A reader of this blog, Dave Rotheram, picked up a quote from me and used it on Facebook the other day, noting I said:
We can't have a successful transition between generations in this country and meet the baby boomers' desire for a comfortable retirement when the upcoming generation has debts and tax rates that make it almost impossible for that younger generation to buy the assets the older generations have to sell to fund those retirements, whether they be shares, bonds or houses. That's just not possible.
Dave added:
Many people of my generation bitch at my children's generation and put the blame for their difficulties on silly things like eating avocado but this quote from Richard Murphy picks up on something that gets overlooked - the millennials' problem is also the boomers' problem, if only they realised: the boomers haven't won a battle between generations, just made a potential win-win into a lose-lose.
I thought that a twist that I appreciated. Dave gets that there is what I call a fundamental pension contract. This comes from something I wrote in 2010:
[There is a] fundamental pension contract that should exist within any society. This is that one generation, the older one, will through its own efforts create capital assets and infrastructure in both the state and private sectors which the following younger generation can use in the course of their work. In exchange for their subsequent use of these assets for their own benefit that succeeding younger generation will, in effect, meet the income needs of the older generation when they are in retirement. Unless this fundamental compact that underpins all pensions is honoured any pension system will fail.
As I also argued then:
This compact is ignored in the existing pension system that does not even recognise that it exists. Our state subsidised saving for pensions makes no link between that activity and the necessary investment in new capital goods, infrastructure, job creation and skills that we need as a country. As a result state subsidy is being given with no return to the state appearing to arise as a consequence, precisely because this is a subsidy for saving which does not generate any new wealth. This is the fundamental economic problem and malaise in our current pension arrangement.
I did a video on this here:
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:
There’s nothing wrong with this except that the title needs to be in the past tense.
OK….but it still is
We can agree that the established trajectory has not changed.
This isn’t recent, nor about to happen. It’s been happening for some time.
The stupidity of it is pension funds maintaining the value of the fund by pocketing savings from cuts to the pay and conditions of working contributors. It’s a slo-mo destruction of those funds in the long term.
As you are suggesting – the narrow role of actuaries and how pensions are managed and funded needs to change.
To illustrate the very point I’m making and the seriousness of the situation, my LA pension fund (after a FOI request) is £6 million in the red because the Labour ran Council I work for took out the employer pension contribution holiday created by our Tory party (because of course the Tories love underfunding local Government). So to make that up, the same Council did a job evaluation in 2018 and in a time of austerity implemented 11% pay cuts.
To me, that makes the staff pay twice for their pension!! So, you have to suffer to have a pension!! Unbelievable!!
It was bad enough when the craven New Labour party ended the final salary pensions we’d all signed employment contracts for in 2003 (which is why I no longer vote Labour unless they give me my money back).
I don’t know what pension you have Richard but I know that for some time, the politicians in the country have been trying not to pay mine.
And we all know what the dogma that is based on don’t we – because much of your fine work here has been about debunking it?
what does this mean? more tax for pensioners?
No, it means the risk of failing pension funds
but the state determines what a pension fund should buy?
It sets out conditions for relief
Why on earth not?
When did you last give away £55 billion without conditions attached?
In his magnificent book “Conservatism”, the eminent philosopher Ted Honderich concludes that conservatism simply boils down to selfishness.
In our current predicament, great effort is being put into continuing the false narratives that sustain and deepen the march into all-consuming disaster that awaits us on all fronts, be they social, economic, climatic or environmental.
I have a great feeling that the pension issue is one of those “canaries in the mine” that serves to warn us about all of this.
Hearing Dominic Raab being questioned on Today this morning made me think that the 10% increase to pensions is nothing more than a bribe for the bedrock of Tory support.
This post today, Richard, gives us ample warning of what to expect.
As usual, food for thought.
Many thanks to you and Dave.
I agree re the bung to pensioners – the bedrock that keeps the Tories in power
They might imagine it to be a bribe but really, a crock of shite plus 10% is still a crock of shite especially when inflation’s around that figure anyway. If they want to bribe pensioners then they’ll have to get serious and bring the state pension in line with the majority of other civilised nations. Can’t see that happening myself. In Raab’s worldview reality seems to have been replaced entirely with wishful thinking. It’s like he’s gaslighting himself. On a similar subject, great article here from Fintan O’Toole https://www.theguardian.com/commentisfree/2022/jun/15/britain-ni-protocol-brexit-ministers-deal
I don’t trust the tories to honour that pledge.
