I am outside my area of expertise but am conversing with people who are older and more experienced than me. I am going to look today at pensions as investments in our future rather than a tax on our lifestyle. Let me start with a comment from Pension Oldie commenting on the chart

Pension Oldie remarks (my bold)

I take two messages from the statistics:

1. Employers DC contributions cannot be varied once they have been set in employment contracts, whereas contributions into a DB scheme even where benefits are still accruing can vary (and even go down!) based on the long term investment performance of the Scheme.

2. In the period covered by the review, a substantial proportion of the total contributions into DB schemes were deficit recovery contributions. The statistics probably reflect a substantial fall in deficit recovery contributions. This flows from the overstatement of deficit recovery contributions required by Technical Provisions valuations based on historically low and indeed negative gilt yields overstating liability values and which have sucked hundreds of £Billions in unnecessary funds out of employers.

It is regrettable that Members have not benefited from those contributions – the beneficiaries being the insurance companies and the advisors involved in the “risk transfer” industry. Further the employer funding a DB scheme had previously paid substantial premiums to insure by way of Pension Protection fund premiums.

This is likely to be why employers may well view pension contributions aa a tax and not as an employee benefit.

It is notable that we have seen many stories over the past 20 years of trustees, backed by regulators, demanding pension contributions to the point that employers have been unable to enact growth plans, from the Government’s point of view, pensions have become part of Britain’s malaise of stagnation, pensions have been a tax that has stunted growth.

Let’s turn to Derek Scott who comments on Chris Giles historic (2020) blog on the need to de-link our valuations from a measure of “gilts plus”. Derek explores a better way to express the expected rate of return on assets and the discount for liabilities. I know of pension schemes and advisers who use less brutal measures than the mark to market approach of gilt yields which give rise to huge shifts in valuations when gilt yields jump up and down (see October 2022 as a classic example), Here’s Derek..

For those who don’t do LinkedIn, Chris Giles posted this there earlier this week:

“We need to move from ‘gilt yield’ plus to ‘inflation rate’ plus as the expected rate of return on assets and the discount rate for liabilities.

“The prospective rate of inflation can be derived from the ratio of the (fixed rate) gilt yield (A) to the lndex-Linked Gilt real yield (B) or in approximate terms ‘A-B’.

“The gilt market turmoil over the last 4 years has seen A rise from 1% in 2021 to 5% in 2025 and B rise from minus 2% to plus 2%. So, A-B has remained constant at 3%. Oh for stability!

“The clear advantage of this approach is that it doesn’t require the regulator to ditch gilt yields just modify their measurement.”

My footnote comment, which was also on LinkedIn but which seems to have disappeared from there as these things sometimes do, was as follows:

“RPI has averaged 7.2% over the last 3 years, 6.2% over 5 years and 4.4% over 10, while equivalent CPI has been 5.5, 4.6 and 3.2 rather than a constant 3.

“I suggest you need to vary the ‘plus’ margin over gilts or inflation, a higher margin when markets are relatively lower and a lower margin when markets are relatively higher?”

Here is Derek’s criticism. We cannot create a method to project forward or discount back using market dates such as RPI, CPI and Gilt Yields without ever more artificial means to keep the rate constant.

My guess is that where these fine minds are getting to is that we must move away from complexity and more towards a simple and constant future which ignores market vagaries.

This takes us to Pension Oldie’s point. Employers who are yoked to a projection and discount rate impacted by artificial depressions or explosions (in inflation, in gilt yields) will see pensions as a yoke that stops them growing, savers will see the cost of pensions (or annuities as they are confined to) as unpredictable and the alternative (drawdown) equally unmanageable.

Here the conception of pensions many decades before “mark to market” valuations took over, makes sense. So long as there is collective saving and collective payment of pensions over long periods of time, it is possible to see what Chris Giles wants “stability“.

A mouse amongst cats

I do not have the knowledge or the IQ of Chris, Oldie or Derek but I see a common theme. It is that we should be grasping long term growth as what pensions live off. If we turn pension management into “risk reduction” then we succumb to the short term vagaries of market crashes which we see regularly but seem to come out the other side the better.

We did not get scuppered by 1987, 2000, 2008 or 2022, years that stick in my mind as years of dramatic bad news. We will survive the market turbulence we are going through now and the investment growth that supports pensions is what makes them a long-term solution to our short term problems with what we do with our money (corporate or retail)

I am a mouse in a roomful of cats and I expect a cat to ruff me up for getting some of this wrong, please comment and help me further, I want to understand how we can recreate a system where we are proud of pensions and do not regard them as a tax on our profits!

Pensions should be the way we keep long term growth delivering healthy retirement and a strong economy in Britain.