence in the semi-finals for the first time since 2003. And for the 2012-13 season Germany should have four places in the Champions League as by then they should have overtaken Serie A in Uefa's five-year coefficients.

Seifert also has Spain in his sights. "If we consider our financial capabilities and the stability of our business model, then the aim of the Bundesliga in the long run has got to be second place behind the Premier League," he says.

Of all the Bundesliga's regulations, the recent history of English football suggests it might have benefited most from the 50+1 rule. This states that members of a club must retain at least 51% ownership, so preventing any single entity taking control. Portsmouth are the most glaring example of how an outsider might potentially ruin a club – their administrator is currently searching for their fifth owner of this season – and the Bundesliga recently reiterated the commitment to the rule following a challenge from Hannover 96.

Martin Kind, Hannover's president, wished to change the regulation. He told Observer Sport: "The rule means the loss of many Bundesliga clubs' ability to compete nationally and internationally. And in some ways it prevents further development of German football, especially those clubs who play in the lower half of the Bundesliga as they do not have enough financial resources. The ownership rule should be abandoned or modified."

While Kind adds that his lawyers believe he has a "good chance" of winning the case when it is heard at the court of arbitration for sport this year, Seifert is proud that when the 36 clubs that comprise the Bundesliga's two divisions voted on the issue "35 were against".

There are exceptions to the 50+1 rule. Yet even these appear couched in common sense. Seifert again: "Bayer Leverkusen and Wolfsburg [whom Fulham knocked out of the Europa Cup on Thursday] are two. If a company is supporting football in a club for more than 20 years then it can acquire the majority. The idea is that a company has by then proved to fans and the league that they take their engagement in the Bundesliga seriously, that it's not just a fancy toy or part-time cash injection that [could] change from one day to another."

What the Bundesliga does allow to be transformed from one season to the next is the prospect of any and all its clubs mounting a realistic tilt at the title as Wolfsburg's triumph, the first in their 64-year history, proved last season.

"In the last three years of the Bundesliga we have three different cup winners and three different champions," Seifert says. "Sepp Herberger, the coach of the West German team that won the 1954 World Cup, said: 'You know why people go to the stadium? Because they don't know how it ends.'"

http://www.guardian.co.uk/football/blog/2010/apr/11/bundesliga-premier-league

Saturday May 9, 2009

Untangling HP interest rates and such

A QUESTION OF BUSINESS
By P. GUNASEGARAM

Banking products are never easy to understand but clearly stating their effective interest rates will go a long way to helping customers make their choice.

IT is unfortunate, for the customer that is, that old, archaic banking practices such as hire purchase continue to be foisted on them.

They are a problem because hire purchase companies, most of whom are now banks, still quote a flat rate.

That means the rate is quoted on a principal that does not decline with payment. While on paper the rate looks low, the effective interest rate is actually high, sometimes as much as two times depending on the tenure of the facility.

Thus, many unsophisticated consumers are seduced into buying all manner of consumer goods from cars downwards because they think they are paying low interest rates when effective interest rates are much higher.

For illustration, a flat rate of 10% with tenure of five years works out to an effective over 17%, quite a difference! Yes, the Hire Purchase Act comes under the purview of the Ministry of Domestic Trade and Consumer Affairs but that does not mean that banks and financial institutions cannot state the effective interest rate too in addition to the flat interest rate.

If financial institutions don’t want to state the effective interest rate, they may be misleading millions of misinformed customers into believing they are paying lower interest rates than they actually are.

Perhaps Bank Negara can require financial institutions to state the effective interest rates for these loans at least for the institutions that come under its purview.

Hire purchase apart, there are myriad interest rates and offers which make it very difficult for bank customers to determine which are the best for their purposes and which eventually give them the best deals.

Breaking up various charges such as late penalty charges for credit cards as well as additional charges for overseas purchases for instance into effective interest rates can greatly assist customers to determine the full cost of using these services and make their decisions accordingly.

With the increased sophistication of banking services and all manner of charges which can affect the effective interest rate that customers pay, it becomes imperative that services, especially to the retail sector, be clearly explained so that the consumer knows what he is getting himself into.

One of the key factors that many retail customers have to worry about these days is whether they would be better off refinancing their housing loans where tenures are typically very long and even a minute change in interest rates can affect considerably the total amount paid.

While most housing loans are variable and pegged to the base lending rate of the respective banks, many customers are simply not aware that refinancing their housing loans at current much more attractive rates can save them tens of thousands of ringgit over the tenure of their loans, even after paying the requisite penalties.

While there are moving costs, sometimes the mere threat of refinancing by the customer often nudges the current loan provider to give interest rates at lower than agreed levels. For that the customer needs information.

There is a wealth of such information available at a website (http://www.bankinginfo.com.my) maintained by Bank Negara using data provided from the Association of Banks in Malaysia.

That is a pretty good starting point for those who want to start by comparing rates and others services.

Bank Negara and the Association of Banks are to be heartily applauded for the information provided. It not only includes such data but also information on banking, budgeting, personal finance and financial and budget calculators.

Ultimately customers too have a responsibility to educate themselves about financial matters, which are getting increasingly complex. They ignore financial knowledge and analysis at their own peril.

Managing editor P. Gunasegaram asks you to check out “bankinginfo” at http://www.bankinginfo.com.my for yourself.

http://biz.thestar.com.my/news/story.asp?file=/2009/5/9/business/3868107&sec=business