It is time for more gimmicks from our beloved Chancellor of the Exchequer this morning. According to a Downing Street press release issued today:
Working people and businesses are set to benefit from new rules that will give more flexibility over how occupational defined benefit pension schemes are managed, as the government continues to remove blockages that are inhibiting its growth agenda that will improve lives of working people across the UK.
Hosting a meeting with leaders of Britain's biggest businesses in the City of London today .... the PM and Chancellor will outline how restrictions will be lifted on how well-funded, occupational defined benefit pension funds that are performing well will be able to invest their surplus funds.
They added:
The Prime Minister and Chancellor will tell CEOs from some of the UK's most successful companies that that the government is seeking to create the best possible conditions for the private sector to thrive. They will promise to work in partnership with businesses, to deliver high-quality jobs across the country, and the economic growth that will fund the schools, hospitals and roads that we all rely on.
The nearest that they get to detail is when saying this:
Where trustees agree to share a portion of scheme surplus with a sponsoring employer, the employer may choose to invest these funds in their core business, for example to purchase equipment or supplies, and/or provide additional benefits to members of the pension scheme.
Approximately 75% of schemes are currently in surplus, worth £160 billion, but restrictions have meant that businesses have struggled to invest them.
There is, however, a massive problem inherent in this idea that needs to be pointed out. That is that these schemes are only in surplus because interest rates are so high. This means that the supposed future cost of servicing pension obligations to scheme employees has fallen because it is assumed that more investment returns might be generated between now and the time when pension obligations might need to be met. If the interest rate falls, and the biggest bond broker in the UK - Pimco - suggested this week that they really should fall to between two and three per cent (with which I would agree, leaving a net zero per cent interest rate once inflation has been taken into account, which is what the economy needs), then these surpluses disappear, but the investments remain in place.
This is not the basis for a sound investment strategy, which is why I rather strongly suspect that this idea will not work. Pension trustees are more competent than Rachel Reeves assumes. They will see through this.
If Rachel Reeves wants investment, then the investment she needs is not in grand projects like airport expansion. What is needed is social housing, repaired schools and hospitals, decent roads, and vast amounts of renewable energy. These are small and rather quiet schemes that will, however, transform. lives in ways that really matter to people. To do that, she has to change the rules on pension and ISA saving in ways I explain in the Taxing Wealth Report. The answer is not to rely on growth and the hope that this might fund what the economy actually wants. Instead, the answer is to guarantee, by changing investment rules, that funds are directed to where they are required. That is what the government can do.
The simple fact is that, as usual, Rachel Reeves is trying to play fast and loose at the edges of the existing system, exploiting a current situation for her supposed advantage. What we really need is fundamental reform to meet need, and not her desperate desire for unspecified growth that meets no known need at all or which will only enrich the already well-off. This, then, is another of her follies that is economically ill-thought-out and that will go nowhere.
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It was not to long ago that most defined benefit pension schemes were in deficit and many employers were desperate to close them down. Now the same funds are to become a source of finance for the employer?
The idea of the separate fund with independent trustees is to generate investment returns without undue influence from the employer (does anyone remember Maxwell?). And ideally the investments should be diversified to spread risk. Can anyone see a problem with the pension fund “investing” with the employer who is responsible for maintaining the funding?
If the employer ends up having financial problems and struggles to maintain the contributions, what happens to the investment? Double or quits.
Concentration of risk is rarely a good idea. But no, this is eliminating regulatory barriers to growth. It won’t look so clever when the economic cycle turns, the funds are in deficit, contributions shoot up, and the investment falls in value.
Much to agree with – in fact, all to agree with
As I read Richard’s article I immediately thought of Robert Maxwell and Pergamon Press/Mirror pension scam, and many other instances of companies “legally” raiding pension funds or having contribution holidays.
https://www.ipe.com/tales-of-pension-fund-abuse/14159.article
(That article highlights how audit failures played their part in the Maxwell scandal, and will do again as Reeves rolls back regulatory controls because she claims they impede growth.)
Of course for the Chancellor to realise WHY DB pensions are currently in surplus, she would have to understand their relationship with interest rates. Oh dear, no hope there then…
Maxwell raided the pension scheme illegally, not legally, so that is your first error.
Secondly, as I have posted earlier (if Richard doesn’t censor it), the requirements to be able to utilise any of the surplus are conditional on closely matching the liabilities, this making them immune to changes in interest rates.
