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Black Hole In Biggest Final Salary Pensions To Reach Record High

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Low annuity rates and companies still struggling = death to pensions.

http://www.telegraph.co.uk/finance/personalfinance/7866739/Black-hole-in-biggest-final-salary-pensions-to-reach-record-high.html

Black hole in biggest final salary pensions to reach record high

A black hole in Britain’s biggest final salary pension schemes will reach a record high of £140 billion within the next year, it has been predicted

The forecast comes after the deficit of the 200 biggest schemes jumped by £12 billion in just one month to £100 billion.

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These measures are a bit meaningless. Yes they're important for company accounts, so to that extent large deficits will cause companies to continue winding down such schemes, but they aren't a good indicator of the actual long-term financial health of the schemes. Pension schemes have very long term liabilities (up to 60 or 70 years in many cases) and as we all know a lot can happen in financial markets over such a period. All you need is for yields on corporate bonds or gilts to rise by a few % and "presto"! the hundred billion pound deficit disappears. And even if companies continue winding down the schemes the Pension Protection Fund takes over and covers most of the benefits and the PPF isn't going anywhere - the PPF is underfunded but it's got more than enough cash to keep on paying for many many years during which time who knows what may happen to the markets. Nothing to worry about for current members (unless they absolutely need 100% of their promised benefits).

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Guest sillybear2

The calculations are valid, it's like knowing you have to drive 100 miles but only having enough fuel for 80 miles in your tank, with very limited ability to top up, and the destination becomes a moving target, suddenly it's 150 miles away. You know it's futile and you'll never get there but you're not out of petrol yet, so you can pretend everything is fine.

The models used by actuaries are still a crock of sh1t, but nobody can admit the truth because it would officially mean they're insolvent, the same way the banks cannot admit their assets and commercial property holdings are only worth a fraction of their peak value, so they pretend it's still 2007 and mark their books accordingly.

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In what way?

Life expectancies for one, not to mention the fallacy that everyone can enjoy above average returns on investments, and persistent out-performance well in excess of inflation or real GDP growth. If that were true then funds would need their own separate additional global economy in order to scale.

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Low annuity rates and companies still struggling = death to pensions.

http://www.telegraph.co.uk/finance/personalfinance/7866739/Black-hole-in-biggest-final-salary-pensions-to-reach-record-high.html

Black hole in biggest final salary pensions to reach record high

A black hole in Britain’s biggest final salary pension schemes will reach a record high of £140 billion within the next year, it has been predicted

The forecast comes after the deficit of the 200 biggest schemes jumped by £12 billion in just one month to £100 billion.

Do you think death to pensions will lower house prices? or do you think pension uncertainty will boost btl? evidence from the past 10 years would suggest the latter.

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Guest sillybear2

Do you think death to pensions will lower house prices? or do you think pension uncertainty will boost btl? evidence from the past 10 years would suggest the latter.

That's just another method of bleeding the working young, the national debt and taxation is another, but you cannot change demographics and the dependency ratio no matter what rent seeking tricks people try and pull with paper or assets.

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Do you think death to pensions will lower house prices? or do you think pension uncertainty will boost btl? evidence from the past 10 years would suggest the latter.

When the public finally wake up they won't have the money for either.

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Guest happy?

Low annuity rates and companies still struggling = death to pensions.

http://www.telegraph...ecord-high.html

Black hole in biggest final salary pensions to reach record high

A black hole in Britain's biggest final salary pension schemes will reach a record high of £140 billion within the next year, it has been predicted

The forecast comes after the deficit of the 200 biggest schemes jumped by £12 billion in just one month to £100 billion.

How does a hole reach a high?

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That's just another method of bleeding the working young, the national debt and taxation is another, but you cannot change demographics and the dependency ratio no matter what rent seeking tricks people try and pull with paper or assets.

