
Being a good guy boss left me £1.2m in debt - dustinmoris
https://www.bbc.co.uk/news/uk-scotland-scotland-business-50157515
======
throwaway5752
This article is about a group pension plan and a legally mandated way of
calculating liabilities that isn't working in a particular case. It's a simple
law change. It's not some crazy bureaucratic maze or malevolent government -
it's actually a private pension administrator, and it is based on a strict way
of calculating future liabilities for group plans being applied to individual
members when they leave the group in a fairly dumb way.

The law in question came around for a good reason:

 _Section 75 came about as a result of a sweeping review of pension regulation
in the wake of the Robert Maxwell scandal in the 1990s.

Following the media tycoon's death it emerged he had plundered millions from
the Mirror Group pension scheme.

The Pensions Act 1995 introduced a series of reforms including a "minimum
funding requirement" for pension funds. It also introduced something called
"Section 75 pension debt", which meant if an employer "departed" a scheme,
they could still be pursued for any shortfall._

It is just a poor match with this type of shared pension scheme (not British,
so forgive problems matching this to other types of defined benefits plans I'm
more familiar with). This seems to be a clear case to revise this Section 75
for these types of group plans/schemes.

There is no actual fiscal problem here, just a legal one. The biggest obstacle
to amending the existing law, based on the article, is an inability to enact
legislation because of distraction by Brexit.

~~~
dmix
> Section 75 came about as a result of a sweeping review of pension regulation
> in the wake of the Robert Maxwell scandal in the 1990s.

> It's not some crazy bureaucratic maze or malevolent government

hmm

Policy designed for big firms, and in reaction to a few bad billionaire's or
hundred millionaire's actions, which then destroys or squeezing out the small
companies is one of the most common complaints against regulations like this.
It's how you end up with only mega-corps and no competition or upward mobility
for the middle class, and everyone wondering why there's a wealth gap when
your only option is to work at bigco.

This stuff _always_ starts out with good intentions like "punishing the rich".
And then some nobody middle-class plumber in Scotland is the one being forced
to sell his house while Maxwell's family trust is still worth millions.

Meanwhile law changes are never a 'simple fix', these sorts of things stick
around for decades.

Edit: note Robert Maxwell was the billionaire(?) father of Ghislaine Maxwell
who was Epstein's second-in-command in the sex ring

~~~
throwaway5752
Yes, financial regulation is hard. People are always trying to game it.
Unfortunately there are really good reasons to avoid ex post facto laws. So
you have the cat and mouse game where people find a loophole, exploit it, and
it gets fixed. It gives the appearance of people "getting away with it".
Overall the system works, and - almost by definition - you just hear about the
exceptions. The solution isn't to give up.

~~~
friedman23
The solution is to not offer pensions.

~~~
leetcrew
I always feel like I'm missing something fundamental when I read these
debates. unless the only alternative is "no retirement plan", why would you
ever want a pension? wouldn't you be much better off having your employer dump
the funds in your 401k?

~~~
throwaway5752
Maybe. Pensions, like social security, are better understood as longevity
insurance.

Pensions are complicated by lump sum payouts, survivor benefits for spouses,
and a bunch of other things. But you collect them for life. If you live a
short time, the 401k might be a better outcome and the beneficiaries of your
will can inherit the wealth (or your spouse, if you outlive them, vs reduce
survivor benefits). If you live a long time, it's overwhelmingly likely you
have not saved up enough for it, and short of letting the elderly eat cat food
and die on the street, the costs of that outcome are socialized to the rest of
us.

~~~
YokoZar
A defined-benefit pension is a bet that your employer will remain both solvent
and completely honest for the rest of your life. This is an enormous risk
compared to just having your own personal retirement account.

