Narrowing the range of thought…


I get back from a few days in the North East to this headline in Corporate Adviser

First Actuarial versus the world: DB’s glass half full or half empty?

(you can read the article on the link at the bottom)


Binary worlds make good stories but reality is rarely binary, there are shades of grey, First Actuarial works with clients who have all kinds of strategies. Some of our clients are 100% invested in bonds in readiness for buy-out.

But as most people who read this bog know, most of our schemes (like most schemes in the PPF7800) have both growth and matching assets and would , were they to be measured on a  best estimate basis, collectively be in surplus. If the PPF were to be measure on a best estimate basis, it would show a substantial surplus.

It is only when you look at things from a worst case scenario, that the £250bn deficits emerge. Experts – whether they’re called George Osborne or David Blake, like to point to these worst case scenarios to demonstrate the need to stay in Europe or turn off dividends to fund pension deficits.

Arguing a more optimistic position, as we are beginning to do about Britain’s economic future post Brexit, requires a glass half full mentality. It requires a similarly imaginative frame of mind to suppose that growth assets will grow faster than bonds and that companies will still be around to pay dividends in years to come.


Here’s Winston being talked to by Big Brother in Orwell’s 1984

  • Don’t you see that the whole aim of Newspeak is to narrow the range of thought?

  • In the end we shall make thought-crime literally impossible, because there will be no words in which to express it.

  • Every concept that can ever be needed will be expressed by exactly one word, with its meaning rigidly defined and all its subsidiary meanings rubbed out and forgotten. . . .

  • The process will still be continuing long after you and I are dead. Every year fewer and fewer words, and the range of consciousness always a little smaller.

  • Even now, of course, there’s no reason or excuse for committing thought-crime.

  • It’s merely a question of self-discipline, reality-control.

  • But in the end there won’t be any need even for that. . . .

  • Has it ever occurred to you, Winston, that by the year 2050, at the very latest, not a single human being will be alive who could understand such a conversation as we are having now?”

Here is John Ralfe, quoted in the Corporate Adviser articlenarrow-5

By saying pension liabilities should be valued by reference to return on assets not by reference to bonds, First Actuarial are effectively saying that the actuaries have got it wrong, that accountants have got it wrong, that TPR and the PPF have got it wrong and that the people who are buying and selling bulk annuities have got it wrong.

“I sometimes feel like we are back in the early part of the last decade. Wasn’t this an argument that was fought and won back then?”

Of course there have been times that the received wisdom has been very much in favour of a total-lock down into gilts, but I know that the Pensions Regulator’s position is not as Ralfe supposes it, the PPF does invest in growth assets and even Goldman Sachs are now arguing that we should not ignore the upside of equity investment in our recovery plans.

“In the gloom, the gold gathers the light about it” wrote the poet when all seemed set against him.

First Actuarial is very grateful to John Ralfe and Charles Cowling and those others quoted in the article, denying the possibility that employers will stay solvent and continue to pay dividends.

We don’t run businesses with the intention of failing, nor do we run pension funds that way. We adopt best estimate positions based on the known data and on the assumption that the sky is not going to fall on our heads!

In those rare occasions when trustees would rather buy-out the pension liabilities through an insurance contract, a strategy should be set to make that possible, but there is no invisible law that says this is what trustees should do.


The conversation continues…

I am sure that the readers of this blog, like the readers of Corporate Adviser, will be looking to continue the conversation, despite John Ralfe (and Big Brother’s ) best efforts!


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 Narrowing the range of thought…

  1. Con Keating says:

    John Ralfe is right; we did have a debate on market consistent accounting in the early part of the last decade. In fact, it started in the latter part of the decade prior to that. Market consistency was, at that point in time, hegemonic; this arose in some small part because the theory had functioned performatively in a limited number of financial market applications, notably options. In large part, it was promoted because it was an important mechanism for the dissemination of the neo-liberal agenda. Market consistency in pension application was supported solely by this theory. The difference between then and now is simple: EVIDENCE. There was, and could be none, to inform the debate at that point in time. There is now an overwhelming body of evidence that the theory is not just wrong, but positively dangerous. The theory is completely and utterly discredited; particularly so when used normatively, as is the case with DB pensions.
    To quote Keynes, or perhaps just Samuelson: “When the facts change, I change my mind. What do you do, sir?

  2. henry tapper says:

    I change my mind!

  3. Bob Compton says:

    Well said, both Henry and Con. I am delighted to see there are at least two individuals prepared to expand their conscious thinking, rather than those who only see what they believe everyone else believes (the current dogma) to be unquestionable fact.

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