I am delighted to see a new report out from Sheffield Political Economy Research Institute deputy director Dr Craig Berry published today. As SPERI says of this report:
Pension funds are among the most important investors within UK capital markets. Understanding how and why they invest the way they do is vital to understanding how the economy might develop in coming decades — and in determining how radical transformation within the UK economy might be financed.
In this new think-piece for the International Longevity Centre-UK, SPERI's deputy director Dr Craig Berry surveys the evidence on pension fund investments, and recent developments in UK pensions provision, to consider the willingness and capacity among pension funds to reorient investment practice towards long term investments. The paper also evaluates recent coalition and Conservative government policies in this area, questioning whether policy has been sufficiently focused on challenging the most important barriers to investing for the long term.
Dr Berry recommends the establishment of national and local economic renewal funds to address these concerns. These would be funded by near-compulsory allocations by all workplace pension schemes. Any individual or firm would be able to bid to the fund for investment, into projects consistent with improving the productive capacity of the UK economy. He also advocates an enhanced role for the state in supporting pension funds to facilitate long term investment through its unrivalled capacity to hedge risks, including offering hypothecated investment bonds to institutional investors and providing annuities to ‘defined contribution' savers.
I agree with this. Indeed, I wrote this in 2010:
Pension reform to deliver real investment
We have to ensure that there is ongoing real investment, not in financial “innovation” but in real wealth creation and real infrastructure that underpins that wealth creation by the people of the UK. That can come from the type of reform of the UIK pension system I have recommended in ‚ ‘Making Pensions Work'. We must require that at least 25% of all the pension contributions made in the UK be invested — not saved — but invested in wealth creation opportunities in this country. If that is through that same national infrastructure bank, that's fine with me. If it is direct in new share issues by UK companies seeking to create new employment opportunities — and can prove that this is the case — then that's fine too. But in this way I am convinced a further £20 billion can be released for investment in the UK economy.
I am delighted to find a new supporter.
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Given that state of so many pension funds, private and public sector, I fear it all may be too late. To quote Sir Walter Scott in “The Lay of the Last Minstrel”, Lost Lost Lost. The manic political tinkering and fixing of recent years is in part to blame. The real problem has been that the funds have never really grasped or tried to deal with the mounting liabilities at a time when concessions and “improvements” were the norm in salary negotiations.
I wholly agree with this. However, would it not be hard to enforce this on unwilling private pension funds?
And would government, who is not exactly known for standing up to business, actually enforce it?
You make it a condition of tax relief
Simple
Is this argument really MMT compliant?
If anyone, or any organisation, wants to do whatever they like with their money, is it really up to the the State to direct them to do something different? If they want to save it in gilts or even used notes in a bank vault, what’s the problem?
Government can “borrow” that money, if necessary by the process of PQE, and use it for productive purposes in the economy as it sees fit. Like to fund the NIB for example. The only possible problem is demand-pull inflation.
If that starts to become a serious issue, the government needs to back off ie slow down on the spending/investment and maybe even increase taxes a little.
If there is a MMT compliance police then you can be sure I will not comply
I rather dislike the whiff that there is
I do not agree with your libertarian view point here
If the givernment gives a subsidy and it does then it is quite entitled to direct how it is used
Richard,
I might just remind you of your 2013 comment: “It took me a little while to realise I am what is now called a Modern Money Theorist”!
I’m not seeking to “police” any kind of compliance at all. I was just asking the question re this article and MMT. I wouldn’t say I was 100% compliant myself. I’ve got a bit of a problem with their JG but that’s a different issue.
I would say the argument isn’t at all compliant, but perhaps more importantly, anyone who understands the workings of our monetary system can see it’s wrong.
If the Govt thinks the subsidy is socially useful it should keep it. Otherwise it should abolish it. As Steven has said below it’s quite unnecessary for the government to engage in any conflict with the ‘pensions industry’ on this matter. There’s no need for any ‘quid pro quo’.
PS I don’t mind the tag ‘libertarian’ providing it’s ‘left libertarian’ 🙂
I really have no problem creating a collective social investment scheme
Tgat is, in effect, what I am suggesting and do not care if it is MMT compliant
I saw your tweet about meeting Stephanie Kelton. If you get chance maybe you could ask for her take on this?
I am aware Stephanie will not agree
But that’s OK – healthy disagreement is the basis for progress
Notwithstanding the valid point about Government subsidies made by this blogs author; where the State is underwriting the pension liabilities of former public sector organisations, which are now privatised, such as BT and the former Royal Mail to quote just two examples, then it absolutely has a right on behalf of the society it represents to have a reasonable input in this regard.
This is the problem with the mindset of privateers/parasites (delete whichever is inapplicable). What yours is theirs; and what’s theirs they hoard.
This is unnecessary, and I am unclear why you would want to suggest it. The Government can facilitate long term investments, within the real resource constraint applying to all spending, to an infinite extent, without the use of potentially unpopular measures to direct private sector savings. At best, it is a second best solution, if you have given up on the concept of PQE, or outright monetary financing.
I suggested both in th linked 2010 article