If you as an individual still want proper longevity insurance and the
predictability of a defined-benefit-plan without this risk, just use the
personal retirement savings to buy an annuity.

~~~
throwaway5752
No it isn't. PBGC, and it's various analogs. Yes, you get a haircut, but
pensions are generally insured for that. 401 plans are administered by
companies and are funds of funds, at any rate, and you're still just reliant
on 1) a different set of companies 2) market values to line up with your
liquidity needs.

Also, how are you just ignoring have to rely on the honesty/fiscal stability
of the company backing your hypothetical annuity in the space of two
paragraphs?

Pensions are disappearing anyway so I feel like we're arguing the nutritional
value of eating yangtze river dolphins, but that is because 401 plans are
cheaper for employers and there is a lucrative fee structure in administering
them, not because of an intrinsic flaw of pensions.

~~~
lotsofpulp
There is no lucrative fee structure if the employer goes with a Vanguard and
prob Schwann/Fidelity 401k. In fact, it’s far cheaper than the investment fees
charged by pension fund managers and has greater performance. Absolutely no
reason to pay all those actuaries and investors when an index funds with zero
expenses do a better job over decades long timeframes.

And PBGC is woefully underfunded. It’s already needing a bailout with just a
few failing multi employer funds. It’s mostly for show I presume, since this
isn’t even the first time it’s getting bailed out.

[https://www.bloomberg.com/news/articles/2019-07-25/house-
pas...](https://www.bloomberg.com/news/articles/2019-07-25/house-passes-
pension-bailout-as-democrats-eye-industrial-states)

------
notus
I have luckily never been caught in one of these kakfa-esque bureaucratic
traps before, but I don't know how people hold it together when they do get
caught in it. It seems like there isn't any thought being put into possible
edge cases for policy and here seems to be little recourse for people to get
out of it. Everything about governments just feels like this wall of
indifference, from interactions at the DMV to policy being created. Just
thinking about it makes me a little crazy. It is so inhuman.

~~~
pjc50
It's not specific to governments, any sufficiently large organisation behaves
like this. Think of the people who've had Google accounts vanished without
explanation. Or the RBS small business scandal:
[https://www.theguardian.com/business/2018/feb/12/confidentia...](https://www.theguardian.com/business/2018/feb/12/confidential-
report-into-rbs-small-business-scandal-to-be-published)

At least with governments you get a representative.

~~~
hirundo
> At least with governments you get a representative.

At least with corporations you get a choice, short of emigrating. Google is
one of the most dominant corporations in the world, yet there are multiple
alternatives to most of their services.

~~~
TazeTSchnitzel
There is often only choice in the market because government regulators prevent
absolute monopolies from happening.

~~~
sol_remmy2
Disagree, the most monopolistic sectors in the economy (education,
telecommunications, health care) are also the most highly regulated.

Some states don't even have charter schools, can you believe that?? They only
have _one choice_ for schooling from grade K-12

~~~
magduf
>Some states don't even have charter schools, can you believe that?? They only
have one choice for schooling from grade K-12

This is complete BS. Private schools have _always_ existed, and still do. On
top of that, homeschooling is legal.

~~~
nichohel
And how many people can pay for schooling their children twice, once for the
the public school they aren't using, and then again for a private school? Or,
afford to not work and homeschool their children?

~~~
magduf
Who cares? That's irrelevant. You stated, quite clearly, that there is only
"one choice". You're wrong about that, as I pointed out: there's multiple
choices. I never said any of them were free.

~~~
nichohel
I'm sorry, what did I say? You may have confused me with someone else.

------
marcus_holmes
The whole pension situation is going to blow up completely. As a GenX, I fully
expect to have to work well into my 70's and then finally get a state pension
(if I get one at all) completely inadequate to support me.

Boomers are the major political force, and so pensions are good now. But as
soon as enough of them die off, GenY/Millenials will be the dominant
demographic and all the remaining pension funds will get ransacked for
benefits to the young.

