Sunday, Aug 23, 2009
Where are the pensions?
Bloomberg: U.K.’s 100 Biggest Companies Have $163 Billion Pension Deficit
If all 20 million private sector workers worked for the 100 largest companies, which of course we don't, then per person the fund is £5,000 short. The shortfall must be much more substantial and it is hard to see how they will cover their obligations. Fortunately this is a problem for tomorrow...
Posted by stillthinking @ 11:09 AM (487 views) Add Comment
9 Comments
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1. paul said...
The great inter-generational pensions ponzi.
When Madoff does it, he gets locked up. When a whole generation do it, its business as usual.
2. drewster said...
Couldn't agree more, Paul.
In the 1960s and 1970s, when defined-benefit final-salary pensions really started in earnest, those at the top could clearly see what was coming. However those at the top were also closest to retirement, so it was in their interests to keep quiet.
Here's a question for the HPCers: If you're renting and can't afford a house yet, is there any point in having a pension too? Or is saving for retirement just wasting money that should be saved for a deposit?
3. Tom101 said...
You make your own pension, look after your parents and hope that your kids will look after you. Family values etc... You can start laughing now...
4. Tom101 said...
Incidentally, I am thinking of moving to rent in N.London. Trouble is i'm rubbish at bartering. Any tips on how much less than the asking rental price I should start with?
5. stillthinking said...
I suppose you all know my view but I think having a pension in the UK is madness. Its a one way cash suicide journey and subject to government pilfering. Look after your money yourself. Making a distinction between a pension while saving for a house costs money. The cash that you put in the pension scheme is a missed chance to pay off debt, i.e. doesn't make sense unless your pension total return exceeds your mortgage interest rate.
I put a news article a few posts ago about the age of access to pensions being moved from 50 to 55, this is a bit scary all this pension fund access being shutdown.
Private pensions are not total ponzi schemes because they have to hold assets although they may well have to move to that model, I suppose the assets they hold are ponzis. Whatever. You are a total loon if you trust UK pensions. Look at the shortfall, the tax raid, the equitable life people, the ever changing upward access dates, the forced purchase of annuities from some suspect financial firm, the shift upwards of your working life....
6. europeanbear said...
UK pension crisis is caused by several things.....
Gordon Brown abolishing tax relief for dividends paid into pensions back in 1997
Increasing life expectancy - pension now has to support 15-20 years (65 to c 80-85 as opposed to 65 to 70 years back in the 1950s) - we are all living longer
The stock market is in a secular bear since 2000 and hence has given no positive returns for nearly ten years - a large proportion of pension assets are invested on the stock market
When the stock market was in a secular bull (1980-2000), pension funds often ran huge surpluses and companies were allowed to raid that surplus rather than being forced to save it for a rainy day. It also contributed to Gordon Browns heist of pension funds in 1997
Much could be corrected by reintroducing tax relief for pension dividends (but New Labour wants the money to spend now)
Increase the retirement age (unpopular)
Taxing the beneficeries more (eg those with comfortable pensions) more. Or increasing inheritence tax substantially (will have the same effect, but very unpopular and politicians are pushing to relax inheritance tax)
Some will be self correcting once the secular bull returns, but that may not happen for another 5 years
Introduce legislation preventing companies raiding surpluses from pension funds
7. uncle tom said...
Drewster,
In a normal economic situation, I would advise someone in a salaried position to fund a pension.
However, we live in abnormal times, and when the dust settles, I think it very likely that the pension funds will be substantially de-valued.
For now, I would suggest putting a percentage of your income into conventional savings accounts. Good rates are being offered for long lock-ins, but be wary of these, and check to make sure you can withdraw your funds sooner (and quickly) if you don't like the way things are going; for no more than a loss of interest.
Spread your favours. It is never wise to put all your eggs in one basket.
Once all the financial demons really have been exorcised; when trade and government expenditure are back in balance; then you should look closely to see whether there are sufficient tax incentives to make a formal pension scheme attractive.
8. japanese uncle said...
Increasing life expectancy - pension now has to support 15-20 years (65 to c 80-85 as opposed to 65 to 70 years back in the 1950s) - we are all living longer
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To be honest. in view of the level of obesity and poor diet and heavy drinking, and less exercise on top at the majority of the population, I seriously doubt the validity of this statement in the mid-long term perspective.
9. refusetobuy said...
The more the credit crunch recovers,
the smaller the credit spread on AA bonds,
the larger the value placed on the liabilities,
the more the pension funds will be shown to be in deficit.