I note you now reveal yourself as a troll. And you clearly do not understand pensions if you think matching liabilties in this case is independent of interst rates. That is a quite extraordinarily stupid comment. You email addtess would suggest you are an actuary. I very juch doubt you are.
This is not about the pension scheme investing in the employer (which would introduce all sorts of risks’), this is about the employer being able to utilise part of the surplus in the pension fund for their own purposes, as this is no longer needed to back the liabilities, but is currently ‘stuck’ in the scheme.
Effectively a withdrawal of their excess contributions, which is currently permitted but under a penal tax charge.
And as I note, this is a freak of high interest rates, which will not last.
Then we will have a pension crisis and pensioners being screwed, yet again.
Given that many companies have had substantial deficits, some for years; and growing, the fact there is now a surplus in some cases (I will be surprised if all deficits have disappeared in the sector), and only for a relatively short time; and looking at the instability and turmoil of our world: I take no comfort in a current surplus, of meaning anything to raise much confidence. A surplus provides some real security against future deficits; that seems undeniable. But replacing a surplus locked in a Gilt even at a low interest rate, as collateral against a future potential deficit in an uncertain world looks a lot better than a punt in a higher risk commercial enterprise; whoever it is. Pension funds are not Venture Capitalists.
Might the “pledged” delivery of “the economic growth that will fund the schools, hospitals and roads that we all rely on” be more accurately expressed as “jam tomorrow” – a never fulfilled promise.
“The rule is jam yesterday, jam tomorrow – but never jam today.”
(The Queen in “Alice through the Looking Glass”)
Steve Keen has an interesting video on how inflation is affecting by public and private spending, and prices and wages.
“Top Economist Explains Inflation (Re: “Elon Musk is Wrong”)”
https://www.youtube.com/watch?v=CwCjgKmE0nE
I’m at the stage with Rachel Reeves now of just waiting for her to start talking about the anti-growth coalition
“Anti-growth coalition”?
That would be the Cabinet…
The purpose of making an investment is the purchase of an income – period. Whether that’s interest from cash on deposit, coupons from bonds, dividends from equities, rent from property, it’s all about income. An “investment” that yields zero is mere speculation.
Also, what is forgotten here is that the purpose of sponsoring or funding a pension scheme, whether corporate or private, is the provide a pension. That’s what consumers really want from “Pension Schemes” – a pension! That might be a “defined benefit” scheme (aka “final salary”) or an annuity (drawdown isn’t a pension), where the terms of one’s retirement income stream is certain and guaranteed. I would argue, too, that surpluses, while they persist, should be used for the sole benefit of pension scheme members with “discretionary increases” to DB pensions in payment, for instance. This extra secure income can then be spent into the economy by the pensioner. Today, annuities offer better value to consumers than they have for many years. Again, a larger secure pension (especially one that is subject to annual increases in payment, whether at a fixed rate or by RPI-linking) gives confidence to the policyholder that he/she can afford to spend into the economy.
We need to think more in the way that our forbears did. They concentrated on income streams, not ‘capital appreciation’.
Much to agree with.
After 1994 the South African govenment ordered pension funds to return the fund surplus to the people who own them, the Pensioners. While we had to wait a few years for the distributions they were definitely worth waiting for.
Tangentially related – Radio 4 PM programme came dangerously near to real journalism – by asking Danel Susskind about what Reeves means by ‘growth’.
(They werent discussing where the funds would c ome from.)
He said it wasnt flashy ‘material’ schemes like Airport runways – but ‘ideas’ / new technology , so we can produce ‘more with less’ and apparently he believes we can have growth without wrecking the planet.
Of course the discussion never really got onto territory that would open @BBC to a charge of anti government propaganda – such as ridiculing her whole meaningless growth mantra
The old alchemist dream then?
Did someone mention alchemy?
Sssh! you’ll wake the gold-lobbying member for Mar-a-Lago South.
🙂
First, the Prime Minister and the Chancellor cannot be comfortable with supporting and funding the genocide in Gaza. They probably believe that it is necessary to appease the pro-Zionist policies of the current and previous American administrations.
Second, in turn, American politicians must all be wary of offending Jews and others who are mostly rather ignorant of the history of modern Palestine.
Third, Israel-Gaza is a huge issue for the British government. To cease giving almost unconditional support to current American policies would have *massive implications*.
