The river of gold: part 3, how else might the river be dammed?  Guest blog from

In my first two posts (here and here), I have written about the fantastic way in which defined benefit pension schemes have moved from yawning deficits to combined surpluses, and the government’s tentative attempts to channel this new-found river of gold.

Given the current opinion polls, attention is focusing on Labour’s plans. Labour too are reviewing how the UK pension system works and Rachel Reeves has said that her aim is  to ensure “it delivers full potential for British savers and UK plc”. That doesn’t really tell us very much. Such as we have been told about Labour’s pension plans relates to defined contribution schemes. But they aren’t where the biggest numbers are – not yet anyway.

A lot will depend how much appetite Labour has for controversy. If they are desperate enough for the funds, there’s one big move they could make on pension funds. They could nationalise them.

Unthinkable, you think? It’s already been thunk, and done, in Poland and Hungary in the last decade or so. Countries as diverse as Ireland, France and Portugal have taken some private pensions onto the public books.

Imagine if the government were to take on the assets and liabilities of all closed defined benefit pension schemes. The members would have the benefit of a government guarantee. Their sponsoring employers would no longer have the contingent liability. And the government would have a stonking great collective surplus.

Now, the observant will note that the funding surplus figures given in my first post are on the PPF basis rather than a buy-out basis. Set against that, the government’s covenant is such that it can adopt much less cautious approaches to valuing pension liabilities (and it does so already for its existing unfunded liabilities) and the investment strategies that it can follow appropriately can reflect that too. The government should still be doing well out of such a deal.

So at a stroke, the government would have its own state fund. It could if it so wished cancel some of the gilts that it held in that state fund (no point in owing money to itself): instead of the problem of government costs going up because of a reduced need for gilts, the government would benefit from the ability to liquidate a lot of them. And its new state fund could carry out all the productive investment that it saw fit.

Of course, such a policy would be incredibly controversial. A lot of members of pension schemes might be very nervous about being forcibly transferred into the government’s embrace. Employers of well-funded schemes would regard this as expropriation of assets – the separation of pension scheme trusts and company assets would be skated over by those making this argument. They might seek to challenge a nationalisation on human rights grounds. Ultimately, however, even if the government lost such a case, and the precedents of Hungary and Poland are very helpful, ultimately it could simply ignore a finding that it was in breach of human rights law.

Never mind the controversy, the practicalities would be immense. There would be a lot of defined benefit schemes to take on, a lot of administration to sort out, a lot of problems to come out of the woodwork.

Is it a good idea? I leave others to judge. Is it an idea that might appeal to an incoming government at a time when public finances are under unprecedented strain? I think it might be.