As investment advisers Hargreaves Lansdown have noted:
- [Yesterday] the Auto-enrolment Extension Bill continued its way through Parliament with its third reading in the House of Lords.
- Key provisions:
- To reduce the minimum age for auto-enrolment from 22 to 18.
- and enable savings from the first pound of earnings from £6,240 today.
- These provisions were initially highlighted as part of the 2017 Auto-enrolment Review with the government saying it aimed to introduce the changes by the mid-2020s.
I have no link: the text comes from an emailed press release. Experience shows they are always reliable.
Why does this concern me? As I have long explained, pension saving is not the basis for a pension system unless those savings are very carefully directed into the creation of long term value that has the ability to create inter-generational transfers of value. The stock market, into which many of the funds of 18 year olds will be directed in the future, not only lacks that ability, it does not even aspire to have it. Instead, it is simply a short-term focussed den of speculative gambling that plays little actual role in real wealth creation, but which requires a steady flow of new inward funds to disguise the fact that fund management charges would otherwise deplete the value of the system as a whole. It is, in my opinion a Ponzi scheme, in other words.
This change in the law is a simple measure to keep feeding the stock market with the money it requires.
These pensions will prove to be valueless if invested in shares, as most are at present.
Worse, they will reinforce the idea that companies have the answer to climate change when their current behaviour is the primary cause of it.
So what is this Bill about? As far as I can see it is about feeding the neoliberal beast with funds from yet more victims who will have little chance to fight back.
If this is where we are when it comes to thinking about pensions we are in deep trouble,
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Having had two children in Gordon Brown’s well intended but badly administrated Child Trust Fund, I totally agree with you.
To sit there looking at a graph charting the rise of the fund when my two could not access it, and then looking at it drop gracefully in value as they come to redemption age is a real lesson in the ‘power of the market’ I can tell you.
Nah – not for me – you’re right, they’re just giving private banking yet more money to play with and exploit and fuck up. This bill should be stopped dead. There’s no reason why the State couldn’t run something like this and underpin and guarantee the value of these funds in the same we it looks after the money of the rich especially if they really cared about the country’s children.
Which they don’t, of course.
My younger son missed that fund by one day….
I agree with the main points. Standing back, & offering a slightly more robust framing, the current trajectory of the vile-tories, vile-tory-lite and the associated neolibtards is to pass the maximum of gov functions to the private sector………….as well as ensuring that the max amount of money flows from Uk serfs to the private sector, in this case licensed speculative bandits (a blindfolded child with a pin could achieve the same investment results).
Legislation is enacted to ensure that the entire population on PAYE supplies a drip feed of money to said licensed bandits/moloch. A un-virtuous circle operates in this respect since the bandits deliver bribes, bungs, brown envelopes to the vile-tories (although a change is taking place – with flows being switched to vile-liebore) & in return, the vile-tories deliver more corn from UK serfs to moloch. The UK, a country run by & for the rich with a +/- 5 yearly pantomime that allows it to pretend it is a “democracy”, whilst UK serfs are froced to kneel and lick the boots of the neolibtards.
…and those not in work…?
Let them eat cake!
I am currently trying to write up a suggestion of Green Pension Bonds, which would achieve two objects at the same time.
In return for a sum of money, a conventional bond agrees to pay interest and repay the capital at the end of a fixed period.
Instead, a Green Pension Bond would pay a pension of equivalent actuarial value. The sum on which the pension was based and the pension would be index-linked, and the actuarial calculation guaranteed.
Such bonds would be attractive to both individuals and private pension schemes.
I think a lot of private pension schemes would be delighted to offload their liabilities. Similarly, many savers in defined cost schemes would welcome the certainty of a defined amount of index-linked pension.
The funds raised could pay for the Green New Deal. The Government would not have to put up money but it would have to act as guarantor for the pensions.
I think you’re going to need to explain that in more detail….
Richard, Thanks. I think this is potentially important, so I need to work out how to make it clear.
A promise to pay an index-linked pension will have a monetary value.
A promise to pay that is insured by the Government is as close to risk-free as you can get.
