So who gave Mark Carney the keys?

Mark Carney

The man with the keys

Ros Altmann, along with many others is concerned that a side-effect of the measures announced to bounce our economy out of  Brexit blues, will be to require employers to pump money into pensions and not into jobs, research and building new orders.

She’s right, but for all the wrong reasons. Pension Schemes should never have handed the Bank of England keys to their solvency in the first place. They should have stuck to the economic purpose of long-term investment and remained in equities.

Ironically, that is precisely what retail investors are doing in their retirement, choosing to live off the dividends (with limited capital drawdown) and avoiding the death star of annuities.

Of course “purists”, such as John Ralfe will continue to throw the text-book at trustees, demanding they match their liabilities with best fit assets (long term gilts and bonds) and trustees will continue to do so. Those forced to go down this route will either have protected  themselves through derivative based hedging programs, (in which they- to a degree-  immune to the QE virus) or they are now having to return to their sponsors with the biggest betting bowls yet. That’s where text-books get you.

Retail investors are driven by common sense.

We will not invest in annuities or buy long-term interest streams which only guarantee to lose us value in our money.

We will seek out opportunities to set our money to work. People want to invest in real things. They don’t want to invest in IOUs and have no ownership in what happens to their money. Investing in “debt instruments” is fundamentally not what most of us want to do.

I would rather own a house than own the string of interest payments being paid by the house-owner through a mortgage. The house is real, gives me enjoyment and allows me to add value to my investment through home improvements. Sod the text-book, my house makes me happy and owning someone’s mortgage doesn’t.

Institutional Investors have lost their emotional intelligence.

Time was when asset managers managed assets, took pride in ownership and sought to increase the value of the asset through good stewardship. This still goes on in places. If you speak to a good property manager he or she will tell you of how they’ve improved the value of the properties through being good landlords. If you talk to good equity managers they will tell you that the dialogue they have with the senior managers or companies they own is constructive and will point to areas where they have improved the long-term outlook not just for themselves – but for other share holders.

This is akin to the way I run my house, or my business- even if that business has no other shareholder than me.

When a pension scheme sets out to immunise itself from the artificial volatility of its liabilities, it enters into artificial contracts with banks and with counter parties that it knows nothing about. It has no control of where the money goes, its sole interest is in the property rights of pieces of paper.

Don’t employers need pension freedoms too?

Bosses reading the tales of woe from our pension experts, may ask themselves why their businesses aren’t allowed the pension freedoms that private people get.

Why should employers have to invest in annuities (which is what these gilt-based investment programs degenerate into)?

Why shouldn’t they be given the freedom to invest in real things which give returns linked to the value of economic production and can’t be messed about with by Mark Carney and the Bank of England?

Why shouldn’t pensions be restored as a means of long-term investment finance for businesses trying to provide long-term returns for their shareholders?

Why must everything be about debt, why can’t we invest in the future through equity?

No freedom if you’re guaranteeing benefits!

The awkward truth is that the guarantees offered by defined benefit schemes are too valuable to give up. The guarantees would have to be given up by the people who have to take the decisions to give them up. And turkeys don’t vote for Christmas.

So not only do the pension promises line the pockets of the few, but they take money from the many. Nowhere is this more the case than in the vast pension inequalities between the public and private sectors. The private sector, through the taxes it pays from its enterprise, guarantees the pensions of those in the public sector.

These guarantees are not part of the social contract. They are not written down in some economic bible at the dawn of capitalism, they have emerged over the past 25 years to protect the interests of those with defined benefit promises.

I question their validity.

A move to promises not guarantees is long overdue

Last summer, Ros Altmann stopped the construction of the legislation that would have enabled CDC to happen. CDC is a halfway house between DC and DB that might have allowed employers limited pension freedoms. It has long been considered a way of strengthening the DC promise (something employers are reluctant to do). But in parts of Europe and Canada, it is used as a way of rebalancing the pension contracts between sponsor and beneficiary.

As people involved in pension investment know, Canada and the Netherlands and other countries that have the capacity to invest long-term in real things, have been busy buying real things. Hinkley Point is a case in point (for Canada read France and China).

I fear the vested interest in the valuable guarantees which underpin the pension of the rich will not allow us to follow those in Holland and Ontario into a sunnier world. But that should not stop us remembering that such a world exists.

Do I blame Mark Carney? I blame the prophets of Baal

Of course I don’t. The people I blame for the pickle pensions are in , are not those who set interest rates but those who have made our pension schemes slaves to them. I blame the bean-counting accountancy types who cannot see beyond the end of their mark to marketed noses!

I blame the economists who have given us fake laws and call them to Mount Carmel. These prophets of Baal have got us where we are now. They can’t blame Mark Carney for letting them down. They should be exposed for the false prophets they are.



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to So who gave Mark Carney the keys?

  1. John Mather says:

    “best fit assets (long term gilts and bonds) and trustees will continue to do so” The advantages for Government of Repressionary tactics are at work. It seems the accounting standards dictate investment strategy but not to the advantage of the beneficiary or the provider of the benefits.

  2. Peter Brown says:

    In pensions we seem to have forgotten that Equities, Property, and other asset classes are income generating assets too. Provided there is sufficient diversification the income stream from these asset classes is not significantly less secure than that from bonds heavily biased towards a single issuer (UK Government). Even in the extreme example of 2008 when many banks suspended dividends, with say an FTSE All Share index tracking portfolio, there was only a minor and temporary reduction in the long term cash dividend inflow.
    With non fixed duration investments you also have freedom to realise the capital in your investment in a manner that meets the requirements of your actual liability stream and not assume the additional risk of trying to match bond maturity dates to what in a closed DB scheme, during the bond maturity period being considered, will always be an over cautious projected future liability profile.

  3. Derek Benstead says:

    Great blog Henry
    It’s easy to write a long comment in response to a blog containing lots of things I don’t agree with. But it’s hard to write a long comment on a blog which successfully sums up the dysfunctional position the pensions industry has got into.
    This will have to do: I agree, Henry, I agree.

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