I have a new commentator on my blog but he tells a familiar story. It’s a Michael Burry Story
Big-Short 2 – the sequel. Never have so many been put in debt by so few.
We will I’m sure (and in just a few years time) look back on this period and see it for the greatest slight of hand in the history of financial economics, and delivering the last nail in the coffin in what in Sir John Kay identified as the “biggest avoidable policy disaster in British politics”. And truly, it is.
The problem is not that the ABI is powerful (it is, and it is only doing its job to promote the profits of its members – the large insurers), but rather its that the DWP (full of well intended civil servants) lacked meaningful ministerial direction for the first 25 years of this century that is the problem (17 office holders since 2000, noting also the down-grading of the role by Teressa May in 2016 – what timing!). Civil servants, by nature, fear failure more than they’d rejoice in opportunity, and the insurers cleverly created a whole lexicon around that fear, promising to eliminate the bogeyman of “risk” and doing so by banishing those wild horses of Investment and Opportunity.
But hope, perhaps at last we have a Minister who fully grasps the issues? It’s also becoming clearer that the TPR gets it too – i.e. who’s looking out for what’s in all of this for the members – those working people who’s accumulated toil and contributions created the £1trn of DB schemes.
Its truly bizarre – indeed it feels like we’re re-enacting a UK version of the Big Short – as £50bn p.a. of members’ pension savings, accumulated over 40 years, is gleefully handed over bag-fulls to a small handful of mega-insurers, increasingly foreign owned and protected (we do hope) under the blazing Bermuda sun, while mysteriously (under our noses) stripping the UK economy of its growth capital.
The informed understand that each tranche of £50bn (of accumulated members’ interest) is expected to deliver c£10bn (low risk) profit to insurers over the life of the ‘contract’, and it seems without a jot of a concern for improving the lot of the poor members!?
And to be clear, all but a morsel of that capital at play essentially comes from the ceding schemes – e.g. L&G’s half year accounts the other week show clearly the paucity (c1%) of ‘capital’ that the insurers actually bring to the table (to be fair to L&G at least we can see that as one of the few insurers that still publishes accounts as Plcs).
While we scurry around looking to others – be it Australia, or now Canada – for a guiding way forward, remember the UK entered the 2000s rightly admired as having one of the best systems in the world! It was a 12 million member mass “mutualisation” arrangement, and it was as close as any nation got to a wide stakeholder community – underpinned by employers, the 12 million members pensions saving were invested in the economy, and it was they who shared in the profits and gains through their secure pensions.
Employer’s and members created these schemes – surely we must find a better way, one where we can allow the members to continue to share in the expected upsides (and downsides) – that’s the concept of mutualisation. Each £10bn profit being shovelled to insurers would provide an awful lot of inflation protection and much needed pension uplifts for those that actually created the value in the first place.
From the mood music on Pension Schemes Bill 2025, I think members can expect more from their Pension Minister and regulators, and I hope they can find the will to make it happen, and before its too late…
