A.steve Posted July 16, 2009 Share Posted July 16, 2009 http://uk.reuters.com/article/idUKTRE56F15Y20090716 By my reckoning, this means that £150bn has gone missing from the accounts of FTSE100 companies already over the past 6 months... and the expected remedy is to transfer equity into the pension funds... The flaw I see with this is that if assets are assigned to the pension funds from FTSE100 companies, the value of these companies to shareholders will fall... and, amusingly - if such things can be considered funny - I can only see this damaging the value of other pension pots - exacerbating an overall pension crisis... while, simultaneously, adding fuel to deflationary tendencies within asset markets... which, in turn, will devalue the assets transferred into the pension funds... making it an inappropriate strategy to plug the gap... unless, I suppose, the risk of devaluing assets can be somehow transferred... which, at best, would be somewhat unethical, I suspect. Quote Link to comment Share on other sites More sharing options...
interestrateripoff Posted July 16, 2009 Share Posted July 16, 2009 The pension system is unsustainable, people are going to question what they are paying for and why the fund managers are taking such big fees. Even more bizarrely pension funds maybe to blame for share prices becoming overvalued as they've had to stick the money somewhere. Quote Link to comment Share on other sites More sharing options...
bogbrush Posted July 16, 2009 Share Posted July 16, 2009 We often talk of the banks missing billions and the pension funds missing billions without closing the circle. The reality is that none of it ever existed, and it's not just that there are some mysterious people in the shadows ripping it all off but that there are a load of public expectations based on working for a few years and magically then getting 25 years pension out of thin air which are now being exposed. The biggest gravy train has been the conviction amongst the public that they can get something for nothing. This is ending, and that's a good thing to come out of all this. Quote Link to comment Share on other sites More sharing options...
VeryMeanReversion Posted July 16, 2009 Share Posted July 16, 2009 I don't see why companies should be paying any dividends whilst their pension funds are in deficit. They are basically witholding wages as far as I can see. VMR. Quote Link to comment Share on other sites More sharing options...
bogbrush Posted July 16, 2009 Share Posted July 16, 2009 I don't see why companies should be paying any dividends whilst their pension funds are in deficit. They are basically witholding wages as far as I can see.VMR. Most of the dividends go to....... pension funds. Quote Link to comment Share on other sites More sharing options...
A.steve Posted July 16, 2009 Author Share Posted July 16, 2009 The pension system is unsustainable, people are going to question what they are paying for and why the fund managers are taking such big fees.Even more bizarrely pension funds maybe to blame for share prices becoming overvalued as they've had to stick the money somewhere. Definitely. When I talk to people I've met who are in their 60s, their lack of basic financial understanding is, frankly, frightening. Here, I'm not talking just about Joe-Schmoe who "invests" in whatever scheme his employer or the government suggest, I'm also talking about directors of not inconsiderable companies who manage their company pension fund. The fund managers can take big fees for two reasons: first, and - in my opinion - most important, the general public are utterly incompetent. Second, such volatility has been introduced to asset markets, it becomes paramount to do better than the 'mean'... which, given the fact that the public are entirely clueless, essentially mandates taking expert advice. The experts, by virtue of their pay-off functions arising over time, have no motivation to diligently invest their clients' money for the long-term... essentially because they can make more money every year by investing for the short term - even if they lose for their clients more than they make. I am, for a fairly young person, very interested in pensions. It seems to me as if, historically, government intervention has only made matters worse when it comes to pensions... where mandates effectively shift the balance of power from the consumer to the financial services industry. I am not, however, so cynical as to presume that the state intended to undermine the consumer - though I admit that it appears as if this was the intention. In a practical sense, I'm very interested in SIPPs - the idea being that, even if investments are made in managed funds, the consumer (as far as I can tell) retains absolute control over how these funds are invested... this means that, assuming this customer keeps themselves better informed than average, that over-valued assets can be sold (crystallising gains) without risk of adversely affecting a larger portfolio that may move the market. What I find surprising is that there seems to be so little practical information available about SIPPs... given the reputation of the financial services industry I (like many people today, I'm sure) are very wary of the fine-print... Especially because a SIPP is a long-term investment... I need to be confident about what status my investments will have in 10, 20, 30 years' time... and that I won't be held to ransom during that time. The nightmare scenario would be to invest significant proportions of wages into a SIPP over a decade, only to find that fees dramatically escalate when it is impractical to move the capital out of the SIPP - or for the tax status of investments to change retrospectively... rendering years' of saving and strategic investing a waste of time. In the context of equities, these pensions deficits seem critical... if £150bn disappears in 6 months when the notional value of the entire FTSE100 is only about £1000bn, this accounting issue is more relevant than profits or (for many companies) the change in share price over the same period. This, to me, reeks of a black hole that - if taken seriously - could render significant proportions of the commercial landscape insolvent. In either case, these pension deficits must represent a huge millstone (or maybe an albatross) dangling from the necks of companies already struggling to make ends meet. Quote Link to comment Share on other sites More sharing options...
