Blair’s proposals for pensions may not be taken seriously, but they will have an impact.


The UK’s pension-savings system is broken and long overdue for sweeping change.

Over the past 20 years, this country has seen the abandonment of investment in the domestic economy by United Kingdom pension funds, with the almost total liquidation of their holdings in listed UK equities built up over generations. This has depressed UK companies’ valuations, constrained business investment and limited the supply of growth capital to improve productivity and fund innovation.

So begins the Tony Blair Institute’s report Investing in the future, boosting savings and prosperity for the UK

It is extraordinary how this report , published May 26th is repeating the remarks of Jeremy Clarke and Andrew Griffiths of the Treasury, the shadow chancellor, Rachel Reeves, the Mayor of the City of London and the CEOs of L&G, Phoenix and Schroders and the CEO of the Pensions Regulator.

All are calling for fewer pension schemes investing for growth, in the UK  and in a radically different way to what is happening today.

The only dissenting voice comes from those incumbent in the current  pension-savings system. The PLSA did not recognise the TBI’s characterisation of the pension system  telling the FT the paper had “some extremely radical but also extremely impractical” ways to encourage pension funds and life insurers to invest in the UK.

“There are much simpler and quicker solutions,”

said Nigel Peaple, director of policy and advocacy with the PLSA.

“The government and pensions industry are already working intensively together on these issues and, provided they always put the interests of savers first, they should result in better outcomes for everyone.”

The proposals

Like Nicholas Lyons, TBI’s proposal involve the creation of multi-billion pound superfunds that would pool the investments of DB  and DC plans, using at first  the PPF and then a number of replica superfunds so that the entire pension system (including currently unfunded pensions) would be funded in the same way

The initial fund would grow to £400bn and would sit within the PPF which would grow as a consolidator, along the lines currently under consideration by the Treasury. DB funds could volunteer to participate in the PPF and the PPF would offer members equivalent benefits

Those DB funds that remained open would be encouraged to invest for growth (rather than buy-out with an insurer) . The PPF model would then be replicated and rolled out throughout the UK in a series of regional, return-generating, not-for-profit entities that would progressively absorb the UK’s 27,000 defined-contribution funds, the Local Government Pension Schemes, the remaining DB funds and, potentially, public-sector pension schemes, which in most cases are not funded.

Extremely radical and extremely impractical?

The current pension system supports a huge number of people whose livelihood depends on schemes remaining unconsolidated and independent of each other. Not only would these proposals collapse the purpose of the PLSA but they’d render redundant most pension consultants, lawyers, actuaries, administrators, covenant advisers et al. Rather than a thousand flowers blooming , there would be up to ten sovereign wealth funds managing liabilities and savings on a scale that would only be rivalled by the largest US funds (Calpers et al).

You can think of a thousand reasons not to adopt such proposals, but if they set the boundaries of the possible, then the more modest proposals of the DWP, TPR and the Treasury seem more realistic.

Tony Blair employed Frank Field to think the unthinkable in his first administration. I wonder what Frank feels about these proposals, if he is still well enough to read them.

I suspect that had Frank put these forward before the calamity outlined in TBI’s excellent report, we might have very different capital markets in the UK , to the much diminished markets we have today.

But equally, we should remember that the seeds for the demise of DB plans, what Field described as Britain’s great economic miracle, were sewn in the years when Blair’s power was at its height. The report sees the problem as originating in the accounting reforms that came in 2004 and that the capitulation of DB schemes to “de-risking “followed.

The report does not mince its words – on the management of LDI it has this to say

That consultants could design and trustees could approve an investment strategy that was intended to generate a fall in the value of a pension fund’s assets is beyond comprehension.

Only in the context of a marked to market approach to liability valuations and the tyranny of the discount rate, can LDI become comprehensible.

The motivation for maintaining the status quo is clearly laid out

The current system has therefore in effect served no one’s interest except the pension consultants, who assisted funds and their sponsors to adapt to the changed rules, and the life-insurance companies, who are now benefiting from relieving UK companies of the accounting-driven burden, though they did not design the system.

The impact of this report will be to strengthen the resolve of the Treasury to drive through change, through DWP and TPR. It will weaken the lobbying platform of the PLSA and the consultants and it will cause trustees and employers to think carefully before expediting their plans for buy-out.

The solution proposed is beyond the power of any Government to push through, it would require the equivalent of a financial revolution where the oligarchs were deposed through a coup. This is more likely to happen under a Labour than Conservative Government, but considering the alignment of all sides of Government behind some version of these proposals, the PLSA and the funds industry , should be taking this report more seriously.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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12 Responses to Blair’s proposals for pensions may not be taken seriously, but they will have an impact.

  1. jnamdoc says:

    Copying my comments from your earlier blog:

    Looking forward to the (PLSA) conference, and seeing you in person.

    I keep on with this Henry because investment (in people, education, ideas and products) is the most important thing for all our futures.

