Thursday, July 24, 2008

If my house is no longer my pension, how about the stockmarket? Oh…

Shares gloom leaves pension funds with £30bn deficit

Slightly off-topic. In recent years more and more people have claimed that "their house is their pension", intending to use lifetime mortgages or equity release to live a happy retirement. Now that the housing crash is wrecking those dreams, attention is focusing back on traditional stockmarket-linked pensions. Sadly they aren't doing so well either. Where does this leave the generation who are retiring in the next few years?

Posted by drewster @ 03:03 PM (1199 views)
Please complete the required fields.



18 thoughts on “If my house is no longer my pension, how about the stockmarket? Oh…

  • “Where does this leave the generation who are retiring in the next few years?”: In a very tight situation! I have been thinking about this since the crash started last year with the billions upon billions being lost and share prices falling 80+% across multiple sectors, not to mention all the CDO junk bought by the big pension firms because they gave an extra 1-2% return on portfolios (which are sooo important to fund manager’s bonuses etc..), or invested in dollars or pounds. Christ knows what aggressive strategy would now return.
    And this is precisely why I don’t have a pension, and probably why GB is so keen for pensions to be mandatory (well his Banking masters that is!).
    There will be people retiring on f****k all thanks to this, and so far the papers have been extremely quite on the topic. Expect the next wave of destruction to become public knowledge. And I do feel very sorry for these people.

    Reply
    Please complete the required fields.



  • mark wadsworth says:

    Traditionally, the FTSE (or its predecessor indices) are lower at the end of a Labour government than at the start. So we’re looking at a fall to 3,500 or lower, (half of its recent peak – back to the levels of mid 1997 or indeed start of Iraq invasion in 2003)). Banks, homebuilders are blazing a trail here, retailers are looking grim, I don’t know whether oil buble bursting will help or hinder oil companies, people are tightening belts generally, so if you own shares … sell them sharpish.

    Reply
    Please complete the required fields.



  • It seems fairly self-evident that the FTSE will be considerably lower in a year’s time, and in two years’ time too. The pension principle that “in the long run stockmarkets always rise” will be shaken to the core. After the 1929 crash, the US stockmarket didn’t reach the same level until 1954! Even with dividends reinvested the target wasn’t reached until 1945.

    That’s at least 16 years of bad returns for workers – curiously, the same number of years that the current Japanese depression has lasted.

    Reply
    Please complete the required fields.



  • if money is not currently invested in property or equities, it has to go somewhere: commodities. Once the commodities bubble burst, money will have to be invested somewhere, that is in equity markets and property once the valuations are more attractive. at the moment, the return on a savings account beats all these 3, so that is where the money is going.Historically, equity markets have performed better over the long term, so that is where money should in theory go at some stage.

    Reply
    Please complete the required fields.



  • sold 2 rent 1 says:

    DJIA 3000 by 2012 was predicted a year ago by marketoracle. Callemans’s model says the “end of money” by 2011 anyway.

    Reply
    Please complete the required fields.



  • s2r1,

    Not sure about the end of money (though there’s an outside chance), but your DJIA prediction could certainly come true! I suspect inflation will limit the damage though, so 6000 would be my stab at a target.

    Reply
    Please complete the required fields.



  • last_days_of_disco says:

    I find it really interesting that the cycle is 17 years.

    Reply
    Please complete the required fields.



  • letthemfall says:

    An important subject. The notion that a house is a pension was always ridiculous. Pensions are a sensible idea in principle: one saves a proportion of income and invests it in a mix of assets, principally equities, so benefiting the economy and growing your money. Buying houses as a pension merely transfers wealth away from others, or as is now happening, back to others.

    The problem has always been the lack of understanding about pensions and investment, even amongst the professionals. It is important to have one unless you want to be broke in your old age. How to achieve it is the difficult bit. It requires a lot of knowledge to manage one. With final salary schemes one paid up and received a (fairly) risk-free pension. Many did well from this; some did extraordinarily well. For most people now you have to rely on a pension manager to invest your money well, or rely on yourself.

    drewster: You’re right. Up to 2000 markets had a great run. Markets do rise over the long term; so long rises above trend will always be matched by similar periods of poor returns. Unfortunately none of us can postpone old age so it is possible to lose out. One reason why pensions need close regulation and managed by individuals who understand the ups and downs of investment. The principle of reducing and spreading risk (with-profits, defined benefit, etc) makes a lot of sense, but we have been drifting rapidly away from these sensible approaches.