A bit like Student Loans all over again (Boomers got their education for free,
GenX had to pay, Millenials got shafted), except it'll just be GenX getting
the finger this time.

~~~
castlecrasher2
>Boomers got their education for free

I've never heard this before. Got a link that explains it? All I've heard from
the few boomers I've talked to is that they generally worked during school and
had some loans as well.

~~~
chongli
They didn’t get their education for free but compared to what people pay now
it might as well be free. When boomers say they worked to pay for their
education, they mean they took summer jobs washing dishes or waiting tables.

Try to do that today and you’d be washing dishes for the rest of your life and
never pay off the student loans.

~~~
throwaway5752
It's compounded by some people not adjusting for inflation. Education was
still expensive back then, just not as expensive as it is now. It was also far
less universal.

edit: "people" -> "some people"

edit 2:

Trying to reduce a complex situation quickly (so forgive oversimplification):
for decades college education was a bargain, the lifetime value of a college
degree (average increase in wages) was much higher than the cost of the
degree. Ignoring the ethics and rationales for this, price rose to meet
demand. At the same time, automation has reduced the number of jobs and the
value of a college degree. It is an awful situation.

What I was trying to get across, using real numbers, is that Harvard tuition
in 1960 was apparently $1500. Inflation figures would tell you that is 8x
higher ($12k, affordable but still not cheap) in today's dollars. Actual
tuition is $46k. But an average house was $12k in 1960 and so you'd expect
$100k today on the same inflation rate. But it's $300k.

What you also have is an illustration of the stratification of society
(lower/upper middle class gap) where "luxuries" like college, a house, or a
car are tracking higher income growth and lower income growth is stagnating
because of international and technological trade trends. This is well beyond
the scope of this submission, so I'll cut myself off here except to say
reducing this to "boomers" isn't helpful.

~~~
smcl
You’re right that it was less common to go to University but the rise in
tuition has outpaced wages by an insane margin.

Edit: Apparently Wikipedia has an image that demonstrates this really nicely:
[https://en.wikipedia.org/wiki/College_tuition_in_the_United_...](https://en.wikipedia.org/wiki/College_tuition_in_the_United_States#/media/File:InflationTuitionMedicalGeneral1978to2008.png)

------
Bartweiss
> _Plumbing Pensions scheme, one of the few schemes in the UK to be multi-
> employer, meaning it could be accessed by different, unconnected, employers
> and their employees... because it was a "last man standing scheme", those
> still in it had to pick up the liabilities of those who had already left -
> even though they had no connection with those businesses._

> _The Pensions Act 1995 introduced a series of reforms including a "minimum
> funding requirement" for pension funds. It also introduced something called
> "Section 75 pension debt", which meant if an employer "departed" a scheme,
> they could still be pursued for any shortfall... Since 2005 far more
> stringent rules have been in force - and, by this new yardstick, Plumbing
> Pensions was deemed to be under-funded._

So pension systems were set up with an element of shared liability. That's a
bit of a risk for employers, but also insurance for pensioners if their
individual small employers failed. The worst case was that the scheme as a
whole collapsed if many members dropped out.

Then the government applied a minimum funding requirement to payment
structures which had been running for years without planning for that value.
Then, it converted shared risk from an insurance model to a legal obligation,
which could apply to individuals if their businesses were small enough.
_Then,_ it raised the minimum on plans which had been running for 40+ years,
and couldn't possibly be backfilled.

It's hard to overstate just how badly Menzies was treated by these
regulations. His pension enrollment was not only moral but financially
responsible - it only became a problem when the terms he'd agreed to were
repeatedly, retroactively altered. Nor should he be blamed for being slow to
react to the changes - the last-man-standing scheme meant _someone_ was
getting stuck with that bill. Large, incorporated companies, by contrast,
could be bankrupted but would at least face no personal debts.

Meanwhile, what about the Mirror Group, which motivated of these changes?
Well, Robert Maxwell died before seeing any liability for his theft. His sons
and other company directors were acquitted of all charges. And the government
bailed out 50% of the uncovered pensions.