Fourth, President Trump already thinks that Britain is a ‘socialist’ country. For our government to publicly examine ‘the goal of growth’ would also have *massive implications*.
All recent US administrations exist and operate in a world that has been indoctrinated by neoliberal campaigners for the last 20 or 30 years. US and UK policies have been, and are, hugely influenced by ‘think tanks’ which seem to be little more than advertising agencies promoting policies for the benefit of the super-rich … even though ‘neoliberalism is neither inevitable nor immutable. On the contrary, it was conceived and fostered as a deliberate means of changing the nature of power.’ (‘The Invisible Doctrine. Monbiot & Hutchison’ p2)
Fifth, if the labour leadership abandons the ‘folly’ you refer to Richard, and adopts the essence of your Taxing Wealth Report, I think the economics of our nation will be transformed. President Trump’s reaction, however, is likely to cause severe disruption.
Sixth, “Full access to the NHS is expected to be a key demand from the US when fresh talks begin with the UK on a free-trade agreement, Downing Street has been warned.” (Richard Vaughan The I-Paper 24-1-25). If the Prime Minister and Chancellor stand up to the bullying of President Trump, they will earn the heartfelt gratitude of the vast majority of the British people. Also, they will probably have to weather the slings and arrows of the Bank of England, the City, the right wing press, wealthy industrialists and others.
Seventh, when, on this blog, I saw the Chancellor referred to as ‘Rachel in accounts’ I laughed, I’m afraid. It was funny. It’s easy for commenters to laugh but our jobs are not on the line. If she and the Prime Minister take on Donald Trump and a significant number of our own MPs, they will earn my respect and that of many, many others.
How can we best support them?
My trouble is Joe, I do not agree with your first assumption. Suppose they are comnfortable with Gaza?
And I really do not see them taking on Trump. Sorry. But I would love to be wrong.
This story ran in the FT yesterday and unsurprisingly got short shrift btl. Reeves is so desperate she is clutching at any straw tossed her way. As you say Richard, the surpluses are not real, they are an accounting number and will shrink as and when interest rates fall, and possibly become deficits, as they were in the past, depending how low rates go.
It is mind boggling that these actuarial surpluses are described as “surplus funds”, and that there is a view that closed DB pensions funds (as most of them are) might decide to ramp up risk having spent the past 20 years dialing it down (theoretically anyway although the Truss debacle showed there’s more risk than meets the eye). Presumably the pensions industry will have a quiet word and this idea will die a quiet death.
Much to agree with
Rachel from accounts hasn’t reached the stage of understanding yet has she that the UK has two types of money “primary” (otherwise known as “reserves”) and “secondary” (otherwise known as “licenced bank loans”)? Nor for that matter is she at the stage of understanding when the government issues treasury bonds this will mop up some of the “primary” money enabling base rate to be set above zero. How anyone can believe that Rachel understands pension complexities when she doesn’t have the above rudiments beggars belief!
‘Where trustees agree to share a portion of scheme surplus with a sponsoring employer, the employer may choose to invest these funds in their core business, for example to purchase equipment or supplies, and/or provide additional benefits to members of the pension scheme.’
Company pensions schemes investing in the company whose employees’ pensions it pays! As Sgt Wilson in ‘Dad’s Army’ would ask, ‘Is that wise, Captain Mainwaring?’
As soon as things look shaky, boards of directors will be knocking on the pension fund door for a bail-out.
I recall being told that the chairman of the Birmingham Small Arms Company (BSA) asked the in-house pension fund to lend to the firm when it was heading due south in the late 1960s. He was given a robust but polite ‘No’ and was told that it would be contrary to the fund’s rules. A true and wise response, as we all know that raids on company pension funds, e.g., Maxwell, can lead to impoverishment of the intended beneficiaries.
I completely agree, Peter
But if you take the ‘small project’ approach as suggested, how will they be able to focus the majority of the investement and benefits on London & the SE?
Your suggestion will only help those filthy northerners – a definition that begins outside of the M25
🙂
‘And as I note, this is a freak of high interest rates, which will not last.’
Do you not understand the basic principles of cashflows matching and immunisation of interest rates?
I understand exactly what you are talking about.
I also understand the assumptions.
I also note what is proposed is in no way asking to this.
And I note the history of what has happened in situations like this- which have never worked out well for emplyeees.