    Reply
    Please complete the required fields.



  • happyrenter says:

    The originator of the term, “paradigm shift” Thomas Kuhn said, using a quote from Max Planck: “a new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”

    perhaps financial market truths take the same amount of time – that generational change is around 17-20 years…

    Reply
    Please complete the required fields.



  • Tim B Jones says:

    I believe that most personal pension plans have a cash fund option. These may only grow at a boring 4% or so but in the current climate that is good. Traditionally the better pension advisors have advised their clients in the last few years before retirement to move at least some of their pension pots into these cash funds. So if this advice has been widely given and widely acted on then many of those just about to retire may have avoided the worst of the stock market falls. So the screems of anguish re personal pensions maybe mute for sometime.

    For those that haven’t done so maybe they should initiate taking advice from their pensions advisor.

    However I have no idea if the advice has been given.

    Although nowhere near retirement I took refuge by moving some of my pension pot to the cash fund at the end of last year and I’m pleased I did. I will move it back to other funds when I think they have bottomed. For several years I have been topping up my personal pension by paying in more than I needed to every month to get my employer’s contribution. I’ve now stopped doing that and am putting these ‘contributions’ into a deposit account. As the govt abolished the net relevant earnings rule I can transfer them later and still get the tax relief (although you have to be careful how you do this). I will wait until I think the stock market has bottomed. In the meantime if my employer dispenses with my services I can get at that money and no have to wait until i’m 55.

    So if you are worried about your pension take professional advice. You maybe able to defend it against the worst of stock market falls if you actively manage it.

    Reply
    Please complete the required fields.



  • If your house is your pension — where are you going to live when you retire?

    Reply
    Please complete the required fields.



  • This is bang on target as I’m sure that the eventual victims of the housing bubble will be pension funds. Todays retiree’s have had the best deal over the last 25 years, the next generation of retired folks i.e. those of us working today will feel increasingly mugged, I’m principally talking about those of us in the private sector who have money purchase or personal pension schemes. The size of payments required to provide a decent pension are simply incompatible with living in this country day-to-day and paying ridiculous amounts for a second rate mortgage funded pile of bricks.

    Pensions and houses are directly related to each other even if you do not personally view your house as a pension.

    Reply
    Please complete the required fields.



  • As soon as the public discover the massive shortfall in their pension funds, it will make the civil service and local government gold-plated pensions look even more outrageous. Let’s see Brown worm his way out of this one.

    Reply
    Please complete the required fields.



  • s2r1,

    Sorry, am I missing something here? Isn’t Calleman a crank, presumably you knew that and you’re having a laugh?

    Reply
    Please complete the required fields.



  • Anybody know the extent of Pension Funds’ exposure to mortgage- and other asset-backed securities that have gone bad?

    Reply
    Please complete the required fields.



  • enui @ 05:48PM and drewster @ 05:55PM

    agree totally although this comment may be a long time coming or not appear at all

    also it is taking an amazingly long time for people to realise pension funds including state goldplated are going to have to take a BIG hit.

    icarus re exposure – I suspect it’s so big it is being hidden for fear of reprisals by middle England.

    btw anybody seen my password? it’s gone awol again – dog knows why.

    Reply
    Please complete the required fields.



  • drewster @ 10 – how gold-plated are those pensions? Presumably they are run like other P Funds, which can go down as well as up? I read http://www.theglobeandmail.com/servlet/story/LAC.20080722.RPSP22/TPStory/Business about the Canadian Fed government fund losing out on investments in ABCP, CDOs etc.

    An interesting aside – there’s a line in the story: ‘The Fund hadn’t realized the losses by selling the CDOs or ABCP…it hopes to regain the lost ground by the time the investments mature’. Just like the Japanese banks in the early 90s, which denied their losses, refused to write them off/down and helped fuel the great deflation.

    Reply
    Please complete the required fields.



  • 10. Tim B Jones Thursday, July 24, 2008 05:23PM
    I hope, I really, really hope George Monsoon sees this.

    One reason why real IDs are hidden on this site.

    Reply
    Please complete the required fields.



Add a comment

  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
  • Please adhere to the Guidelines

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>