Last year, UK companies raised just £1.3bn in new equity, net of buy-backs and acquisitions.
As my research has shown, we pay about £80 billion a year into UK pensions funds.
And that relief cost more than £36 bn in 2009-10.
So for £80 billion invested at a cost of £36 billion we got £1.3 billion of net new investment in the UK economy.
What happened to the rest? Well, charges take a big slug. And then the residue was speculated by the City - resulting in more charges arising for the benefit of the City, and not pensioners. You can see this easily enough for yourself: the fact that the FTSE has risen so steadily when there is no obvious reason for it to do so given the mess we're in is in no small part down to the fact that this wall of pension money arrives month in, month out to keep the City going.
But hardly a penny goes into the UK's productive eco0nomy that will keep people at work until they reach their new, extended, retirement ages. The money goes into City bonuses in the main.
That's the scandal of the UK pension industry.
And it's why I say one quarter of all UK pension contributions should be used to invest in new jobs as a condition of the tax relief given. In the last year that would have released almost £20 billion of new funds to British business. Think what that would do for growth! What can be said with certainty is that it would be a lot more than speculation ever will contribute.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Richard, you are missing a fundamental point here.
The £80 billion or so that are paid into pension funds are used in part to buy shares from past savers who have now reached the retirment age. How else do you expect those who have accumulated pension pots during their working life to monetise their savings? So these £80 billion, far from being sucked into a black hole, fullfill the eessential task of keeping pensioners fed and sheltered. How can you not get that?
And your comments that UK pension contributions pay for City bonuses simply do not stack up: as many have pointed out before on this blog, the vast majority of bonuses in London are paid by US and European investment banks to their (predominantly) non-British employees, which generally do very little UK-related business, and probably nothing that relates to UK pensions. Even the bonus pools of British investment banks (Barclays, RBS and HSBC) are predominantly paid to employees in New York or in Asia.
As they say, never let the facts get in the way of a good rant….
I never do let the facts get in the3 ay of a good rant. I use them instead, intelligently.
a) I do not need to consider the secondary market – it’s big enough to liquidate all holdings without considering new pension cash coming in
b) Despite that fund managers persist in buying equities – when the average rate of return for a decade has been 0% – why is that?
c) Your suggestion is that we have ‘pay as we go’ pensions – an interesting idea run rather well by the state without the need for the City as middle man
And I can assure you all those charges go somewhere….
Maybe you’d like to retract?
Your comment about return is totally incorrect. I could buy a 10 gilt when it is issued at 100%, holidng it to maturity at 100%. Under your figures I would make 0% return over the 10 years, which is completely incorrect because you are ignoring income.
And respectfully I think you’ve wholly missed the point….
Richard, I cannot access your link to the “research” pdf file but have any allowances been made in these figures for the paying of maturing pensions ie. buying annuities?
I agree entirely, though, with your views that, in the last few years, pension funds have depended almost entirely on tax relief on contributions to cover expenses and the effect of inflation.
http://www.financeforthefuture.com/MakingPensionsWork.pdf
I think you need to elaborate why that is needed
As with Darren, I did not fully understand your statement and I wondered if the answer was in your earlier research. It appears from your figures above that our pension managers (and I have been one myself) are now choosing to put only small proportions of funds and incoming contributions into UK equities. Let us hope that all the rest is not being frittered away on fund charges and bonuses. Presumably government stocks and other equities are also being purchased and are not shown here.
Well over 60% of all funds are in equities
So the money is being used to buy 2nd hand investments
And we’re subsidising that
In an ideal world we should invest our pensions within the UK and by doing so we are building self-confidence and investing in our own future…The decision becomes difficult when, for instance, Far East equities give far higher returns and investors would rightly wonder why the manager had not utilised the opportunity for greater growth. A fine balance is needed.
If we really invested in the UK then we too could enjoy high growth rates
But we don’t
We just save here – something very different