Note to everyone else writing comments like this that are unrelated to what Reeves is proposing: do not waste your time. You will be deleted.
@Trevor Batten
https://www.taxresearch.org.uk/Blog/2025/01/28/more-economic-folly-from-rachel-reeves/comment-page-1/#comment-1004003
I’m afraid you missed the meaning of my use of the word “other”. That was your first error, assuming I didn’t know that Maxwell was a crook. I did. I understood the legal difference perfectly well. But raiding pensions “legally” is also a bad idea as history makes clear.
Richard Murphy said:
I note you now reveal yourself as a troll. And you clearly do not understand pensions if you think matching liabilties in this case is independent of interst rates. That is a quite extraordinarily stupid comment. You email addtess would suggest you are an actuary. I very juch doubt you are.
Richard, what is very clear is that you are most certainly not an actuary, nor are you someone with even a basic understanding in fixed income bonds and immunisation practices.
Trevor may not be an actuary, but I am, and he is entirely correct to say that a pension scheme can remove its exposure to interest rate risk by investing in a suitable portfolio of high quality bonds, thus locking in the current surplus.
By abusing those who bring useful knowledge to this blog you just make yourself look like a nasty and ignorant man.
But that is precisely not what Rachel Reeves is proposing, so you are as wide of the marks as he is.
Did you read the proposal? I presume not.
She mentioned nothing of that sort, which is precisely why I commented as I did.
Richard,
Once again you demonstrate your ignorance on the topic – pension scheme actuaries and trustees have been in dialogue with TPR (The Pensions Regulator) about how they can release surplus assets in their plans for the last 2 years or more.
This is not a new Reeve’s policy, this announcement is just a way of Labour trying to capitalise on an opportunity, given everything else they have done is seemingly anti-growth. I’m not sure why you think that the Chancellor would make a statement and provide full details as to how the policy would be implemented, that’s not how government works. And yet you claim to be an ‘expert’ on this type of thing.
Perhaps time to admit that you aren’t at all up to speed with the management of pension assets and liabilities and leave it to the experts? It will stop you sling yourself look a fool by being abusive to people who know far more than you!
TPR sets the rules for release of surplus, and managing the assets as I’ve set out is exactly what is being discussed.
If this as you say – and that is an unknown for reasons you note – that Reeves’ representation of this is wrong, then my representation of your comment is fair.
If my appropriate interpretation of her comment is wrong, take up your gripe with her, not me, because she described nothing like what you are suggesting.
And I still think what you describe is irresponsible and an abuse of pension trustee’s long term fiduciary duty, however many assumptions you make, because the actuary is second only to the economist in living in a made up world of mathematical fantasy. Accountants look for substance not form , and you are playing games with form to secure an unreasonable advantage for employers from interest rate rises – my exact point. Employees will pay the price. Again, my exact point. Your lack of understanding of anything beyond the technical is worrying.
@Joe Burlington
https://www.taxresearch.org.uk/Blog/2025/01/28/more-economic-folly-from-rachel-reeves/comment-page-1/#comment-1003986
I watched Starmer on the way up, from inside Labour, during the anti-Corbyn purge.
His Zionism is very real, as is his ruthless hypocrisy, and his willingness to be dictated to bodies such as the Board of Deputies.
https://www.thejc.com/news/board-of-deputies-demands-labour-leadership-candidates-sign-up-to-pledges-wk3zpewm
If he is uncomfortable with the genocidal slaughter in Gaza and the W Bank, he hides it very well.
Oh dear Richard, yet again you are discussing things outside of your areas of understanding and criticising professions that are much more highly regarded than your own.
As usual, rather than admit you’ve made a mistake you double down, try and move the goalposts and then just abuse other professions that you don’t understand and have next to zero experience of.
Bond immunisation is straightforward and relies on very basic fixed income mathematics. Maybe Clive Parry will come on here to educate you.
In the meantime, you’re a laughing stock for the professionals in this market who do understand what they are talking about. It’s a good job you’re retiring and we’ll be seeing much less of this misleading drivel going forward.
For more than 20 years I have been told by far-right professionals who clearly read Tim Worstall’s blog that I am wrong and a laughing stock, and that what I say is wrong.
I remember the effort the Big 4 put in fur years to destroy country-by -country reporting. Now it is the law in 70+ countries. It will be debated in parliament today.