You may call it bleeding the working young. For someone 40 years older it might be seen as a neccessary evil. As someone in the latter category, if my pension is fooked I will look at alternatives one of which would be UK housing as a cash cow. Yes I know it's unfair, yes I know it pushes up prices for ftb's but when it comes to providing for my old age I might have to. Sorry.

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The calculations are valid, it's like knowing you have to drive 100 miles but only having enough fuel for 80 miles in your tank, with very limited ability to top up, and the destination becomes a moving target, suddenly it's 150 miles away. You know it's futile and you'll never get there but you're not out of petrol yet, so you can pretend everything is fine.

The models used by actuaries are still a crock of sh1t, but nobody can admit the truth because it would officially mean they're insolvent, the same way the banks cannot admit their assets and commercial property holdings are only worth a fraction of their peak value, so they pretend it's still 2007 and mark their books accordingly.

The calculations are valid, but the models are sh1t? Maybe you meant to say the assumptions are sh1t in which case I agree 100%. The calculations that actuaries do are definitely useful in that they show which way things are headed and give sensible worst or best case scenarios, but what I find so pointless are the monthly headlines about the latest size of "Britain's pensions blackhole". That 120bn figure could just have easily been 200bn or even 20bn using any number of reasonable assumptions. It implies that there's one correct answer when nothing could be further from the truth. But I guess anything more sophisticated/complicated would have no chance of being published in a newspaper.

I like your car journey analogy, but I'd say that there's also a chance of that moving target suddenly being 70 miles away. Not likely, but possible. It's not 100% blind head-in-the-sand optimism is all I'm saying. I'm sure after the 1970s, pension plan sponsors never dreamt that they'd have the huge surpluses they had in the 80s (and which led to restrictions on companies being able to overfund their plans).

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The calculations are valid, it's like knowing you have to drive 100 miles but only having enough fuel for 80 miles in your tank, with very limited ability to top up, and the destination becomes a moving target, suddenly it's 150 miles away. You know it's futile and you'll never get there but you're not out of petrol yet, so you can pretend everything is fine.

All you have to do is drive faster so that you get there before the fuel runs out :ph34r:

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Guest sillybear2

You may call it bleeding the working young. For someone 40 years older it might be seen as a neccessary evil. As someone in the latter category, if my pension is fooked I will look at alternatives one of which would be UK housing as a cash cow. Yes I know it's unfair, yes I know it pushes up prices for ftb's but when it comes to providing for my old age I might have to. Sorry.

If everyone takes that view then it may well push up prices in the short term as middle aged and older people outbid each other but in the longterm given the demographics who are you going to sell to? There will be a mismatch between supply and demand.

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If everyone takes that view then it may well push up prices in the short term as middle aged and older people outbid each other but in the longterm given the demographics who are you going to sell to? There will be a mismatch between supply and demand.

I wouldn't. I'd treat it like an annuity, but an annuity that my kids could keep.

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I like your car journey analogy, but I'd say that there's also a chance of that moving target suddenly being 70 miles away. Not likely, but possible. It's not 100% blind head-in-the-sand optimism is all I'm saying. I'm sure after the 1970s, pension plan sponsors never dreamt that they'd have the huge surpluses they had in the 80s (and which led to restrictions on companies being able to overfund their plans).

The British Airways fund that I am in was closed off to new members way back when it was privatised.

IIRC it had about 40,000 members (a number that reduces as they die off) and at one time a surplus of £280,000,000 :blink:

The pension members had to fight off BA in the courts when they tried to grab back the surplus. By the time the Judge found in the members favour it was a moot point. There was no surplus any more :( .

Edited by Nickolarge

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Guest sillybear2

The calculations are valid, but the models are sh1t? Maybe you meant to say the assumptions are sh1t in which case I agree 100%. The calculations that actuaries do are definitely useful in that they show which way things are headed and give sensible worst or best case scenarios, but what I find so pointless are the monthly headlines about the latest size of "Britain's pensions blackhole". That 120bn figure could just have easily been 200bn or even 20bn using any number of reasonable assumptions. It implies that there's one correct answer when nothing could be further from the truth. But I guess anything more sophisticated/complicated would have no chance of being published in a newspaper.

