I note there are those griping on this blog and elsewhere that any\u00a0change\u00a0in\u00a0pension\u00a0rules by the\u00a0government\u00a0will make pensions even less affordable than now and\u00a0undermine\u00a0the credibility of our pensions arrangements.<\/p>\n
Let me be clear: this is\u00a0wrong. Our current pension arrangements do not and can never work for reasons I explained in 'Making\u00a0Pensions\u00a0Work'<\/a>. In that report I said:<\/p>\n It is our suggestion that this scheme is unaffordable because it ignores the fundamental pension\u00a0contract that should exist within any society. This is that one generation, the older one, will through\u00a0its own efforts create capital assets and infrastructure in both the state and private sectors which\u00a0the following younger generation can use in the course of their work. In exchange for their\u00a0subsequent use of these assets for their own benefit that succeeding younger generation will, in\u00a0effect, meet the income needs of the older generation when they are in retirement. Unless this\u00a0fundamental compact that underpins all pensions is honoured any pension system will fail.<\/p>\n This compact is ignored in the existing pension system that does not even recognise that it exists.\u00a0Our state subsidised saving for pensions makes no link between that activity and the necessary\u00a0investment in new capital goods, infrastructure, job creation and skills that we need as a country. As\u00a0a result state subsidy is being given with no return to the state appearing to arise as a consequence,\u00a0precisely because this is a subsidy for saving which does not generate any new wealth. This is the\u00a0fundamental economic problem and malaise in our current pension arrangement.<\/p><\/blockquote>\n Tinkering with tax\u00a0reliefs, and even compelling people to pay into funds that ignore this reality will make no difference to our ability to pay pensions. That capacity is not based on our ability to save (limited as that is). Our ability to pay pensions is based on our capacity to invest - and that has almost disappeared right now.\u00a0This\u00a0is\u00a0why\u00a0pensions do not work. And that is why in that same report I recommended:<\/p>\n If pension saving is to be\u00a0encouraged\u00a0or even enforced \u00a0then the\u00a0government has a duty to ensure that the funds so saved are invested for the common good.\u00a0Pension fund performance over the last decade has a been a history of almost perpetual loss making\u00a0despite the enormous subsidies that pension fund tax relief has provided to the City of London and\u00a0stock markets, all of which they have frittered away. Investment in local authority bonds for local\u00a0regeneration, or in bonds or shares issued by a new Green Investment Bank and in hypothecated\u00a0bonds e.g. to provide alternative funding to replace the inefficiently expensive Private Finance\u00a0Initiative for funding public sector infrastructure projects would have prevented those losses \u2014\u00a0because all of these would have paid positive returns to pension fund investors. It is for exactly this\u00a0reason that we recommend that such assets be the basis for any new state pension fund in the\u00a0future.<\/p>\n The impact of our proposals would be significant. If 25% of all new pension contributions were to be required to be invested in projects creating new jobs primarily in the UK then at least \u00a320 billion a year would be released into\u00a0the UK economy for new investment.<\/p>\n People would then understand what their pension funds were doing, and could hold them to account for\u00a0it.<\/p>\n State subsidies to pension funds would then produce real economic returns for the government.<\/p>\n And the incentive to save in pensions would be real \u2014 because people would see the benefits of\u00a0doing so for their immediate well being, for their own future income and for the benefit of their\u00a0children.<\/p>\n To date pension funds have been an almost perfect example of what Keynes described as \u2018the\u00a0paradox of thrift\u2019 \u2014 saving that sucked demand and well being out of the economy. We need\u00a0something very different now. We need pension funds that can build economic will being for the\u00a0present and the future. The recommendations in this report show that sensible reform of pension\u00a0funds and the tax subsidies they enjoy could make pension funds the engine for economic\u00a0regeneration in the UK. No reform is of greater importance than that.<\/p><\/blockquote>\n This is the basis for a viable pension arrangement. What we have is not. It's time we acknowledged the fact that we have the economics and mechanisms of pension provision wrong. Then we might effect real change. Right now we continue to give money to the City. And that's the last thing we need to do.<\/p>\n","protected":false},"excerpt":{"rendered":" I note there are those griping on this blog and elsewhere that any\u00a0change\u00a0in\u00a0pension\u00a0rules by the\u00a0government\u00a0will make pensions even less affordable than now and\u00a0undermine\u00a0the credibility of
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