Those firms profoundly opposed automatic information exchange from tax havens, and it is happening very much along the lines I promoted.
I suggest I get the last laugh.
And as for ‘well respected professions’. Actuaries play mathematical games, as do economists, both based on assumptions that have little bearing to reality and with the same profoundly disappointing consequences for society, despite which their arrogance is unabashed. You might think you have a reputation. You have, but not one I would want.
In this case, what Reeves talked about out is not what you claim. You can’t both be right. I believe Reeves, for once.
Richard, you’re an absolute moron, bond immunisation is a mathematical fact, not an actuarial assumption or an investment sleight of hand.
Please keep going with this, you’re making yourself look very stupid.
I do wish Clive Parry would confirm how wrong you are!
Thank you for your kind comment.
I recall doing two things. The first was to say interest rates have an impact on pension fund valuation. Am I a ‘moron’ (not a term in polute usage) for saying so? If so pleaase explain how. I know you will not be able to do so. It is laughable that you think it possible.
Second, I commented on Rachel Reeves’ plan to let pension funds invest in their sponsoring company, which is not a bond immunisation programme. Might you explain why it is in fact something other than what her press release and comments said it was? Precisely please, refining her comments alone?
If you can do neither, please stop maikimng a fool of yourself.
So /richard, do you therefore agree that a pension scheme could chose to closely match its liabilities with high quality bonds and thus remove exposure to future interest rate changes, leaving a proportion of its surplus assets available to be returned to the sponsor to be invested as they see fit, without impacting risks for the scheme members?
No, I do not.
The two are not in any way equated.
Good governance makes it clear how dangerous this is – and it always has done.
And if the trustees are not already matching liabilities they are failing in their fiduciary duties.
Do you really have no clue at all about the issues in which you claim expertise? I seriously suggest you give up Trevor. You are really embarrassing yourself.
PS If ever there was a ‘profession’ designed to be wiped out by AI, actuaries are it.
I am not an actuary.
I have a good memory.
I have had some bad experiennces with pension actuaries (Equitable Life guaranteed annuity crash, Hambro Pension/Allied Dunbar, also my former occupational DB scheme which had a tortured history, not unrelated to inflexible actuarial rules, and has now become an insurance-backed annuity). My remaining private schemes keep getting sold, onwards and upwards, now with Aviva and Re-Assure , I get no say in the matter.
But it’s my memory that drives this post.
And a concern for the members of the schemes, not the reputations of those running them, regulating them, or raiding them.
1. Miners’ pensions.
https://www.thisismoney.co.uk/money/news/article-1519986/1635bn-raid-on-miners-pensions.html
2. British Steel pensions
https://www.reuters.com/world/uk/uk-watchdog-sets-out-pension-redress-rules-steelworkers-2022-11-28/
3. BT Pensions
https://www.thetimes.com/article/bt-plots-raid-on-80-000-pensioners-kfxt9xqcp
4. National grid Pensions
https://forums.moneysavingexpert.com/discussion/4620339/national-grid-final-salary-db-scheme
and
https://www.independent.co.uk/news/pensioners-win-pounds-1-5bn-funds-battle-firms-raided-pounds-1-5bn-from-pension-fund-1070020.html
5. Even more pensions
https://www.thisismoney.co.uk/money/pensions/article-14324323/330bn-pension-pot-blunder-pensions-watchdog.html
There is no shortage of stories, all with different backgrounds, but the common theme, workers are promised one thing, but then the rules change, or the regulator lets them down or someone raids the pot (sometimes a company, sometimes the Chancellor) or walks away from their responsibilities. Then the worker has 10-20 years of misery and is abandoned.
My memory tells me – never trust any pension scheme promise, whoever makes it.
Declaration of interest – I’m a pensioner, who has been bounced from scheme to scheme, company to company, by financiers, insurance companies, actuaries, regulators & governments. I’m in the majority. We’re sick of it.
Well noted.
Thank you, and all governance failures which it seems actuaries assume away.
My last word on pensions for this post.
1. I’ve looked at what the Chancellor said about her pension plans. She is talking about pension funds investing a CURRENT surplus (due to current interest rates, in the EMPLOYER’S business.
This is from the Downing St press release:
https://www.gov.uk/government/news/pension-reforms-to-go-further-to-unlock-billions-to-drive-growth-and-boost-working-peoples-pension-pots#:~:text=Changes%20to%20pension%20rules%20will,from%20regulation%20to%20planning%20processes.
