….Now have their eyes set on other peoples’ pensions.
Will Hutton tells us that the UK pensions market is just terrible, not enough investment in actually growing British companies and therefore the state must direct matters:
….in 1990 UK pension funds owned more than £1tn worth of UK companies; now they hold less than £100bn. Increasingly, they invest in safety-first government bonds or in destinations overseas…….Absurdly, Britain has tens of thousands of pension funds: they are too small – they must all be consolidated into super pension funds, modelled on the existing Pension Protection Fund (PPF), which can spread risk……..A proportion – say, 5% – of pension fund assets should be organised collectively in a national growth fund to invest in startups, and backstopped by a public wealth fund.
And so on. As we can see, the base idea here is that more of our pension savings should be directed to where people like Will Hutton get to determine. Oh joy, eh?
All of this managing to entirely, wholly and completely, ignore what has actually happened here. The combination of demographic change and Gordon Brown’s varied raids upon defined benefit pensions funds mean that defined pensions benefit funds don’t, really, exist. Exist in the sense that they are still taking in new money, in volume, which they’ll then invest for 50 years to pay out as pensions when the time comes.
Those that do still exist are, pretty much, in run off. That’s why they’re in bonds, not equities. They’re paying out the money saved 30 years ago to the 75 year olds of today. Bonds suit that risk/cashflow profile better than equities.
The pensions that are still accruing current cash for future liabilities are defined contribution funds. Where the investment decision relies upon the individual, not the fund management caste. We do, after all, decide where our pensions savings go these days.
Which means that that problem of under-investment at home is also already solved. That one mention of “invisible hand” in Wealth of Nations is on exactly this point. Individuals tend to invest more at home than is justified by a strict economic appraisal - thus the move from defined benefit to defined contribution pensions funds is going to increase domestic investment.
The problem is already solved.
But of course this doesn’t stop the galactic megabrains from thinking that they should indeed be directing all. Some more Smith:
What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
How prescient of Adam Smith to describe Will Hutton two and a half centuries before the fact.