There’s a massive crisis in the pensions industry. It’s simply described. We’re living longer so pensions cost more.
In February the Pension Regulator proposed changes in rules to make sure this fact is recognised. But now the FT reports that:
The Pensions Regulator [has] rowed back on its proposals to require schemes to use assumptions about life expectancy that could have required them to add billions of pounds in additional funding.
Sweeping things under the carpet does not work. The last few weeks have proved that. But we still keep on doing it.
Why?
Are we too frightened of reality? If so, that’s all the more reason for addressing the issue.
3 Comments
Richard,
One way out of chronic pension problems is to allow individuals to opt out of various governmental schemes and plan for their own future.
For those individuals choosing to stay in governmental pension schemes, good for them.
Georges
This is already possible for pensions
This issue only relates to private pensions
Richard
The apparent existence, or not, of a pensions deficit is questionable:
1. The deficit is calculated as the difference between a volatile market value and a very conservatively assessed liability. Valuing pension fund investments on a discounted dividend basis would give a less volatile answer. And,
2. Life expectancy may not continue to increase. The people dying today are ones who survived childhood without anti-biotics and grew up on a healthy diet in the 1940s and 1950s. The current generation includes a lot of less tough constitutions who are heavier, take less exercise, are exposed to a lot more STDs, drink a lot more alcohol, are exposed to more environmental pollutants, have much more job related stress, etc. etc.
Saving more isn’t a solution since pensions are still paid out of the production of the working population. If you look at the demographics it doesn’t really become a problem until about 2035. No, the real point about the pensions debate is that it is a way in which firms can renege on their obligations to their workers, present and future.
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