There was an article in the Guardian this weekend that argued that millions of people in the UK might retire on less than the living wage. It suggested that:
Pensions providers have been called on to do more to encourage people to save for their retirement as estimates suggest millions of people are at risk of retiring on incomes far less than the current “national living wage”.
Since the introduction of automatic enrolment in 2012, which obliged employers to auto-enrol qualifying staff in workplace pensions, some 10 million people have started saving, many of whom would not have done so before. A minimum of 8% of pensionable earnings must be contributed at present — 5% by the employee and 3% by the employer.
But Aviva, the insurer and pensions provider, claims millions of people earning the average wage of £27,500 run the risk of retiring on a pension of far less than £15,000, the equivalent of the current national living wage. It wants contributions increased to 12% of earnings over the next decade.
Of course, Aviva would say that: they win from this, and the argument suits them very well. But there is something much more important to add.
Last month I sat next to an actuary working on such pensions funds and he said two things to me. Once was that he seriously hopes there will be a planet that can sustain the people he is investing for by the time that they retire, and he was not sure of that, especially given current business behaviour. But more importantly, he was very clear that funds of the sort these payments go into do not invest. Instead he agreed with an argument I have long made, which is that all they do is promote saving.
In economic terms savings are a withdrawal of money from economic activity. They are deflationary as a result. And they do not create anything new at all. So, whilst saving might make personal sense they do not deliver macroeconomic benefit as things stand.
I would add something else. Those savings are largely being directed into the stock market, with a bit also going into commercial property. The result is that these savings actually boost the value of these assets month in month out, with the consequence that those who already own most of those assets - who are the already wealthy - are seeing their wealth inexorably boosted by this compulsory pension policy. Bizarrely, saving is then actually increasing wealth inequality.
My answer is it need not be like this. If savings went into investment - which they would if they were directed through a Green Investment Bank into the Green New Deal - then this whole weakness in our pension system could be addressed and corrected and we might even have a viable planet to live on. Right now there is no chance of that. And we need to change that, urgently.
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And what method do you propose to get people to shift their savings from things which, in your own words, are boosted every month, and thus result in an incremental increase in the value of somebody’s ultimate pension, into something where the payback is likely to be both lower, much later, and much more uncertain in financial terms, leading to a potentially greater reliance on the State at retirement ?
The only way of course, like most of your ‘solutions’, being force. This is nothing more that the usual grab of other people’s money to use it in a manner you get to dictate.
You do know that $12trn of negative yielding bonds are in issue and no one makes anyone buy them?
What you are saying is pure nonsense
Oh, and it guarantees a crash – because what is being created is a bubble, and not value
And I have indicated what change is required
You bring up an asset which nobody is forced to buy as an argument for using force to make people buy things ? And then accuse me of talking nonsense ?
We also have the usual Cassandra cry of a coming crash, which, given your avowed dislike of (wealth) and wealth inequality, would surely be the fastest realignment of that wealth inequality available ? I thought the rich getting a kicking was a good thing ?
To summarise:
You want to stop people investing in stuff they are presently investing in of their own free will.
The value of which is boosted on a monthly basis because of inward investment.
So the future value of wealthy people’s pension schemes would likely be lower
Because you don’t believe it is healthy for wealthy people to have valuable pension schemes
Because you worry about wealth inequality
But don’t want that wealth inequality to be realigned through a market crash.
Because ?
No matter how you slice it, it’s taking other peoples’ money by force to do the stuff you want the State to do.
But whose side are you on Richard ?
It’s all a bit confusing to be honest.
Do you think auto-enrolment is really an expression of free will?
Really?
And that they really have a choice about what their investment managers do?
Come on, stop being silly here
Whilst I am not compelling anyone that I am aware of
Auto enrolment is approximately 0.001% of the savings market and you use that as an example to change the basis of investment for the other 99.999%..and you accuse others of being silly
Yes, I do, because it typifies the way in which the market is structured to produce results rarely advantageous to the ordinary investor
This arrangement haws all the feeling of being the next endowment insurance style disaster
To force change upon 99.999% of the savings market against their will is unquestionably the mindset of a totalitarian…
I was talking about these pensions and nothing else
You made the rest up
Why did you do that?
Richard, a question for you. Is it therefore possible for people to ask for their contributions and their to be invested differently. If so can they ask their employer to do the same.
There are choices but you assume the employee can make an informed decision on that
This completely ignores the asymmetry of power and knowledge in this relationship – which weights heavily against this happening
Auto enrolment was bought in for the benefit of employees, the aim being that reliance upon the state in old age would be reduced. Whilst its refreshing to see you actually defend a person’s free will in the face of government action, why do you think this is a bad thing ?
