Wednesday, Jul 25, 2018

Borrowing subsidy

Evening Standard: Playing too safe on pensions is costing companies

Unusually excellent article from london standard. Points out that returns on stocks are 7% but for gilts slightly negative in real terms, but that pensions are forced to calculate on known returns. There are no guaranteed equity returns so they are forced into gilts. My view is that pension funds are forced to provide free loans to government. Anyway, -if- pensioners every manage to do anything about being fleeced (which they have known about for ages without doing anything, in fact legislation to force lending to gov. is worse) then borrowing costs would be going up, and a lot. What is also interesting is that you might think stocks have gone up a lot because of QE, but they would have gone even further with pension purchases.

Posted by stillthinking @ 12:27 PM (3082 views)
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4 Comments

1. mombers said...

It's at least comforting that final salary pensions are becoming a thing of the past. It's very hard to make predictions, especially about the future. So many companies have become pension schemes with a side business in telecoms, retail, manufacturing etc.
The past generous tax treatment has exacerbated the situation - no reason for luxury pension pots to be subsidised. Max should be an annual amount to maintain a modest but decent standard of living, not £50k+. Fred Goodwin's pension pot was £16m I believe. I'm a hypocrite of course, tucking in to substantially more tax relief than is required for a modest retirement :-)

Wednesday, July 25, 2018 03:37PM Report Comment
 

2. tenyearstogetmymoneyback said...

I would be amazed if anyone can predict 30 years ahead (although I understand the need to do so with pension funds).
Only about 25 years ago a company I was working for kept taking "Pension Holidays" as the fund investment performance exceeded requirements.
Companies also used the Pension Funds as a bottomless redundancy money pit. I know two people who retired on a full pension aged 50.
One was working for a well known bank and got out just before the 2008 crisis.
It is a shame that the pension funds can't build some houses and rent them out (which I believe is what they do in Germany).

Wednesday, July 25, 2018 10:23PM Report Comment
 

3. mombers said...

@2 long term liabilities like pensions are an invitation to financial engineering to make the figures look better than they are. Better to offload that onto specialists via a defined contribution. Also need to reduce the problem by limiting the retirement income that one can generate tax free to a much more modest amount than the current ~£50k final salary limit. Defined contribution is a tricky one to sort on this, a pension pot of £1m can buy one less than half of that. The lifetime limit is a blunt way to do this, maybe a better way would be to have proper taxation of pensions. A higher rate taxpayer gets 49% tax relief (NI included), capital gains and dividend tax free over 40 years, then taxed at a flat 20%, at a time when most have a lot lower cost of living due to no dependents, commutes, etc

Thursday, July 26, 2018 01:08PM Report Comment
 

4. stillthinking said...

My thought was that this idea that IOUs from governments count as safe assets is way past its sell by date. Any fund with gilts, the government has already -spent- the money and just left IOUs behind.
Whether its an insurance company, a bank, a pension fund and wherever else they have been forced, its the general population in a circle. Gilts are a credit and debit on the general population if you spread them around far enough. The capital saved is previously exhausted.
A bit of paper with I owe you ten apples on it, fine in a world full of apples. Going around systematically eating the apples popping yet another gilt in..WTF!

Friday, July 27, 2018 07:40PM Report Comment
 

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