There can be few things better than travelling the Flying Scotsman, reading some of the comments commending TPR is like reading the Flying Britain!
Well done Jnamdoc , whoever you may be. We need your passion and style to match the Flying Scotsman. You will notice the sparkler – no longer on the table for the Pension Plowman – let’s get down to some serious work!
JNAMDOC speaks out
We must fully applaud the TPR for getting onto the growth agenda.
After 20 years of a mis-guided anti-growth strategy, hopefully there is time to rescue our economy by turning our pension scheme assets towards the new national economic strategy of GROWTH.
Our second pillar pensions (ie the private bit of pensions intended to actually reduce the stress on the State finances) is now 50% “funded” by UK Govt Gilts as a result of a disastrously myopic cult of de-risking (ie so it is funded in the same way as NHS Pensions are funded – its not!).
Official OBR forecast show Debt to GDP moving to 300% over the next two/three parliaments (and that’s a central case, ie no prolonged war in Europe, no tariffs, and a modest uptick in GDP – LOL, but not really )). So the notion that those pensions loaded with gilts are going to come through this unscathed is as they say “for the birds”.
And packaging them off en masse at £50bn per annum to a specifically designed low risk (ie low investment, low growth) constructed insurer environment, is not going to cut the mustard. Surely everyone understands the folly of transitioning c£500bn of economic firepower in that way? Good for bonuses and statist mindset, but its currently designed not for growth – certainly not at the levels we need it.
The TPR has hit all the right straplines – so let’s continue the discussion and get behind that; there will be many teething problems – their tendency for only-big-state solutions will inhibit innovation and growth, but hopefully they will learn (or be allowed) to trust well structured schemes and employers to lead on investment – its what they do.
DB surpluses need to be re-cycled to growth, and, we also need to revisit and break away from the TPR comfort blanket of low-dependency (ie the super cautious G+0.5% investment approach). There is no actual science to that as the ‘right’ number, other than it feels like a really high number. Indeed, for each of those £50bn p.a. transfers to the Insurers, the TRP low dependency approach needs some £5 – £10bn more than the insurers think they will need to pay the same pensions under even their cautious insurer regulatory regime. That’s £5 – £10bn that can be used to invest in our economy and services, driving the growth needed to pay for our public services, and if there is anything left, our pensions.
Growth!
The importance of leadership
Addendum; this comment is also important- on the same blog but from Linked in
I understand that John Hamilton has been speaking on these lines at Professional Pensions (Wednesday) and Hymans Robertson (Thursday last week 26 and 7)
Within the trainspotter community, the Flying Scotsman is known as the Flying Moneypit. Is there an attempt to make a subliminal connection between the two in relation to tPR?
PS its last refurbishment cost £4.2 million in order to get it up to mainline standard; we did the same with our engine for c£150k.
PPS I welcome tPR’s reverse ferret but suspect it just noise. Whatever the question, the answer is a combination of EDI, ESG, derisking and insurance.
The fundamental fallacy remains:
All the careful work by actuaries examining multiple past events designed to project the mortality profile of the actual and potential pensioners is undone by the unthinking application of a single historic measure of the most volatile investment return available to the pension scheme. It would be far more honest if the TPR defined the low dependency discount rate to be a fixed percentage, say 5%, assessed as being a prudent measure of the actual investment return achieved by pension schemes invested in accordance with their legal duties with regard to diversification over the past x years and with past market distortions removed (e.g. LDI, Quantitative Easing).
If a scheme is super-mature the investment return is after all the least significant risk measure. The most significant measure of the capacity to pay the benefits as they fall due is the absolute value of the capital assets of the Scheme so that the proportion of the assets required to be sold to pay the pensions during the year is minimised. This would suggest that surpluses should be retained in the scheme and preferably used to reduce the future employment costs of the employer adding further liabilities to the pooled fund.
May I ask what you understand by “super mature”, PO?
In one of their older annual
funding statements, TPR suggested the following grades of DB maturity in terms of duration:
very 22
I also think Con Keating has suggested the average (and I trust he means “mean”) for UK DB schemes is 12-14 years. As TPR’s “average” used to be 16-18 years I think that shows how old that annual summary funding I’m remembering must have been.
In super mature, I was thinking of a scheme where all the benefits relate to pensions in payment. The cash outflow in the following year is likely to be higher than in subsequent years and hence has greatest effect on the capacity to pay the benefits in subsequent years.
The following table was missing from above:
very Less than 12 years
mature 12-14
relatively 14-16
average 16-18
relatively 18-20
immature 20-22
very More than 22
Apologies.
“very 22” as WordPress has published my comments out of order, means “very immature”.