Saturday, January 19, 2008

Another Black Hole for Pension Schemes

Pension plans derailed by the property slump

Plunging commercial property values have hit Scottish Equitable Pensions with some funds seeing 17% falls in commercial property values over the last 6 months. Scottish Equitable has now introduced a 12 month lock-in period for investors trying to move their money out.

While many people want lower property prices they must also recognise the potential impact on PensionSchemes.

Posted by enuii @ 11:56 PM (957 views)
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9 thoughts on “Another Black Hole for Pension Schemes

  • “While many people want lower property prices they must also recognise the potential impact on Pension Schemes.”

    That’s a terrible argument. What if half the population had a pension which was heavily invested in Heavy Industry Water Polluting Ltd – would you say “While many people want cleaner tap water and clean rivers, they must also recognise the potential impact on pension schemes” ???

    To give a more recent example, last summer the EU forced mobile phone companies to cut roaming charges (the cost of mobile phone calls from abroad). Companies like Vodafone protested: “If we aren’t allowed to flagrantly rip off our customers, our share price might fall and pensioners would lose out.”

    How many of us even have a private pension anyway? Only 41% of us, according to the Pensions Policy Institute. So it’s ok to screw over 100% of the population with rip-off house prices just as long as 41% benefit?

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  • Surely – if you were investing for a pension fund, you would take the money out of property and invest in something else – problem solved!

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  • Why not move your pension into something that will make you money – rather than property, problem solved!
    That is – unless your stuck in a SE fund for the next 12 months – in which case the quote should be:
    “While Scottish Equitable would like to stop withdrawals from their property fund for 12 months to ‘protect their investors’ they must also recognise the potential impact on their customers Pension Schemes.”

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  • who stole my pension? says:

    “While many people want lower property prices they must also recognise the potential impact on Pension Schemes.” is a terrible argument as we pay massive fee’s to fund managers to avoid such collateral damage. Other than drinking champagne what else do fund managers do for their money? Not a lot it seems. They miss the obvious chance to move from property to cash or gold. Instead they say that thay are fund managers and therefore have to remain 100% invested in shares. The thought that their customer might want them to avoid loosing money never even occurs to them!

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  • The original comment showing concern for people on private pensions is not inappropriate,The alternative is the Bring on a slump ; it will lower house prices school of thought that pervades a lot of e-mails on this site.But if you have n’t got a job or a pension or are subject to public-sector- below-inflation pay curbs,cheap house prices are very largely offset by the disadvantsages .Take Christmas 1940 . Advantage: you could pick up a house in Mayfair for nothing/Disadvantage: there ‘s a Blitz on and fear of invasion. It is surely possible to separate out the housing market from the rest of the economy and give it special treatment. During the heyday of Keynesian demand management in the 50’s and early 60’s, house prices stayed steady but there was a tax on home-ownership ,the Schedule A of Income tax which took any rises in house value straight out of the owner-occupiers income.Treating unearned house value rises as unearned income and taxing them is worth returning to, although it would be better to tax the value of the land underneath the house as this is what’s inflating in value not the construction cost of bricks and mortar.

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  • japanese uncle says:

    A traditional defined-benefit pension is the only genuine pension schme. Defined-contribution pensions are simply cons to exploit financially ignorant working people. How can you trust pensions whose value is at the mercy of the market fluctuation while the dominant market players = international imega-financiers take advantage of, or even engineer such fluctuation for their profits?

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  • To pour petrol on the fire then I’ll add in that the above is probably a more significant factor to private sector money purchase pension schemes than those funded by the state via taxation for the public sector.

    The returns on private schemes are that low that the main benefit is the tax relief on contributions in the first place, it is quite arguable that if this country had better pension arrangements then Buy-To-Let would not exist on the scale that it has in this country.

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  • Personally I find it outrageous that people can be legally stopped from moving to another financial services vendor, effectively having their free will to govern their own finances curtailed.

    Imagine if Tescos were able to issue a legally binding order that you would not be allowed to shop at Sainsburys for the next twelve months. Incredible.

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  • who stole my pension? says:

    The argument that people are using housing as a pension fund and thus stoking house price inflation is valid. However, the solution is not easy as the fund managers do create these bubbles so that they can make a massive profit at the average persons expense. One easy solution though is to make MP pensions a defined contribution (money purchase) scheme as they will then have to start paying attention to what is happening in the real world!

    Take the Heathrow plane crash for example; Gordon left Downing Street and was on the plane in less than one hour – he thinks this is normal! He thinks it is a bad day when it takes you four hours to go from London to the plane steps. Only when the MP’s are forced to live in the real world will we sort out the economy. So lets start by changing the MP pension scheme to money purchase and indexing their wages to CPI (not RPI). Oh they would then learn what living in the U.K . is really like!

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