PWC have published their monthly survey of the state of British pension funds. It shows that pension fund deficits have fallen markedly, not because lots of pensioners have died, or because the stock market went through the roof, but because marginal adjustments in the gilt yields.
You can read all about it in this Guardian article where the ever youthful Raj Mody explains that the £80bn fall in pension deficits in October was due to
“Slight improvements in gilt yields”
However Raj goes on to warn us that
liability measurement by gilt yields does not necessarily represent reality, given pension liabilities are mainly affected by longevity and inflation.”
You can also read the September article in the Guardian that shocked us by finding that pension deficits had risen £100bn in a month. You can read the doom-mongering blog that PWC put out with it here – thankfully, despite Chicken Lickin’s concerns- the sky has not fallen on our head.
In September our pensions went down £100bn and in October then went up £80bn and we are all supposed to be devastated/delighted accordingly.
Well I am mystified and so will Anthony Hilton be- and so will any sensible human being. Because the people we are paying these pensions too are the same people as in August and pretty much the same people as in December.
By a bizarre coincidence, I become a pensioner today as I am 55 in 10 days time and my pension is payable from the beginning of the month. I do not feel £80bn better off for hearing Raj’s news nor was I unduly upset when he told me pensions were £100bn worse off last month.
This is because I subscribe to a different way of looking at the future that does not value things on the minute fluctuations of gilt rates but on the long term prospects of pensions getting paid.
I know that sometimes gilt valuations overestimate pensions liabilities and sometimes they underestimate them, I am seeing some very interesting research on this from the Con Keating research institute. I know too that asset bubbles occur and that asset valuations are sometimes too high – and sometimes too low. I know too that economies grow sometimes and shrink sometimes.
In order for me to take a long-term view, I do not look at the gilt yield and work out what it will do to my pension in fourty years time. I look to the long term market trends and I work out whether I will have enough money to pay myself the day before I die! The gilt yields in October or September 2016 do not matter to me in October or September 2056.
I subscribe to a view that the earnings of a pension fund are based on the investments it makes and that those investments should be long term in nature. So I am happy for my pension fund to be invested in shares , feeling confident that the long term future of the British and world economy is bright.
I believe that DB pension fund valuations (and DB pension transfer values) should reflect the long-term nature of investing rather than the marked to market buy-out position. Unless, that is, my pension scheme is about to buy-out its liabilities by giving them to an insurance company. I have no intention of buying an annuity right now and can’t see why my former employer should be buying a bulk annuity either -so I hope that the Zurich staff pension scheme continues to invest for the long-term in real assets which bring real benefit to the world economy.
I am not an actuary but I think I have more common sense than all the actuaries in PWC put together. I trust in the good sense of men like Carsten Staehr (below) with whom I intend to get drunk at the Payroll World awards on Thursday night!
I believe that life is for living and it belongs to those who are able to sieze it by the throat and make it work for them!
Which makes me feel, no matter how clever my good friend Raj is, that he is making a fool of himself; or rather his index is making a fool of him. Which is not as it should be!
Perhaps Raj, who’s offices are close to where I live, will join me this lunchtime for a pint of beer to celebrate my being a pensioner and the sky not falling on our heads!