That friend to financial economics and foe to open pension schemes, John Ralfe, is delivering a public lecture on CDC on February 23rd.
Register here for my @ImperialBiz on-line lecture. https://t.co/d23ex5RlH9
What does CDC “inter-generational risk sharing” really mean? How does a “Fair” collective pension, behind the “veil of ignorance” work? Is CDC – especially Royal Mail’s version – just “fools’ gold”? pic.twitter.com/wUqESdV5D5
— John Ralfe (@JohnRalfe1) January 27, 2021
I will be attending as will be most of the Friends of CDC for whom John’s ongoing campaign against collectivism has been a source of inspiration and cohesion. There aren’t many things that we can all agree on, but our view of John is one of them!
Putting aside the personal abuse many of us have received from John, we have learned to enjoy John’s terse tweets, brilliantly parodied by @ralfebot
Indeed , John has already been warming up for the 23rd with some long range sparring
“We have a winner!”
— John Ralfe (@JohnRalfe1) January 30, 2021
I’ll leave you to dive into the context of this cryptic comment but it doesn’t contain the word or action “like”!
Winning each battle and losing the war?
What is interesting about John’s arguments is that they are made within the bubble of “financial economics” , a science that has no truck with what Mark Carney calls “social economics”. Because the bubble is exclusive, it allows no counter arguments based on social purpose or even the needs of everyday people. All of these arguments can be and are dismissed as waffle.
In sparring terms, John is in the ring with opponents whose arms he’s tied behind their backs and unsurprisingly, he wins every session. However, he is not getting the title fights he thinks he deserves. The title fights have been fought in the house of commons and the house of lords where CDC has been debated throughout 2020 , the result of which is that CDC is about to be given royal assent. Despite his campaign to undermine Royal Mail’s “collective pension plan,” this first CDC scheme has been used in shaping the secondary regulations that will follow Assent.
John has won all the sparring but has never entered the ring when it counts.
So what can we expect on the 23rd February?
It is hard to know what else John can throw at CDC , that he has not already thrown. But we await some magic beans that will cause those who see CDC as the future for those who want a wage for life to think again.
We can expect a fair few questions from the floor, and quite a lot of vigorous support from others who subscribe to John’s way of thinking.
We can accept a very articulate and forceful speech from John, who is at his pedagogic best when given the floor.
And we can accept a flood of comment on social media, which is a place much beloved of John and his followers (and me).
Will anything change?
I think the chances of John’s position on CDC changing , slim to non-existent. We might expect some new analytics based on the certainties provided by financial economic theory, but I don’t think we will be hearing anything we haven’t heard before.
Certainly nothing we are hearing from him on twitter hasn’t been tweeted (by him) before.
1 Comparing #CDC with DB or an annuity, which are guaranteed – & guarantees are expensive – is a false comparison. The proper comparison is CDC v DC with drawdown, neither of which are guaranteed. 1/2
— John Ralfe (@JohnRalfe1) January 31, 2021
2 For any given level of equity allocation, the risks & returns for a member in a UK #CDC scheme are identical to the risks & returns in DC with drawdown. See my @ImperialBiz lecture. Posted Tweet. 2/2
— John Ralfe (@JohnRalfe1) January 31, 2021
Once again, the argument is couched entirely in terms of financial economics, completely ignoring the capacity of CDC to solve one of the nastiest hardest problems in finance, how to turn that pension pot into a wage for life.
But one thing will have changed and changed for the better;- this time John will be arguing the case of a loser, looking to mitigate further damage to the UK pension system from the reintroduction of open pension schemes.
My suspicion is that the lecture will do a great deal of good, demonstrating to those attending that CDC is a way to pay a wage for life to those saving in DC pensions by adopting a collective approach. I also expect the lecture will expose TPR’s proposed DB funding code for what it is – the bastard love child of financial economists and the funds industry, pandered by investment consultants.
Open pension schemes have no better advocate than John Ralfe who – should he continue to deliver such lectures – may well be made an honorary friend of CDC.
The recrudescent Ralfe has not been sparring with anyone – shadow-boxing would be a better description. This is interesting for an academic venue – it would be usual for such a presentation to have a formal discussant but I see no mention of that here.
Henry, the only thing that surprises me is that you constantly refer to John Ralfe as a servant of ‘financial economics’. I’d be interested to know which branch of theory this refers to. Because when I consider financial economics, I instantly think of the likes of Bill Sharpe, the Capital Asset Pricing Model, the efficient frontier, the equity risk premium, etc etc. These models strongly support the notion that equities and other higher risk assets will outperform bonds and cash over time, and therefore are a natural fit for vehicles with long investment horizons – like most pension funds. In other words, they firmly contradict the John Ralfe approach, not support it. In my own modest way, I’ve been posting on this very subject over LInkedIn these last two weeks.
The formulation “nastiest, hardest problem in finance” is Bill Sharpe’s, IMO, Bill knew the limitations of measuring everything by its risk.