I like your car journey analogy, but I'd say that there's also a chance of that moving target suddenly being 70 miles away. Not likely, but possible. It's not 100% blind head-in-the-sand optimism is all I'm saying. I'm sure after the 1970s, pension plan sponsors never dreamt that they'd have the huge surpluses they had in the 80s (and which led to restrictions on companies being able to overfund their plans).

They're more valid than before but not valid enough, as the models were previously so wrong the actuaries cannot just make a leap into a new reality without it causing a whole load of problems, so they attempt to split the difference or play down fundamental longterm issues using bogus assumptions, just like the banks with their mark-to-mythology accounting. There's a whole dollop of people about to retire, and live long into retirement (good for them), collectively these schemes can never realistically run huge surpluses again. Once these funds turn cash flow negative they will enter into a death spiral, run down their assets, run on fumes for a while then enter insolvency and land in the lap of the state.

The surpluses of the 80's were a demographic phenomenon, the boomers entered their peak earnings phase and new retirees were low, there was also dividends from one off structural changes, like the privatisations.

Edited by sillybear2

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Guest sillybear2

I wouldn't. I'd treat it like an annuity, but an annuity that my kids could keep.

Demand is also expressed through the rental market, and that too will be affected by demographic issues, though inflation may well bail you out in that regard. Unfortunately your model doesn't scale well, not without turning a whole generation below you into serfs.

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Demand is also expressed through the rental market, and that too will be affected by demographic issues, though inflation may well bail you out in that regard. Unfortunately your model doesn't scale well, not without turning a whole generation below you into serfs.

I realise the implications and morally I would prefer not to go down the btl route but you need to realise that faced with increased attacks on pension provision, both state and private then people like me will be left with a choice between a strategy that pays the bills and morality, ie no choice. In an environment where indexed annuity rates are <3% for people my age and nothing left when I die, btl even as you say with demographic risks to capital and rental returns looks more attractive, especially if you think, as I do, that the only way governments can get out of the mess they are in is through high inflation.

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Life expectancies for one, not to mention the fallacy that everyone can enjoy above average returns on investments, and persistent out-performance well in excess of inflation or real GDP growth.

Life expectancy assumptions are revised as new evidence comes to light. Current assumptions might have people living to 88-90. Does that seem unreasonable? Investment return is trickier - you CAN have long-term returns in excess of GDP growth: IF you pick the right shares etc. However, of course collectively the whole market can't.

The calculations are valid, but the models are sh1t? Maybe you meant to say the assumptions are sh1t in which case I agree 100%. The calculations that actuaries do are definitely useful in that they show which way things are headed and give sensible worst or best case scenarios, but what I find so pointless are the monthly headlines about the latest size of "Britain's pensions blackhole". That 120bn figure could just have easily been 200bn or even 20bn using any number of reasonable assumptions. It implies that there's one correct answer when nothing could be further from the truth. But I guess anything more sophisticated/complicated would have no chance of being published in a newspaper.

By the assumptions being "sh1t" do you just mean uncertain? Actuaries will never get it spot on - all they can do is hope to make a better guess than anyone who doesn't spend all day researching and calculating it.

I like your car journey analogy, but I'd say that there's also a chance of that moving target suddenly being 70 miles away. Not likely, but possible. It's not 100% blind head-in-the-sand optimism is all I'm saying. I'm sure after the 1970s, pension plan sponsors never dreamt that they'd have the huge surpluses they had in the 80s (and which led to restrictions on companies being able to overfund their plans).

Indeed - it would only take one serious flu pandemic or a few years of 10-20% inflation to bring back pension surpluses.