It's one small case of the usual dynamic, I suppose: some large businesses and
multimillionaires behaved badly, so they faced no significant consequences ,
but a bunch of unrelated people who'd behaved just fine had their lives
upended by a clumsy response.

------
cryptica
The moral of the story is that governments and businesses should just abolish
all pension, superannuation, 401K plans, etc... and let people manage their
own retirement.

Big centralized retirement funds are scams and they always will be. Wherever
there is a giant pile of other people's money managed by a bunch of
bureaucrats, some suits will come along and find a way to profit from that
pile of money in the most wasteful way possible.

Now all these retirement funds invest straight into low-yielding corporate
stocks; so the money essentially ends up going into the pockets of corporate
executives. And the worst part is that the government makes this compulsory.

I know superannuation is a scam but I'm forced to pay it anyway and I can't
take the money out until I'm 65... I wouldn't be surprised if by that time,
the retirement fund stock bubble will probably have popped and my retirement
account will be worth $0... And all the fund managers and corporate executives
will be rich.

~~~
nine_k
Another lesson is to only take any obligations on your business if you're
running an LLC.

The plumber boss in question ran unincorporated, so his business's debts are
his _personal_ debt. Were he running an LLC, the debt would be on the company
only.

~~~
justin66
I had the same thought. Can anyone in the UK confirm this would have provided
sufficient protection there?

~~~
leoedin
The other cases discussed are plumbing firms which were limited companies. The
fact they complain that its a problem because they can't sell on the business
or pass it to their children tells you that the liability is with the
business, not the individual.

That's actually a pretty good situation to be in. Plumbing strikes me as a
very easy business to walk away from - just take your contact list with you
and you'll be back in business in no time.

------
yumraj
This is exactly why everyone needs to know about jury nullification, at least
in the US where it is allowed, so that if and when such cases come in a court
the juries can help make common sense judgements rather than the ones mandated
by narrow interpretation of the applicable laws.

~~~
Jestar342
That's just interpreted as "not guilty". I still don't understand why it is so
hard for people to understand this.

The jury are just asked "are they guilty?" and if they don't give an answer it
is, by simple virtue, _not_ a guilty verdict. Voila, verdict of "not guilty."

UK law has precedence for defendants who did do the deed being given a not
guilty verdict by the jury already. We even gave it the name "perverse
verdict." The wiki page on jury nullification has details.

~~~
gizmo686
Juries are given specific instructions which includes something to the effect
of "it is your duty to determine if the defendent violated the law, regardless
of if you agree with the law". The possibility of jury nullification is not
included in those instructions.

Before being selected for a jury, jururs are asked (under penalty of perjury)
if they can apply the law regardless of there personal feelings about it.
Anyone who seriously considers nullification would be lying if they said yes,
and would likely be excluded for saying no.

At least in the US, all jury nullification is, is the fact that the jury's
decision making is above review. It is not so much that jury nullification is
legal, it is that any ban on nullification is unenforcable. The courts
therefore do whatever they can to avoid nullification.

~~~
Jestar342
> Juries are given specific instructions which includes something to the
> effect of "it is your duty to determine if the defendent violated the law,
> regardless of if you agree with the law". The possibility of jury
> nullification is not included in those instructions.

No, they aren't[1].

And from my own experience of serving on a large fraud case, the Judge even
went into detail about "You are to return a guilty verdict if you think they
are guilty of the crime charged, paying special note that you must believe
beyond reasonable doubt, that their actions constitute a crime." Later in the
case this became apparent when the evidence from the defence suggested one of
the defendants was under coercion. i.e. they did commit the act of fraud, but
not criminally so.

> Before being selected for a jury, jururs are asked (under penalty of
> perjury) if they can apply the law regardless of there personal feelings
> about it. Anyone who seriously considers nullification would be lying if
> they said yes, and would likely be excluded for saying no.

No, they aren't[1]. In fact the opposite. We were asked to use our "worldly
experience" to help us reach a verdict.