    TPR have quashed any challenge and debate in pension funding and policy. Indeed we currently have no coherent integrated pension policy, not least a policy that recognises the relationship between the overall economy, and the timebomb being created by demographic pensions’ apartheid – the young will just not accept the level of taxation we’re layering on them (through future gilt servicing) to pay our pensions. And for we baby-boomers and Gen-X types living off the hope that we can get enough years out of it to enjoy the active early years of retirement before it blows up, is not really passable as a ‘policy’.

    PLSA has often seemed like a facilitator of ‘Policy’, or peddled what the industry has to sell, and often getting sided-tracked on the next consultant dreamed up job creation scheme (and we all know what these are). Let’s hope it takes this opportunity now to champion better pensions for all, through collective and shared investment journeys.

  2. Allan Martin says:

    The word “balance” needs to be added to this debate. Investment is about risk and return. (Aside; Risk will receive even greater scrutiny from or via the FCA with the increased emphasis in actuarial reporting from 1st July.)

    Many years ago I suggested solving the mortgage and housing crisis by extra borrowing. The spreadsheet fun involves tripling the normal house purchase borrowing, investing 2/3rds in equities and assuming an extra return of 3% pa equity return – lower month payments or shorter repayment periods emerge, take your choice. Finding lenders to balance those risks and returns may be an issue. And regulation?

    Such heroic and unsustainable assumptions have unfortunately also applied to £2tn+ of deferred pay awards and liabilities via our unfunded public sector pension schemes. These index linked DB debts have assumed GDP growth of ~CPI+3% pa. The key element, crystallised risk, is the underwriting by future tax payers!

    • byronmckeeby says:

      Your leveraged investment of mortgaged assets into growth assets makes your idea of MDI sound a bit like leveraged LDI.

      Were you a fan of LDI too?

    • jnamdoc says:

      LOL. I can see and accept in my blog own responses I struggle not to return to my recurring theme about the need for investment and growth (or ‘risk’ in actuarial terms). I get a sense you’re own tune is over unfunded public sector pensions. The connection between us is that by “de-risking” (a misnomer in my worldview) the private sector DB schemes, swapping real world assets for UK Gilts, we have effectively passed the cost to pay the pensions over to Govt and future taxpayers. So, we end up with a totally unfunded DB universe. Just nuts.

  3. John Mather says:

    Who would invest when management, like our politicians , are only interested in get rich plans and debt funded share buy backs Fundamentally flawed exonomics Not just my opinion but collective pensions are remote from beneficiaries. They follow a discredited model

    • jnamdoc says:

      Are you advocating the status quo?
      Fix the model, align the incentives with the outcomes you want.

  4. DaveC says:

    Many investors use global trackers these days don’t they?

    In many SIPP for example, inc my own, I own a broad range based on global market cap, or global bond mixes, etc.
    Same for S&S ISAs etc.
    If we say 5% of global investments are already directed to the UK, then we’re doing pretty well aren’t we?

    Biasing investment to domestic beyond the global weighting the UK already attracts might apparently pay dividends in amounts invested in the UK by UK investors, but what if other countries also take this approach?

    What you gain on one hand you lose on the other, and just increase risks due to lower diversification?

    We need to make the UK attractive to investors.

    For now 5% in global exposure would be sufficient for my tastes.
    The reaction to Truss’ budget tells anyone who wants to invest in their own country what the position is.
    If the wealthy don’t want to invest in this country, why would I?

    • byronmckeeby says:

      Be careful with using market cap weightings. UK equities have fallen to no more than 4% of global markets, but underlying UK business and investment in that 4% is a lot lower.

      About 80% of the revenues of FTSE 100 companies come from overseas, while even within the FTSE 250 the overseas element is more than 50%.

    • jnamdoc says:

      I’m not advocating biasing investing. Rather, I’m strongly against a regime that specifically hinders and works against investment, and we need to re-balance that.

      Truss was the wrong person in the wrong place at the wrong time.

      The concentration of gilt investing (with leverage!) created the bubble that was always going to burst.

      Coincidentally, as we speak the 20yr gilt rate (4.65%) is the same rate it was when Kwasi Kwarteng resigned. Why no drama? Is it because we have a banker in No10?

  5. Peter Wilson says:

    I don’t understand why encouraging pensions to invest “provided they always put the interests of savers first” would lead to that investment going to UK companies? Surely they’d de-risk by investing globally, much like many people use global trackers. There’s no way I’d feel happy with a large percentage of my savings tied to the UK economy (even given the previous comment about FTSE 100/250 companies making much of their profits from overseas operations). I’d have thought from an economic point of view, investing overseas in countries with a younger demographic is much to be preferred as the profits are then generated by those populations are then repatriated to the UK reducing the load on our own descendants.

  6. emigreeu says:

    Basic models have not changed for 30 years It is time to bring ideas up to date and determine what is holding the performance below the rate of inflation You might attend this on line presentation from a respected manager

    • byronmckeeby says:

      That Andrew Smithers link doesn’t seem to work, John. Are you able to re-send it in another format, please?

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