A comment on a recent blog on the exclusion of people from insurer’s reckoning for growth. The argument that I take up from others is that it they run away from people, life insurers can only rely on cashflow. Pensions Oldie replies. He feels that the deals done to buy UK life insurers will not prove profitable over time

I think the real problem will be cashflow.

The bulk annuity market is drying up with average deal sizes shrinking and it does have a finite limit in any event, irrespective of whether employers can continue to be persuaded that run on is not in their interests.

The residual personal annuity market is being challenged by the requirement for DC mastertrusts to offer decumulation products.

The excess cash flow generated by Solvency UK investments over gilt yield based policy prices has been eroded.

The real question is will be owners be prepared to meet increased capital requirements?

In some respects private equity helps in the short term as distributions can be cut, but how will the target exit prices be achieved and will manager valuations be believed?

I think this question is not being properly addressed. Nor do I think the PRA has properly pronounced on the risks to British pensioners if private equity withdraws from our life insurers. What is the alternative in terms of ownership? Is there a price  acceptable to the  private equity firms that makes the market for our life insurers liquid?

Put another way, are our lives being insured against us living too long on a basis that cannot be sustained. What is the alternative?

The bulk annuities cannot be repurchased by pension funds, the money has transferred into a sump.

My simple brain continues to ask whether we are thinking through the future of a trillion pounds worth of pension liabilities as lines upon the balance sheet when those numbers represent the futures of people who have been promised pensions to the end.

We cannot commoditise people’s futures, there must be a voice that stands not just for pensioners but for the financing of Britain that has depended on the investment of their pension funds. I had thought this was the NAPF but it retreated to the Pension and Lifetime Savings Association and now a further stage from Pension Funds, it’s called Pensions UK.

The Pension Fund, held by trustees, invested mainly in the UK and created by workers and their employers can be replicated. But it cannot insure people’s future benefits any more than the state pension can. The amount of pension paid is dependent on the capacity to meet the cost – the cashflows. We will continue to meet promises of increases to the state pension by the triple lock so long as this is seen as affordable. Pensions under CDC will be paid (whether as core pensions or as conditional indexation to DB benefits) as what we can afford.

As Pensions Oldie points out, we pay in pensions what we can afford to pay. Without our pension funds, the private sector is relying on financial services it does not understand. There will come a time when we will want our visible pension funds back again and if they’re gone- they’re gone.