Last year we had the triple lock, which was changed this year so we only got 3% instead of 8%, I think. They also did not change the personal tax free allowance, which means that anyone who has a pension of more than £12700 pays more tax than they would have done if the TFA had risen.
Why should we trust the tories to do what they said this morning? It’s a trick to get pensioners in the two by-elections tomorrow to vote for them.
This won’t get them any more votes. In fact pensioners I have been talking to this morning trust them even less.
There are two million pensioners in poverty.
Whilst I entirely agree with the premise surrounding the points you make above, it is actually possible to invest in UK infrastructure via private pensions (SIPPs) and embryonic UK businesses, particularly through listed private equity and infrastructure funds in the form of investment trusts. Herald Investment Trust, for example, is a UK technology investor, and there are several infrastructure and social housing funds readily available.
And what share of the market do they have?
According to current statistics available from the Association of Investment Companies (AIC) here https://www.theaic.co.uk/, there is about £32.26bn in Listed Private Equity Funds and £30.87bn in Infrastructure Funds. It’s a start.
What has private equity got to do with it
?
And is the infrastructure green?
This is another example of the standard Tory tactic – divide and conquer. Set various groups against each other be it pensioners v those yet to retire, public sector v private sector, England v RoUK and many others, get them arguing and seeing each other as the enemy whilst the govt gets on with destroying the country for all except the very wealthy and powerful.
Craig
PSR – your LA pension fund is £6m in the red because of an artificial construct derived from the vagaries of the actuarial valuation process. You might be interested in checking out John Clancy’s 2014 book “The Secret Wealth Garden” which debunks the nonsense involved in how pension funds are valued and managed.
Jim – I have no basis to disagree with you such is the state of accounting these days. All I can tell you is what the FOI request told me which I put through my union.
Looking at the 2021 accounts of the Universities Pension Scheme (a bee in my bonnet)
Income
Employer contributions £2,454 (millions)
Employee contributions £2,709 (millions)
Investment income £1,663 (millions)
Total income £6,826 (millions)
Outgoings
Pensions £1,965 (millions)
Overheads £160 (millions)
Total outgoings £2,125 (millions)
Excess of income over expenditure £4,701 (millions)
Assets £82,168 (millions)
I think you have to be a special sort of actuary to think that a business with those figures is not a profitable going concern. Yet USS members are being told the scheme is in deficit and they will have to accept worse pensions.
Pension accounting is somewhat more complex than that
But the USS actuaries’ assumptions are decidedly dubious
As I understand it, the actuarial assumption is based on selling all the assets of the scheme and buying bonds with a real return of -7%
Which they won’t do
Having more coming in than going out for that year It is a good thing, but what are the liabilities and how much do they change in the period?
If the liabilities increased by more than £4.701m, the fund is falling behind. And if the liabilities exceed £81.168m, the fund is in deficit.
Precisely
In 2020 (I haven’t looked at the 2021 USS annual report yet) membership of the USS totalled 476,000.
Of that there were 204000 active (contributing) members, 194000 deferred members (not yet retired but now employed elsewhere) and 78000 pensioners.
This is a big DB pension scheme but still displays the “demographic instability” I referred to in my comment on another post a couple of days ago. The combined employer/employee contribution rate is 36% of payroll and the threatened industrial action was because there was a proposal to increase it to 57%.
Despite its size the USS is still operated as a “last man standing” scheme even though it is highly unlikely that universities will all close down and cease employing people. However we can see that it has a low ratio of active members to deferred/pensioner members. A national pension fund would not have this fatal feature because there would be very few deferred members. Why not? – because any employee leaving the university sector to work elsewhere would not be a “deferred member” of a national scheme – they would still be contributing as an active member but working somewhere else.
Privatisation of the public assets created by our forefathers has also had a dramatic impact on the fundamental pensions contract between generations. Wealth (Capital) created by the labours of past generations, I think Marx called it ‘dead labour’, has been sold off (given away?), much to foreign investors. Future generations now have to pay for that wealth all over again through rent extraction via higher prices.
True
So is what you are saying is that for decades we haven’t built a strong and growing economy from which State Pensions can be paid without damaging the necessary wealth that younger generations draw on?
If so, that is the fundamental problem with politics over the last 50+ years isn’t it? People haven’t wanted and don’t now want to invest in anything that is not an immediate asset to them personally. Certainly the majority of voters must feel this way if we look at the aims of the governments voted for.
As far as I can see, all forms of economics instruct us to demolish community and encourage selfishness. I would love to know what would change that.
No, not all economics instructs that
Neoliberal economics does
So, we reject neoliberalism
I have a paper coming on this