“Pension trustees and the SPONSORING EMPLOYERS could then use this money to increase the productivity of their businesses – to boost wages and drive growth or unlock more money for pension scheme members. ” & “Where trustees agree to share a portion of scheme surplus with a sponsoring employer, the employer may choose to invest these funds in their core business, for example to purchase equipment or supplies, and/or provide additional benefits to members of the pension scheme.”
I note this paragraph in Sky’s report:
https://news.sky.com/story/reeves-to-seek-billions-for-growth-from-corporate-pension-surpluses-13296978
“The surplus release plan has the potential to be a major catalyst for economic investment, although it was unclear this weekend how the deployment of this capital into UK growth initiatives would be guaranteed. It was also unclear the extent to which pension trustees would play a role in any surplus release plans.” Oh dear.
2. From what I’ve read about bond immunisation, that is about adjusting the duration of a portfolio to the duration of an investor’s time frame horizon. So if your main pension payout is over 20 years, you adjust your bond portfolio to have that duration. There are different strategies available as to the mix used each with advantages and disadvantages.
Now – I am not an actuary. But I can make these following observations without being an actuary.
a) Rachel Reeves is suggesting a pension fund invest in its own employer and she is wanting to relax the rules that currently control that. She doesn’t discuss bond immunisation and nor does bond immunisation seem relevant to her proposals.
b) bond immunisation aims at REDUCING fund volatility. I think everyone agrees about that (although it has plenty of failures, given how many funds have collapsed or been turned into DC schemes or just wound up or sold off to insurance companies – see the list of scandals in my previous post).
c) the current surpluses she aims to exploit are due to a certain level of fund volatility relating to a recent period of high real interest rates following a long period of low real interest rates. The more a fund is immunised then presumably the less volatility it has, and the less volatile surpluses it will have both now and in the future, as well as less volatile deficits (so the theory goes). Nevertheless as we all know, some by painful personal experience, volatility HAS affected the pensions market – pension funds squealed loudly about deficits when interest rates are low, and they now boast about surpluses now that interest rates are high. Workers and Pensioners are often left out of discussions about this – with respect to their contributions or their benefits. That is our painful personal experience, again and again.
d) If surpluses are extracted from a pension fund, and the fund is THEN immunised against FUTURE volatility, then we are talking, in theory, about that surplus not recurring – because volatility should be reduced. The surplus will in theory be a one-off phenomenon. So – a very short term solution – a one-off release of capital for the Chancellor. Whether that actually happens or not, I don’t know but that seems to be the logic, to me.
e) If a fund is ALREADY well immunised, then why does it have an interest rate related surplus in the first place? Isn’t that the whole point of the immunisation process – to MATCH the duration of the liabilities to the duration of the assets? It should not be subject to such volatility, surely that is the point of immunisation, if the immunisation has been working properly?
So again – there’s a disconnect between Reeves’ proposals and this talk of bond immunisation.
f) finally – as a worker/pensioner, my main concern is risk to my future and those of my colleagues, past, present and future. Let’s assume something that happens regularly, may happen again – a very large employer, public OR privately owned is wound up, bankrupted, or split up and sold off – I have plenty of examples. As a worker I stand to lose my job because my job comes from my employer. That’s a massive risk to me. It happens. But if at the same time, a portion of my future pension is invested in my employer, then that means my future pension is ALSO exposed to risk. that happens too, and pensioners are not well protected in the way that ordinary savers are by guarantees. They DO suffer REAL LOSS.
Concentration of risk is not a good thing.
But Reeves’ plan DOES seem to concentrate risk. Both future salary AND the future pension are affected by the collapse of an employer if the pension fund is invested even partly, in the employer. It isn’t a matter of immunising against interest rate changes. I can’t see how that protects me against the collapse of the employer, it only protects (in theory) against the future volatility of the fund. It is the pension fund CAPITAL(or a portion of it) that disappears when the employer collapses, because it has been converted into the equity or assets of the collapsed company. I can’t retire on the second hand sale price of a few idle bulldozers!
So – bond immunisation is a thing. I am not squabbling with it. I think I understand what it’s for and why it exists. It has a purpose.