And are you saying you really have no idea of the existence of the entire self directed pensions investment market ? Or the level of advisor transparency required before any investment scheme is undertaken ? Or the legal strictures for any asset manager who steps outside of their mandate ? Or indeed the average person’s interest or intelligence when it comes to their own investment decision making ?
There are green and ethical investment schemes which anybody is at liberty to participate in, or to direct their financial advisor to do so on their behalf, at the present time should they so wish. The last thing these people (or indeed the beneficiaries of their investment) need is an additional level of State bureaucracy such as your beloved Green Investment Bank.
In your new found spirit of libertarianism, I’d be very interested to hear what plans you believe the government (as the ultimate sponsor of your New Deal Investment Schemes) should put in place to recompense Green New Deal investors should the value of their investments not be sufficient to provide them with their desired level of income in retirement because of poor investment performance ?
Since the Green Investment Bank would issue bonds the risk would be low. How often as KfW defaulted?
And clearly you have no clue about asymmetries on which issues as pensions. The idea that all are equally able to make decisions – which you assume – is absurd. They are not.
And this whole arrangement was, I have no doubt, created by a government biased to capital markets to boost values to appease a very narrow interest group – the wealthy. I regret it is trickle up, again
And without a single gain to the wider economy, with which po9inmt I note you do not engage. I presume that is because speculation is all that matters to you
And that’s exactly why this scheme is disastrously wrong
Oh, and if you want the real solution, it is SERPS.
Now you are really becoming very confused, so I will try and help you.
Your KFW bank issuing bonds might well have a very low risk of default, but guess what the commensurate rate of return might be ? That’s right, it would be low enough (certainly at present) not to provide any sort of gain which would impact the future value of a pension. You seem to want to focus on the fact that the bonds might not default, but the investor would need some sort of return to build his pension pot.
No, I haven’t said anything about the asymmetries of pension investment decision making. That is the very reason you have Managed Funds, so that the investment decisions are taken on peoples’ behalves who feel unable to make those decisions. Some fund managers are good at making those decisions, some are bad. Your hatred of the fund management industry, whilst largely irrational, is well documented. Do a few poor lecturers in a university make the university system bad ?
Your theories about government devolving responsibility about the pension industry to favour the wealthy is at the conspiracy end of the spectrum I’m afraid. Your alternative I’m assuming is that the State take over the whole industry to put into stuff Richard ‘thinks is a good investment’ ?
People buying shares in the primary market (when the shares are initially sold to the public via the stock market) or subscribing for a rights issue, are not assisting the real economy by providing capital for a company ? People paying tax on income and gains earned through their investment are not providing funds for the government to spend, or helping to keep the lid on inflation under an MMT system ? None of these are providing a benefit for the wider economy ? The reason I didn’t ‘engage’ with you on this point is that it was so patently incorrect.
SERPS, where those earning the most received the highest pension, are the answer ? Come on Richard, I thought you were all about equality. I thought we were against favouring the wealthy ? Isn’t this where we came in ?
I know that people who point out the obvious gaps in your knowledge have a habit of having their time here cut short, but don’t worry, I know of other sites who will happily publish replies when you feel the need to censor, so I’ll keep a copy handy in case this accidentally ‘gets lost’ in the ether
I am not confused at all
I can just spot snake oil vendors a mile off
The answer of a supposed Professor at one of the higher seats of learning in our country is that you can spot snake oil vendors ?
What a pity certain universities don’t have your sense of rigour and intuition.
Your employers and yourself should be thoroughly embarrassed
I am not in the slightest embarrassed
And my university has no control over what I write
But why not engage with my responses in another blog?
I am quite sure you cannot.
In the meantime I will do the academically and socially appropriate thing to do, which is to make clear that these policies cannot work because they create macroeconomic deflationary effects and only really serve the self interest of those selling them and the owners of wealth
[…] got the typical reactions from right wingers for suggesting that the investment of auto-enrolment pension funds was inappropriate yesterday. Comments included the claims that these investors had a choice of funds, so that if they wanted a […]
[…] got the typical reactions from right wingers for suggesting that the investment of auto-enrolment pension funds was inappropriate yesterday. Comments included the claims that these investors had a choice of funds, so that if they wanted a […]
[…] got the typical reactions from right wingers for suggesting that the investment of auto-enrolment pension funds was inappropriate yesterday. Comments included the claims that these investors had a choice of funds, so that if they wanted a […]