[1] Full instructions (to judges) about Jury management in the UK is here:
[https://www.judiciary.uk/wp-content/uploads/2016/05/crown-
co...](https://www.judiciary.uk/wp-content/uploads/2016/05/crown-court-
compendium-part-i-jury-and-trial-management-and-summing-up.pdf).

~~~
yumraj
> No, they aren't[1].

Courts may be different, but as part of jury selection you are told that you
have to take an oath that even if you disagree you have to follow the law.

I'm fact hinting that you know about jury nullification seems to be a great
way to get out of jury duty.

> No, they aren't[1]. In fact the opposite. We were asked to use our "worldly
> experience" to help us reach a verdict.

Well, in my case the judge was very clear to use ONLY the evidence provided in
the court and to NOT use any external info or knowledge.

~~~
rexaliquid
I was instructed to use my common sense and experience to interpret the
evidence provided in court, and told not to seek out external references.

------
jsmith99
The National Institute of Economic and Social Research, a UK think-tank,
produced an amusing (by pensions standards) video explaining the recent shifts
in pension schemes, especially for government workers like teachers and
nurses, and how some groups benefit while many lose.

[https://youtube.com/watch?v=wXz85VuFMcU](https://youtube.com/watch?v=wXz85VuFMcU)

Unfortunately pensions are an intrinsically boring topic. I recently met a
professor of economics who lamented the £23bn deficit in the UK University
pension scheme but admitted he was unable to get even his fellow affected
economics academics to care.

------
wolco
For the guy who said his family business is worthless. Why not create a new
business in sons name and sell all assets to the new company including the
name. Put the first in bankrupcy?

~~~
ThrustVectoring
If that helps out at all, it's a fraudulent transfer that would get reversed
by the bankruptcy court. The business's creditors are entitled to up to 100%
of the value of the assets that the business owns, you can't just sell them
off before declaring bankruptcy.

~~~
eigenvalue
That applies to hard assets, like a truck, inventory of hardware, power tools,
etc. The real value in a business such as this is in the local brand
recognition (usually applied to the name of the proprietor), a reputation for
honesty and good service, and a list of customers with their contact
information. So in that sense, a father probably could reasonably transfer or
transition ownership to his son, it would just have to be done in a multi-
step, gradual manner.

~~~
ThrustVectoring
Probably the easiest way of going about it is just to operate "Plumber Bob's
Plumbing" and "Plumber Bob Jr's Plumbing" as separate entities for a bit, and
start referring business to the son's firm.

~~~
eigenvalue
Exactly. Very hard to argue in court that this constitutes a fraudulent
conveyance.

------
d_burfoot
In addition to their many other practical problems, defined-benefit pension
schemes are profoundly racist and sexist. This is because different
demographic groups have wildly different life expectancies, and these
differences aren't taken into account when calculating benefits.

Let's look at Social Security. Consider Alice, an Asian-American woman, and
Bob, and African-American man. They are exactly identical in every way that is
visible to the SSA: they begin working at the same time, they make the same
payments on the same dates, and they retire at the same age. Suppose further
they both retire at the standard age of 67, and they both have made enough in-
payments that they will get the maximum amount of $2,900/month or $34,800/yr.

When she retires at age 67, Alice has a long life to look forward to. Asian-
American life expectancy is 87 years, and women get a life bonus on top of
that, bringing her expectancy to just under 90 years. So on average she'll
receive about 23 years of payments, for a total of $786K.

Bob's situation is quite different. The African-American life expectancy is
75.4 years, and men get a life penalty, bringing Bob's expectancy to about 73
years. So in expectation he'll receive just about 6 years of payments before
passing away, for a total payout of $205K.

So these two people make the exact same contributions over the same period of
time, but one of them gets almost 4x more of a benefit, on account of her race
and gender. The system is literally forcing one group of people to subsidize
the retirements of another group that lives longer than them (and, as a
separate point, makes much more money).

~~~
maphar
You're citing life expectancy at birth, which can be very different than life
expectancy at 67.

------
gumby
This reminds me of how congress mandated an absurd pension calculation for the
post office as a way of trying to kill it.