Pension fund trustees were told that they could “de-risk” their commitments by Liability Driven Investment (LDI)
They discovered that they had merely paid a lot of money to financial services to reduce their returns and take on a different set of risks.
Pension fund trustees would love it if they could invest in the Green New Deal in return for absolving them of their future pension commitments. They could get off the treadmill where the more they invest, the more the actuary says they need to invest.
The Green New Deal would get the funding it needs.
The Government would not need to put up money, it would only need to insure the process.
The Financial Services Industry would be furious.
Very serious experts in suits would go on every TV channel to explain how securing the future would be a disaster.
But who actually makes the payment? Is it the government or is it linked to a return, and if so, on what?
Richard, I had thought about this, but not enough.
(a) Some of the green investment would be loans, which would pay interest.
(b) As you point out, pensions are a contract between generations. New contributions would largely fund pensions in payment. Gradually moving from cash mountain to pay-as-you-go would release an enormous amount of unproductive money. Though critics would call this a Ponzi scheme, I don’t think they are correct. It would be controlled reallocation.
(c) Because the Government would benefit, it would be legitimate for it to make a reasonable contribution (i) it would be receiving taxes from the jobs created, (ii) it would be helping the Government create a sustainable environment and better quality of life, (iii) £1 spent wisely now could save the Government £10 in the future
I have to say I am not convinced, as yet
There is some merit in this idea.
Accumulating an annuity throughout a working life might be better than investing in stocks and bonds then liquidating and buying an annuity in one shot upon retirement.
But…. it does not address how the money saved is used which is key.
It also could be reproduced more easily and equitably by raising the State Pension (and tax).
I agree with your comment re use – that is critical in this equation
https://www.theyworkforyou.com/lords/?id=2023-09-18a.1200.2
Yesterday’s ‘debate’ in the lords.
I don’t know any 18- 22 year olds who have enough pay to put into pensions.
My MP, Richard Holden, was one of the MPs who supported this along with Jonathan Gullis.
At the same time he has brought through a bill to say that nobody under 18 can get married.
Does he have a thing about 18 year olds?
Currently auto enrolment is compulsory for those earning £10,000 per year and over the age of 22. We don’t even expect people on that level of income to pay tax or NI, how do we expect them to make pension contributions? The scheme, when it started was a way of conning the poor. They now want to con the even poorer.
Spot on
I totally get what you are saying but the system has to be reformable, because it’s where we have to start from. Undoubtedly the reform you highlight is a wrong…
This is my take on what reform should look like
(1) make the fund follow the worker – fees are often front loaded for new contributions – mandate the employer contribution at a higher level
(2) make the investment in a national/sovereign wealth fund linked to a proper sustainable industrial strategy with returns to the state for its part in the investment a-la-Mazzacato. This would also stops pension holidays and firms dipping in
(3) make fees cash, eliminate percentages
(4) limit bonuses to after the fact, i.e when the ROI is liquid not on paper – make the fund manager invest in the funds they manage
(5) stop both neglect and over action – I’m unsure what the actual fix is here – there are issues with trackers, there are issues with churn. Limiting bonuses could dampen churn but more may be needed – it feels like share ownership should have a minimum timescale or the should be a periodic market day?
(5) tackle governance – a shareholder vote by a fund manager is a block vote – make them consult – whats good for TU bosses is good for fund managers – no non voting shares allowed
I observe a damaging trend; that aggressive active investor funds have increased at the expense of pension funds who no longer have as much shareholding in the large corporates as they used to, indeed they may themselves invest actually invest in activist fund. I also note the tick box approach to ESG.
As you know my preference is to have more smaller companies with stakeholder representation on their boards; alongside the changes above it would start to move us towards a more diverse, sustainable, accountable, and fairer (right livelihood) type of political economy.
Just my thoughts, I described my experiences after 10 years of retirement on an earlier blog.
The thing that is missed by many is that having a small private pension takes away your eligibility to access Pension credit. And that is rightly called the gateway benefit because it allows access to many other mean-tested benefits.
So a small private pension can work out very costly.
Accepted
I am sure this is one of the aims….
So does having a partner die and being given his/her part of the pension.
According to this it’s achieved Royal Assent
https://bills.parliament.uk/bills/3422/stages
I know