They're more valid than before but not valid enough, as the models were previously so wrong the actuaries cannot just make a leap into a new reality without it causing a whole load of problems, so they attempt to split the difference or play down fundamental longterm issues using bogus assumptions, just like the banks with their mark-to-mythology accounting. There's a whole dollop of people about to retire, and live long into retirement (good for them), collectively these schemes can never realistically run huge surpluses again. Once these funds turn cash flow negative they will enter into a death spiral, run down their assets, run on fumes for a while then enter insolvency and land in the lap of the state.

I don't see a reason for actuaries to deliberately put forward unduly optimistic assumptions - unlike bankers, pensions actuaries don't make any money out of "hiding" pension deficits: they don't get bonuses based on the funding position of the schemes.

Also, pension funds that are closed to new people will deliberately wind down over time. Many pension funds are already cashflow negative, and that is fine - after all, isn't the point of building up this money so that one day you can run it down to pay the pensions? You don't need any money once the pensioners have all died!!

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I don't see a reason for actuaries to deliberately put forward unduly optimistic assumptions - unlike bankers, pensions actuaries don't make any money out of "hiding" pension deficits: they don't get bonuses based on the funding position of the schemes.

There is a conflict of interest, many actuaries work for big life assurance groups. I'm not saying they are malicious, many of their old models are now costing their employers dearly, but they were collectively asleep at the wheel for a long time, and ignored the logical inconsistencies in their models. It seems many attended the class that described how a high rate of return and the exponential function will solve all their problems, yet ignored the macro problems of demanding compounding returns in excess of GDP growth. That's before we even get on to natural resource constraints.

Also, pension funds that are closed to new people will deliberately wind down over time. Many pension funds are already cashflow negative, and that is fine - after all, isn't the point of building up this money so that one day you can run it down to pay the pensions? You don't need any money once the pensioners have all died!!

That's no problem, but the funds will be depleted long before the recipients are, they will end up in the lap of the PPF, which is also balance sheet insolvent, but they have access to a rich benefactor with a printing press.

Edited by sillybear2

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Demand is also expressed through the rental market, and that too will be affected by demographic issues, though inflation may well bail you out in that regard. Unfortunately your model doesn't scale well, not without turning a whole generation below you into serfs.

Well the trick is to look after yourself and your own kids isn't it? If most of their contemporaries are serfs but they are financially strong then they benefit from depressed demand making their money go a lot further.

Wasn't the best bit about being in the financial services / IT boom in the 80s the fact that many other people were struggling keeping the cost of houses etc. down while the pay & pensions of the upwardly mobile soared.

Or did I misunderstand what was happening back then?

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They're more valid than before but not valid enough, as the models were previously so wrong the actuaries cannot just make a leap into a new reality without it causing a whole load of problems, so they attempt to split the difference or play down fundamental longterm issues using bogus assumptions, just like the banks with their mark-to-mythology accounting. There's a whole dollop of people about to retire, and live long into retirement (good for them), collectively these schemes can never realistically run huge surpluses again. Once these funds turn cash flow negative they will enter into a death spiral, run down their assets, run on fumes for a while then enter insolvency and land in the lap of the state.

The surpluses of the 80's were a demographic phenomenon, the boomers entered their peak earnings phase and new retirees were low, there was also dividends from one off structural changes, like the privatisations.

It always comes back to the boomers....why can't they just feck off and die. But seriously, don't you think there's a possibility of a sustained equity bull run sometime in the next 20 or 30 years of a magnitude required to turn the tide, or do demographics doom that too? Yes the fundamentals say that the stock market shouldn't in the long term outperform GDP growth (so 8%pa for 20 years would be impossible) but as we've seen, the markets don't seem to work like that in reality - there's far too much emotion and psychology and misinformation for these economic theories to be reliable in the real world. As long as pension plans remain somewhat heavily invested in equities there's still a chance that their mismatching (between assets and liabilities) will get them off the hook at some point in the future, at which time they can switch into bonds and breathe a sigh of relief. That's partly why these snapshot calculations are so misleading (at least for plans that are mismatched) - anything can happen in the stock market.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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