~~~
SilasX
Being required to contribute the present discounted value of the benefit, as
private corporations do, is not absurd; the absence of that preparation is
what's absurd, and has led to numerous pensioners getting stiffed when it
turns out that megacorps are not perpetual fonts of wealth.

~~~
gumby
I agree, though the US postal service in particular is subject to specific
IMHO abusive constraints:
[https://www.bloomberg.com/opinion/articles/2018-04-04/congre...](https://www.bloomberg.com/opinion/articles/2018-04-04/congress-
not-amazon-messed-up-the-u-s-postal-service) and
[https://www.rstreet.org/2019/05/30/usps-pensions-vs-the-
worl...](https://www.rstreet.org/2019/05/30/usps-pensions-vs-the-world-more-
rules-worse-funding/)

In this case the evolution of the rules was not properly handled and the risk
assigned _post facto_ to a population (these tiny businesses) not set up to
handle the new rules.

With regards to the megacorps: they have often treated the future obligation
and the current obligation as uncoupled on their balance sheets which is great
in the short term and disastrous in the long. A bit of " _apres moi le deluge_
". Not just the megacorps; the US state of Illinois made the same terrible
decision.

------
Havoc
At my last promotion panel interview that actually came up as a point of
concern. That I'm too much of a good guy.

well uhm yeah I'll try to be more of an asshole?

I get what they meant but still seemed a little surreal.

------
rdiddly
The central problem with this is the presumption of guilt, contained in this
Section 75.

------
lacker
I don't quite get why this article sides with the boss. He promised his
workers a certain amount of money through a pension, and now he's having
trouble living up to that promise. I wouldn't say it's "being a good guy boss"
that is the problem here, it's making financial promises that he wasn't able
to keep.

The article also acts like changing to a different accounting system in order
to get a different result would be the perfect solution. Well, that's how you
get underfunded pensions in the first place.

I think the error was in making these pension promises in the first place. It
is far better to make promises that you understand how to keep, like the
defined contribution of a 401k, than to make promises to your employees that
are implicitly assuming a certain rate of investment return for decades.

~~~
gambiting
It sounds like you haven't read the article at all.

He has been paying into a scheme for many decades, even though there was no
requirement for him to do so. Then as a result of literal theft from a pension
scheme, a law was introduced that established a minimum funding requirement on
pension schemes, even ones which have been running like this one - for 40
years and completely solvent, meaning that the fund is able to pay out the
promised money. No promises were ever broken here. But because the law made an
unrealistic minimum funding requirement(probably based on the number of years
* some amount) this scheme is now suddenly magically underfunded and he is
personally liable to pull £1.2M out of his ass. This doesn't make any sense.
He has never lied to anyone, never done something that he shouldn't have, all
the promises that he made can and will be kept - but the law fucked him over
for literally no reason. It's like walking along on a street, happy and
healthy, and being hit by a stray bullet - it can mess up your entire life at
no fault of your own.

~~~
microtherion
> He has been paying into a scheme for many decades, even though there was no
> requirement for him to do so.

Yes, that's true, and to his credit. However, the people whom he hired during
that time negotiated their salary and chose their place of employment knowing
about the pension scheme, so the whole thing is not quite the act of pure,
disinterested benevolence the article makes it out to be.

~~~
zentiggr
The hinge point of the story isn't the setting up, administering, payments
regarding, or any of the normal expected activity involved.

It is entirely about the arbitrary boundary change in 2005 that created legal
debt out of thin air.

And incidentally about the soggy rotten mess that British politics seems to be
at the moment, blocking any reasonable effort to adjust the law to a more
reasonable funding requirement.

Benevolence or 'selling feature' is irrelevant to the legal blundering.