stuckmojo Posted July 16, 2009 Share Posted July 16, 2009 In the context of equities, these pensions deficits seem critical... if £150bn disappears in 6 months when the notional value of the entire FTSE100 is only about £1000bn, this accounting issue is more relevant than profits or (for many companies) the change in share price over the same period. This, to me, reeks of a black hole that - if taken seriously - could render significant proportions of the commercial landscape insolvent. In either case, these pension deficits must represent a huge millstone (or maybe an albatross) dangling from the necks of companies already struggling to make ends meet. spot on. Quote Link to comment Share on other sites More sharing options...
expatowner Posted July 16, 2009 Share Posted July 16, 2009 and so the thing turns full circle...... When people realise that putting money into pension pots is getting them nowhere they will turn (like many others have turned before them) into buying bricks and mortar. You know it makes sense. Quote Link to comment Share on other sites More sharing options...
ma-ku Posted July 16, 2009 Share Posted July 16, 2009 (edited) spot on. Based on conversations I have had over the last day or so, some people are thinking of abandoning official "pension" saving all together, and instead build up their retirement pot outside of recognized pension plans. This talk of grabbing 20K (like that won't increase) on retirement for care, whether or not it is needed, is gonna have unintended consequences. The current tax "breaks" for pension contributions are also likely to come under increasing scrutiny and the 40% band probably disappear in the name of "fairness". At some point the benefits of saving into a pension plan (tax perks mainly) are going to be outweighed by the requirement to: - pay 20K plus for state funded "care" (ho ho) - purchase a pathetic annuity - pay tax on pension income I think we are witnessing the death of "traditional" pension saving Edited July 16, 2009 by ma-ku Quote Link to comment Share on other sites More sharing options...
non frog Posted July 16, 2009 Share Posted July 16, 2009 ....The biggest gravy train has been the conviction amongst the public that they can get something for nothing. This is ending, ...... Do you think so? I see no evidence of this whatsoever. Quote Link to comment Share on other sites More sharing options...
non frog Posted July 16, 2009 Share Posted July 16, 2009 Based on conversations I have had over the last day or so, some people are thinking of abandoning official "pension" saving all together, and instead build up their retirement pot outside of recognized pension plans. .... This is the correct thing to do. Only an idiot would give money to companies that a few years ago were convicted of fraud. Those "mis-selling" fines had to paid out of the only source of money they have.... I also agree that the tax and other factors cannot be taken for granted and IMHO are outweighed by the fees (largely hidden). The problem is that managing your own money requires taking an interest in finance and taking a risk. The pension providers will be around for another generation or two yet...... Quote Link to comment Share on other sites More sharing options...
bogbrush Posted July 16, 2009 Share Posted July 16, 2009 Based on conversations I have had over the last day or so, some people are thinking of abandoning official "pension" saving all together, and instead build up their retirement pot outside of recognized pension plans. This talk of grabbing 20K (like that won't increase) on retirement for care, whether or not it is needed, is gonna have unintended consequences.The current tax "breaks" for pension contributions are also likely to come under increasing scrutiny and the 40% band probably disappear in the name of "fairness". At some point the benefits of saving into a pension plan (tax perks mainly) are going to be outweighed by the requirement to: - pay 20K plus for state funded "care" (ho ho) - purchase a pathetic annuity - pay tax on pension income I think we are witnessing the death of "traditional" pension saving I abandoned approved pension schemes long ago. I'd rather have my money in my hand than put it under the control of politicians who will take it from me and gamblers who will play with it. Quote Link to comment Share on other sites More sharing options...
bogbrush Posted July 16, 2009 Share Posted July 16, 2009 Do you think so? I see no evidence of this whatsoever. I mean it's coming to an end. The awareness is at only the earliest stage yet. Quote Link to comment Share on other sites More sharing options...
A.steve Posted July 16, 2009 Author Share Posted July 16, 2009 - purchase a pathetic annuity - pay tax on pension income These two, to me, seem the most significant risks. Someone thinking about making provision for their own future has to ask if the government is going to change the rules over time to undermine the prudent. It's not as if it is without precedent. On a slightly deeper level, what practical steps can one take either to establish and quantify the risks, or to mitigate them? Quote Link to comment Share on other sites More sharing options...
VeryMeanReversion Posted July 16, 2009 Share Posted July 16, 2009 Most of the dividends go to....... pension funds. They should be contributing to the pension fund of their own employees first rather than the pension funds of the rest of the world. (I think you know this but couldn't be sure without a smiley) VMR. Quote Link to comment Share on other sites More sharing options...
A.steve Posted July 16, 2009 Author Share Posted July 16, 2009 They should be contributing to the pension fund of their own employees first rather than the pension funds of the rest of the world.(I think you know this but couldn't be sure without a smiley) I think this is understood - and is, of course, why something along these lines will likely happen. The point, however, is that while plugging the hole is necessary, it could easily lead to a systemic failure of pensions in general. Quote Link to comment Share on other sites More sharing options...
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