People think that pensions are all about saving, financial speculation, and living off your money in old age.
The trouble is that this model of pension provision is failing because financial markets are no longer providing reliable financial returns, and there's no likelihood that they will.
Worse still, this form of pension provision has meant that a generation (mine) has failed to invest in the real assets that are essential if the next generation (our children) are to have the means look after us in old age.
That's the real worry, and only radical action can put that right now. I explain this in more depth in this video.
I have been asked whether transcripts of these videos are possible. They aren't, easily. But subtitles can be turned on by clicking on the three blobs in the top right hand corner of the video and clicking the option to add captions. They will not be perfect, but they will help.
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:
Are you planning to cover this in one of your columns in The National, Richard? It certainly reinforces the messaging of the SBFG.
I have posted the link on the SBFG Facebook page.
Yes
After May 6
Excellent explanation of a fundamental truth.
I think the strains are already evident on a micro scale. There has been incredible asset price performance over the last 30 years and even modest monthly savings have accumulated to become quite a large pot of money. But what does that get you? Not a lot! If you are 65 and want an (capped) inflation adjusted income for life then £100,000 will get you about £3,500 a year. Newly retired people are discovering that the notional monetary value of their savings is not translating into the income they expect. Of course, you don’t have to buy an annuity but if you don’t you are taking a risk and a difficult one to manage since we don’t know what investment returns will be or how long we will live or what the price of the things we need (relative to general CPI inflation) will be.
Financial assets are only useful if they can be exchanged for real things…. and when you discover they can’t it is too late. It brings to mind the image of Pablo Escobar on the run burning money (literally) to stay warm in his mountain hideout.
This is a key area for society at the moment and to me it is pure market failure.
I’m sorry but the baton has to go back to Government – and the sooner the better.
Quite agree. We need to have a discussion on what is the purpose(s) of a pension: what relationship should it have to a person’s earnings, or no earnings, how can it ensure retirees don’t fall into poverty, who, if anybody, should contribute to it and by how much, what should government’s role be in providing a decent State pension, (some countries don’t have much in the way of private pensions and it’s largely State provided)and shouldn’t it be part of a package of ensuring retirees also have access to care as and when needed at reasonable cost, or as part of social welfare? And also, what is an appropriate age at which one can claim a social pension? Governments have been trying to “balance the books” by increasing the age.
Graham, my NPIF proposals seek to find answers to all of these questions…..a 2 part synopsis here:
https://www.taxresearch.org.uk/Blog/2021/03/22/a-national-pension-investment-fund-npif-a-synopsis-part-1/
https://www.taxresearch.org.uk/Blog/2021/03/24/a-national-pension-investment-fund-npif-a-synopsis-part-2/
Is there we pretend that basic economics doesn’t matter an that we can set up a ponzi scheme which provides sufficient short-term cash flow to fund some attractive pensions (and ignore the impossibility of needing greater and greater new entrants into the scheme in future years)?
If people think pensions have to include financial speculation surely they’re misguided. Pensions can be saving and living off your money in old age without the speculation step. The speculation step is simply gambling with your savings with the hope of increasing those savings.
Agreed
Me too.
But there should be changes too that limit/stop the corrosive effects pension funds can have on employment rates and rates of pay. The value of the pension fund cannot be maintained at ‘any cost’ to what it is invested in. This is a major problem now.
On Youtube, click on the three dots (ellipsis) under the video and to the right, whereupon up pops a menu which includes “Open transcript” which if clicked on provides a rudimentary scrolling transcript which can be copied and pasted. It’s a bit convoluted but it works.
I did not know that!
Thanks Richard, this is a really informative overview of how pensions work. The fundamental pension contract sounds a bit like what a state pension is meant to be,,,
I agree. A large part of the problem is that financial markets no longer perform the function of allocating surplus capital to projects, businesses and entrepreneurs who need it. Instead, lack of regulation has turned it into a casino for disaster capitalists, short sellers and the likes to destroy value in order to make the rich richer at evereyone else’s expense.
Richard,
There are some significant flaws in your claims in this video, which appear designed to support your desire to change the way scheme’s invest to meet your wider objectives.
Investing in companies is not necessarily about speculation – that’s more linked to the sort of ‘entrepreneurship’ that Colin Dawson suggests is required.
Investing in sound, productive business to receive stable dividends and (potentially) capital gains us investing, not speculation.
And as people retire, they can sell their ownership in these companies to new investors, there is no need for an increase in the number of shares ‘Ponzi scheme’ as you claim.
Ironically you appear to support Jim Osborne’s proposal which IS a Ponzi scheme!
Politely, what you reveal is that you really do not understand pensions
You many undertasand finance
But that is the whole problem with pensions
They have been captured for abuse
Please don’t call again – you are wasting my time with your comments that make no sense – and which you never justify
I also happen to notice that you have two other male identities here, both already bannmed
Candidly – you are the fraudster in the room
Is there a UK equivalent for this?
https://twitter.com/profwolff/status/1381278366838317056
Sort of, from the ONS household income survey
Perhaps Rachel Gee, or whoever he or she actually is, should take the trouble to read John Kay’s book “Other Peoples Money” then see if he or she has the temerity to assert that such an authority on the workings of our financial system up is talking twaddle.
Perhaps another aspect on this is that the fundamental distinction between money and economic wealth (i.e. goods and services) is not really understood by a lot of people. They think that because they have saved some money during their working life, this implies that they have held back a corresponding quantity of real economic wealth for consumption in their retirement. But as you have pointed out, that’s not how it works.
Agreed
Just seen this today and had to share.
https://www.globalissues.org/news/2021/03/29/27423
Take a look at the horrific increase in cost for Argentinian private pensions in the footnotes at the end
“5. In Argentina, administration costs jumped from 6.6% of contributions in 1990 before privatization to 50.8% in 2002;” ………
Amazing