Rant from Jnamdoc.

There is nothing like a Jnamdoc rant and this blog got one on Wednesday with this great comment on “what are Labour going to do about Pensions?”. It is worth a blog of its own, I don’t know who you are fella, but keep these comments coming!

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BREAKING NEWS
UK govt figures confirm DB pension for millions of workers is affordable after all:
– In figures it issued on March 2024, TPR says DB Schemes are significantly over-funded with excess surpluses of £225bn on a cautious basis requiring no reliance on employers (what TPR defines as “self sufficiency basis” of gilts +0.5%) Others refer to it as recklessly prudent )

– This excess funding rises to c£450bn when measured using the prudent person regulation required of insurers.
– Across the Local Govt schemes they’d estimate they’re in surplus in the region of £150bn- £250bn.

LGPS funds sensibly avoided the Oct 2022 LDI debacle and losses and consequently are now excessively over funded by their own estimates.

Despite 20 years of Regulatory pressures to disinvest, the collective DB funding model has proven to be remarkably resilient and clearly suggests collective pensions for millions of workers are actually very affordable.

How did we get here?

The 2004 Pension Act was a political reaction to an obsession about the political risk or contamination from pension scheme failure – in turn this spawned a regulatory reaction to kill the babies at birth for fear of what embarrassment some might cause ( in terms of political fallout).   I tend to think of the 2004 Act as a small strand of Japanese knotweed planted for political ground cover – seemingly innocuous, but capable ultimately of causing great havoc when, as we’ve done for 20 years, left unattended.

Actuaries are wonderfully bright and goal orientated and the Actuarial profession picked up the political brief with glee, finding every risk and caution possible to justify the mass closure of schemes.

However, what the numbers show is actually that collective DB schemes, as well as fulfilling a moral imperative (that we happily fund for MPs and govt workers), are actually affordable after all.

Now …. what is needed is a complete volte-face in the political vision – rather than seeking cover from the potential political fallout from a scheme failure (now dealt with by the PPF).

The politicians should reframe the brief to the clever actuaries – being to provide a modest cost of living AgeWage in retirement for a life in employment.  If we give them the right brief, then (as they did in the half century prior to the Gordon Brown inspired 2004 Act) they’ll find the way.

Oh, and don’t seek advice from the investment managers and insurers – the industry is overloaded with those obsessed with flows and AUM and is very happy with a model that rewards for scale and leaves all of the risk with the man / woman in the street to pick up in their dotage.

Rather, set the vision, which will form into objectives, and then align investor reward with the outcomes – i.e. who can deliver the best pension.

The prize is enormous – a self funding pension system that invests in and turbo charges a chain reaction in economic growth, providing wealth and jobs, and a decent private sector funded pension for the normal working person in retirement.

Oh – and as now evidenced by the numbers, it’s wholly affordable and within our reach.

Any political party that can grasp the nettle, and reset the direction away from 20 years of political self interest, and instead offers a reset for a fairer collective endeavour will, I think, have a much easier job knocking on doors in the search for votes over the summer.

And once elected, they’ll have also the wonderful responsibility of deciding what to do with the now embedded half a trillion £ surpluses as we face the fourth Industrial Revolution.

75% of people express a preference for an income automatically paid to them when they retire