The Old for the Young – or Pensions for the Future?

There is much publicity about the University Pensions strikes.

A solution has been suggested by Alexander Douglas Lecturer in Philosophy at the University of St. Andrews, who puts forward a government guarantee for the University Superannuation Service (USS). It sounds like self serving advocacy but he also suggests good reasons that this could be opposed including, naturally, the burden on the taxpayer.

In the current scenario he has a notional point, though, as he also suggests in the article, in effect every pension has some guarantee from the taxpayer, because every pension scheme invests in gilts. That is the old idea of mortgaging our future (drawing comparison with the fact that this is what most of us end up doing, personally – as currency users – in house purchase). It is certainly true that although it is government currency , we shouldn’t necessarily be considering this as desirable. Yet we actually don’t need to do it anyway.

In this World Service programme we learn of the Transparency Task Force which endeavours to ensure pensions and other investments’ charges  are properly open. At the moment everything is opaque – as though the pension managers had discovered the principles of alchemy.

Pensions, although they seem to be being used as such, are not a stake in the City of London (as I’ve previously suggested) but an endeavour to keep us in retirement. There is no earthly reason why that should be dependent on second hand shares or the ups and downs of other financial management companies. As even the FCA seems to admit in the programme, there is an inherent mismatch between ‘maximising shareholder value’ through high management charges and the working of these companies in the interest of their pension contributors, whose interest is in charges that are as low as possible. In effect pensions do not need to be managed at all – we can use them for infrastructure.

Indeed, although ‘maximising shareholder value’ for all companies is actually not entirely true for the UK, it seems to be considered as such. Unilever, having moved to the Netherlands, is now subject to a less aggressive shareholder maximising regime, if a rather more responsible personal directorship one and a much less liberal takeover regime, which would be the envy of Brexiteers. (Yet they haven’t told us how, although the Netherlands was a founder member of the EU, it can still retain its defenses.) Indeed the Netherlands has, the same World Service programme tells us, also reformed transparency in the charges for its pension funds. There is – what a change – now more and more co-operative management in the interest of the pension fund.

But it is time to emphasise that pensions could also be a part of Universal Basic Capital (or Income). And although many may prefer not to explore that particular idea, it is here already. But that argument apart, we could certainly improve the economy by linking pensions to government bonds, but not just any old bonds, specific bonds. So if the government issued bonds to expedite, say, the Swansea tidal barrage or rail improvements or just any infrastructure project where an income could be derived then they would be obliged to make them happen – or default on the bonds. Default would be unthinkable in reputation terms and completely stupid when the government creates the money they are issued in!

So bonds issued would be the government’s authority to go. Once issued and subscribed, they would be backed by the government but would not be subject to any financial doubts or sudden government cuts. They would be ‘go for it’- not go and stop. Or ‘stop go’ as, amoung others, British Rail used to call it.

Specific bonds issued to pension funds would both improve pensions and simultaneously improve the UK infrastructure.

This represents a quite spectacular, missed opportunity.

 

 

Comments

  1. Ivan Horrocks -

    In the UK we suffer from a great number of ‘missed opportunities’, Peter, not least because to recognise and act is not in the ideological interests of those in government (as your one of your previous blogs on money creation also makes clear). Thus, we could easily afford an effective, well staffed, safe and efficient health service, but we can’t have one becuase the government says we ‘can’t afford it’ and sadly the opposition accepts that untruth by talking about moving money one one pot to another, and so on. To be honest, I doubt we will ever break free of this myth as there are too many parties with an interest in maintaining it, and they exercise considerable power and influence.

    1. Donald Liverpool -

      You could throw a great deal more money at the NHS, but you wouldn’t get any more home-grown doctors when the union controls the supply.
      http://www.bmj.com/content/337/bmj.a748

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