A darkling shot of Westminster from the heart of the City
Are we rid of the curse of RBS and its peers?
We have been celebrating the sale of our final shares in RBS (not NatWest). We have been paying the price (in this case £10bn) but more widely, the opportunity to invest in our future. We have swapped investment in our future for a “make do” philosophy where we get by on what we’ve got. We swapped a great world for our kids for austerity for us all.
Austerity for pensions
I didn’t enjoy reading Tej Parikh’s article: “Britain doesn’t have a productivity puzzle”. I read it and fumed over it on Sunday afternoon. I’d been sent it by Hymans Calum Wilson. This morning I’ve been reading comment from my friend John Hamilton. Their view is expressed on page 14-15 of Hymans “pensions untapped” paper.
We are sorry for the 20 years of pension austerity that has turned our pension system from what Field called an “economic miracle” to the bankrupt of 2022.
Pensions became an owner of gilts bought with capital leant by the same banks as forced austerity upon us in the financial crisis. Instead of looking to the future we tried to insure against the past.
My anger was that I could not enjoy my partner singing for the Windsor Ukulele band at a local pub.
Pensions – in love with managing debt not investing for the future
This is what Tej wrote in his analysis of Britain’s 21st century productivity relapse
“UK workers have to make do with a third less capital per hour than their counterparts in higher-productivity peer countries,” says Tera Allas, senior adviser to McKinsey. “This has accumulated from decades of under-investment in equipment, research and development, training and infrastructure, by both the public and private sector.”
While our peer nations have invested in systems that allow commuters to travel to work, we have not. While they invest in power, we pay higher electricity than everyone else, the list of UK deficiencies is so obvious that he wonders why we consider it a “puzzle”. We have stopped investing in the future, the Torsten Bell theme, what this blog has been trying to say (that not so eloquently as Bell).
That’s why Bell lost his temper at the PLSA in Edinburgh and why we are angry. We shouldn’t need mandating to help us sort out what went wrong with productivity, I disagree with friends who don’t want Government intervention . I think we do – because the inertia in pensions is mature and will reassert itself without the gun to the head that Reeves and Bell are pointing. Tej Parikh , in his article, has this to say.
How Capital is allocated also matters. In Britain, pension funds have been shifting money away from UK equities towards bonds for over two decades. This shift has not occurred in other major pension markets. This, alongside broader challenges in finding venture capital, has long sapped domestic companies’ ability to scale.
Tej is right, we are right, Bell and Reeves are right, pensions- as the allocator of capital- has failed. This failure is still being gloried by insurers and consultants and given space in the Times and a range of pensions suckered by a group purporting to be the pension industry (read about it here).
We do not need to rehearse failure, we need to move on Here is Calum Wilson in an email on reading Tej’s article
It was interesting to see the connection to pensions and their reduced allocation to enterprise investments (my area of work). Having read the current Pension Minister’s book on our need to become a nation of investors, I imagine your diagnosis would resonate and recent DB reforms announced last week create the potential for material (£400bn) evolutionary re-investment in productive finance, as we outline on pages 14 and 15 of our paper .. untapped-potential-of-pensions.pdf
This is what a sane and level headed pension industry would do. Here is a comment from another correspondent who differs from me about the gun to the head.
In a well operating free market, capital will seek out and support the opportunities – and in that I have faith in the ingenuity/creativity/need/greed/benevolence and commercial enterprise of people.
But, as is pointed out in the (Times) article, the UK somewhat uniquely has guided its pension scheme to dis-invest over the last 20 years. As once said, it we continue to set our (investment) hopes and aspirations so low, we might make them, just…
It was all just too convenient for all the vested interests – the Insurers lobbying on policy, the TPR seeking political cover against any sniff of a pension scheme in trouble, and the Gov’t flogging Gilts to the coerced Schemes hoovering them up like junkies accepting anything passed to them by the DMO.
Market interference always ends in trouble, and the concerns now with the coming compulsion is that this Gov’t (and the civil servants who allowed this mess to be created), not willing to have an open discussion about what went wrong, choosing the route of trying to fix the earlier dose of market interference with another, a similarly reactionary response rather than something based on market fundamentals.
Eventually we’ll get back to investing on fundamentals, hopefully with a phased transition and re-investment, something along the lines of the Hymans March paper!
I have more faith in Government and in civil servants not to stymie investment on fundamentals.
I hope that the nation does not blow its savings on another financial crisis as in 2008-9 or as our pension system did in the years leading to the crisis in 2022. I hope that we do not live for ever in austerity but take a view on the future which is positive and investable.
That means helping DB schemes to run on, invest in growth assets and help DC schemes to convert to CDC or transfer to shared ambition pension schemes (as Nest wants to be).
We will not get back the DB system of the last century but we will get a 21st century pension system that provides pensions for many more people and a source of capital for business that helps productivity return. I hope we will not be puzzling over a moribund economy or glorying over release from owning NatWest. I hope we will be proud of Britain and its pension system in 20 years time.