Pensions are the poorer for Putin and Truss

In this blog, I argue that any impression given by the pensions industry that the pensions we receive in retirement have benefited from the follies of Trussnomics and the misery of Russia’s aggression is the wrong impression. It is untrue to say that our pensions are more secure because interest rates are high, it is an affront to the principles we hold dear – through ESG – that global and local calamity are put forward as to pensioner’s benefit.

Russia’s invasion of Ukraine has done no good to anyone.

Let’s take a step back. Russia’s invasion of Ukraine pushed up commodity prices, resulting in deprivation around the world and increasing the cost of borrowing in the UK. UK pensioner may have seen the valuation of their liabilities decrease by 35% but they haven’t seen their pensions increase in line with inflation (unless in the public sector).

The suffering from war in Ukraine is not mitigated to any degree by the increased solvency of UK pensions because the long gilt rate increased by 3%. Let us not conflate accounting with human misery.

Trussnomics has led to misery for millions – including pensioners

Let’s take another step back. The moron premium we continue to pay because of Truss’ economic incompetence is in no way justified by its keeping gilt rates 1% higher than they should be and therefore keeping pension schemes in technical solvency. Her folly has made it harder to support the old, the sick and the vulnerable. It has meant less money for the NHS , less money for hardship payments and less money to build back Britain after the idiocies of the past 7 years.

Anyone who links the misery created by these two political events to a supposed improvement in pension funding ignores the cost to the global economy of the Ukrainian economy and the needless immolation of Britain’s economic credibility by a couple of crazies.

Pensions are the poorer for Putin and Truss.

The asset base of many British Pension schemes has been eroded by the real impact of war and economic error. The money lost in the firesales resulting from collateral calls will not come back – even if the hedges stick (and many are lost). More importantly , the resulting recession will depress the capacity of Britain and other countries to grow their economies generating the wealth that will provide the real returns needed to pay our pensions.

As for the impact on those without the luxury of a defined benefit workplace pension, the impact of the war in Ukraine has been to drive down world stock markets, weakening the capacity individuals have to purchase annuities or set drawdown at adequate levels. The rise in gilt rates has resulted in a fall of around 30% in gilt and bond funds that are supposed to provide security to those close to the end of their work life.  DC Workplace Pensions are typically 20% worse off than this time last year.

Even those who will this year enjoy the security of an inflation linked state pension have seen the tax-payer covenant for the triple-lock diminish as Government debt increases and tax-revenues falter. Recession is no-one’s friend but the pension accountant’s.

This headline brings shame on us if we attribute the events that drove yields up as a victory for pensions.

The final paragraph of the article to which the above is the headline reads

XPS Pensions Group actuary Tom Birkin said: “From February’s shock Russian invasion of Ukraine to the gilt market meltdown in October, 2022 has been a year of seismic market movements and the upshot for pension schemes is that most find themselves in a much healthier position than they were at the start of the year.”

Some things are best unsaid

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 Pensions are the poorer for Putin and Truss

  1. con keating says:

    At the beginning of 2022 sponsor employers were exposed to a requirement that the investment returns of the fund should be 1.22% (if gilts). They are now exposed to a requirement that returns need to be 4.05%. Can anyone really argue that their position has improved when their risk exposure has trebled in this way?

  2. Adrian Boulding says:

    At a fundamental level, a pension is a call on the output of the next generation, with that call backed up by the transfer of physical assets from pensioners to workers. When we look at the war in Ukraine, we see that sat behind the terrible family tragedy that every casualty involves, the next generation has also lost years of future output. And a look at the photos from Ukraine shows massive damage to physical assets. Globally pensioners are worse off and will continue to get worse off until a solution to the Ukraine conflict can be found.

  3. Allan Martin says:

    In defence of Liz Truss! (Indirectly a New Year’s Resolution.)

    I write to extend appreciation of the importance of GDP growth to UK DB pension promises and the sustainability of our way of life.

    £2,100bn of index linked UK DB pension promises have contributions, benefits and retirement ages calculated via a discount rate ranging from CPI+3.5% pa to CPI+2.4% pa (for pre 2015 and post 2018 accrual.respectively). They are the DB pensions for our vital public sector workers – NHS, Teachers etc.

    Achieving Liz’s 2.5% pa growth would have helped reduce the intergenerational transfer of taxation to your children and grandchildren (if they don’t emigrate).

    The equivalent private sector impact of a one year recession is roughly 6p on the basic rate of income tax for a year. The shortfall since 2008-09 has only been around 2p on income tax (every year). Arithmetically, H M Treasury risks comparison with running a Ponzi scheme.

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