The Ed has his actuarial table hat on today after the Rachel Reeves speech, and the sums don’t add up.
Pension schemes are like insurance policies or banknotes, a promise. Once that promise is broken – as in the case of the Equitable Life scandal years ago – it’s hard to regain it. Which is why so many workers in the UK choose lucrative careers in the public sector, where index-linked pension schemes are essentially funded by the taxpayers of today, whilst schemes that should go bust are bailed out by taxpayers of the future. The Post Office pension scheme being a perfect example of a fund which simply ran out of contributors once the Royal Mail section of the business was privatised.
In the past pension schemes invested cash in boring investments like shares in big companies, bonds, gilts, government coupons etc. The returns were low generally, but the thing stayed afloat because most workers – sorry male workers – tended to die conveniently within 5 years of retirement. Then people started to live longer, like 10 years longer, smoking stopped being fashionable and after the Thatcher era de-industrialisation of Britain men stopped dying in horrific accidents at work in large numbers.
The Tory regime has freed up pensions using things like SIPPS, plus funnelling cash into so-called green tech and investments like social housing projects. Now Labour wants to accelerate that process, gathering togethr smaller DB schemes so that big investments can be made in large government approved projects.
WILL WIND TURBINES, SOLAR FARMS AND HS2 ACTUALLY MAKE A PROFIT IN 40 YEARS?
No, of course not.
The Rachel Reeves `reforms’ are a very basic public sector cash grab, where vague promises of future infrastructure projects generating returns will come to nothing. Although the big contractors building all this green tech stuff will do well from the open-ended contracts, with HS2 and its ballooning budget being a prime example.
But Reeves, who likes to do her sums sitting under the watchful portrait of a leading UK Communist Party founder, will not be around in 30-40 years time to face any wrath from bankrupt pensioners selling their assets to buy diabetes meds and a place in a Council nursing home. She and other politicians will be sitting pretty in private gated villas, or Gulf State penthouses, with tax-free wealth providing the sort of retirement income that most of us can only dream about.
You can bet your house on this: Politicians pension schemes will not be included in this so-called reform, just the lower orders.
PRIVATE PENSIONS ARE DEADER THAN WINTER FUEL ALLOWANCE
In truth, the Reeves reforms will be the final nail in the coffin for private or DB schemes. Not everyone is so stupid to pump hard earned money into social housing schemes, new toll roads, high speed railways, wind turbines or solar panels replacing potatoes in East Anglia. These pet projects are – in 90% of cases – long term recipients of taxpayer cash, not profit making enterprises.
That’s because the public sector is fundamentally incapable of costing projects, or building any sort of business. You only have to look at the billions wasted by Councils in the UK over the last 15 years as they constructed huge town centre retail/leisure complexes, which are nearly all half-empty, Stonehenge-like monuments to how the internet won the retail battle in the High Street 20 years ago.
REFORM IS NEEDED, BUT THE KEY WORD IS PROFIT
The whole idea with private pensions is to buy assets that generate income, preferably income that is linked to inflation in the future. So funding insurtech companies, investing in cyber security, AI admin start-ups, robot manufacturing, gene-edited food production etc makes more sense than wind turbines which have a 20 year lifespan. Plus don’t work when the wind is the wrong speed. Infrastructure is the business of governments and we already pay a huge amount of tax for governments to build and maintain it in the UK. But they prefer to spend billions on mass migration, overseas aid, fighting proxy wars and more. Politics should not underpin pension investments, the profit motive is what creates the return.
But Labour has a real problem with profits. For many on the Left profit is Hate Speech, making money is inherently bad – just look at the fury directed against farmers, small companies or BTL landlords in the recent Budget and Renters Reform Act. Instead the Left wish to build a new Jerusalem where everyone is a supplicant of the State, working in the public/NGO sector, or begging for benefits. Sadly, that ideology of loathing profits cannot sustain private – or public sector – pension schemes. You have to appoint hard-headed business people as trustees of schemes, because they have the experience of running a business and making a good profit margin. You need that healthy margin because schemes can suddently suffer a poor investment, or a reduction in new entrants, so that is why you need a large cushion of cash. Annuities can only be paid for 30 years or more if the scheme is more than solvent. Way more.
Trustees of pension schemes need to identify potential high growth companies, spot patented inventions or people, who are likely to disrupt markets, create new niches, and yes, strike it rich. Then back them early stage, invest, fund expansion, buy out rivals. Go big.
PENSIONS ARE THE SOCIAL CONTRACT THAT UNDERPINS CIVILISED SOCIETY
In the UK we have a situation where those who worked all their lives receive less in State pension revenue than those who shirked and get Pension Credit. That gap grows every year. It’s already thousands.
Unless that fundamental hatred of hard work, free enterprise and the pursuit of profit is dismantled at senior levels across both public and private corporate pension schemes, there is no chance of making the necessary 15-20K a year pension payout in the future ( adjusted for inflation) that will tempt savers to join pension schemes. Why would you bother if your measly 5-10K pension simply replaced a portion of Pension Credit benefits? This is a social contract that is being broken up by politicians from all the main parties, working people are being penalised so that non-working people can be rewarded.
The pensions industry needs to draw up convincing tables which show how millions of people can obtain a better level of income in the future than loafing on benefits for 45 years – and keep getting it for up 40 years of life post 60 years. The maths does not really add up frankly. No ordinary person can pay rent/mortgages/bills and put aside enough to fund a comfortable life post 65-70 years.
I don’t think it’s possible in an ageing society, where the over 80s population also often require medications and personal care to have a life, and the sooner we face reality, the better. Fact is, Pensions are a promise that’s bound to be broken by future generations. Reeves and others cannot deal with those harsh facts of life. It loses votes basically.
NEW THINKING
What we have to do is tell people to save and invest for themselves, and create a tax system that helps to encourage that investment in collective futures. Abolish the savings tax below 100K, it’s ridiculous that people who take responsibility and save for emergencies in life are taxed on their own Solvency II planning.
Ring fence pension schemes from political interference by law, stop Reeves or any successive Chancellors tinkering with the rules on annuities, cash reserves, or investments based on profits, not political aims. Because politicians always think short term, not long term – the exact opposite of any savvy investor. In the end this is the scheme members’ cash for the future, it does not belong to ANY government.
Political parties also need to sell the idea of sovereign wealth funds based on oil, gas, coal, nuclear and other State/energy assets which are bound to be needed once the great Net Zero con trick is proved to be an abject – and costly – failure. These funds can provide cash for those who cannot work all their lives. In addition ALL UK charities should be legally obliged to put 10% of their cash income into pensioner benefits schemes, subsidised housing, nursing care, medications, dental care etc for the over 65s.
Charities need to start physically helping poorer, older people here in the UK.
Finally, guarantee that any pension income from a private scheme will NOT be taxed or affect benefits in old age. Then there is a real incentive for the majority of the working population to do something NOW about your own future. Safe in the knowledge that you will get some sort of cash advantage from taking the risk, not the government or its cronies.
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