But I can’t see the relevance of it to the very specific topic of this thread. I understand how it reduces the exposure of a pension fund to interest rate fluctuations. But I CAN’T see how it protects a worker/pensioner from the investment of the CAPITAL of their pension in their employer, because, when that employer goes under, and the worker loses both their current job AND some of the capital in their pension fund they will be doubly penalised, and if it works as it’s proponents say it does, why do these funds go up and down so wildly in the first place?
Given the current tendency to REDUCE regulatory controls in all areas of our lives, I have NIL confidence that workers/pensioners will be protected.
I suppose that makes me a moron?
Thank you
Well argued
And spot on
It’s not ‘spot on’ and it has been explained already.
But very simply, for the very hard of thinking on here:
Historically DB pension schemes did not closely match assets and liabilities – it is impossible to match a liability linked to future (unknown) salary growth etc.
They invested in a broad range of assets seeking decent long-term returns.
At certain times, when funds were looking ‘too healthy’, HMRC forced sponsors to take a contribution holiday to avoid what they considered to be excessive tax benefits.
The Labour chancellor decided to steal some of this surplus by changing the tax treatment of dividends which adversely impacted scheme solvency.
When the markets turned and as demographics changed (people living longer etc) sponsors were forced to increase contributions to try and close deficits.
They also needed to take more investment risk to earn excess returns above and beyond the liability discount rate, to close the deficits.
As funds matured, they began to match their liabilities more closely (LDI solutions) but were still not perfectly matched. This meant that when interest rates rise, they benefitted more from the reduction in value of liabilities than they lost from the reduction in value of assets, leading to many funds now being in surplus.
Over the last two years, most schemes have taken advantage of the current market to lock in the current level of rates and much more closely match assets and liabilities. Meaning that they are not vulnerable to falls in interest rates in the future. This is the key point which is repeatedly being ignored.
This therefore means that the surplus is ‘locked in’ to a high degree of certainty and hence can rightly be accessed.
Under current rules, this can already be accessed (with scheme actuary and trustee approval) but is subject to a penal tax charge, so is unattractive.
That’s a summary from an expert with direct experience of the industry over 25 years looking after 46 schemes directly and with colleagues managing hundreds of schemes in a similar position.
The fact that an ex-accountant with no experience or understanding of the LDI markets pretends something very different is not my problem!
But choosing to mislead the public (deliberately or otherwise) certainly is.
I suggested you stop digging, Mr Batten, but you have chosen to carry on.
Let’s ignore the fact that you are arrogant , rude and patronising.
Let’s also ignore that you are very clearly pursuing a profoundly right-wing agenda here, and that everything you say is obviously right wing trolling.
Let’s also ignore your extraordinary assumption that the staggering levels of tax relief provided to wealthy beneficiaries of pension funds should be theirs, as ofright.
Instead let’s look at the absurdity of your claims.
Earlier you suggested it was easy to match assets and liabilities. This, you and others claimed, was a simple mathematical exercise.
Now you admit that funds have not done this, despite the simplicity of the task. In fact you say:
Historically DB pension schemes did not closely match assets and liabilities – it is impossible to match a liability linked to future (unknown) salary growth etc.
Almost laughably, this shatters your own claim that assets and liabilities can be precisely matched, leaving surpluses that are certain for investment elsewhere. You provide the evidence that this has not happened because it cannot happen and then you have the gall to tell me and others that to suggest your theory of risk immunisation is correct.
I do note though that you say this is possible now because situations have changed. And yet you then note that on every previous occasion when situations changed this gave rise to unexpected consequences, but you are now suggesting the future is known with certainty and so excess assets can be safely distributed even though the whole risk from doing so falls on pensioners – the people for whom you seem to have no concern.
I am too worldly wise, experienced, and with too strong a BS detector to fall for such claims, which are akin to those of the economist who claims the world is in stable equilibrium when everyone knows that has not happened , and never will.
To put it another way, and to summarise your argument succinctly but entirely correctly, you are asking us to believe in your clairvoyance and leave reason behind. Very politely, no sane person would believe you. I hope your clients do not.
And please don’t reply. To stoop to your level, I think you are a rather unappealing and prejudiced person who has shown himself quite unable to create an argument that is sustainable in the real world but who is more than capable of putting his foot in his own mouth, repeatedly. I will save you and your ‘friends’ the embarrassment of further comments by deleting them as political trolling – which every one of yours has been, hidden behind your supposed professional facade.
You’ve nailed it Robert.
And definitely not a moron