Headlines in The Guardian we can answer
No.
Will megafunds really put an extra £6,000 in the average pension?
How glorious it is to see that Betteridge’s Law holds.
Although the actual answer is “Really, No.”
That it might be possible to clean up a few of the administrative costs by amalgamating funds is true. This will also have the effect of forcing funds into larger, and only larger, investments. For the larger the fund the larger any investment must be for it to move the dial for that larger fund. Having some few centi-billion, or multi-trillion, funds will mean that the only investments ever considered will be that are of significance to a centi-billion or multi-trillion fund.
It has, for many decades now (since at least the Wilson Report) been the usual analysis that the UK is just fine for small and medium enterprice investment and funding, it’s the big projects that can’t get the money. Right?
The argument that only big funds can invest in big projects is of course nonsense - we’ve already a way to deal with that called “shares”. Everyone chips in a bit and owns some bit. You know, a piece of paper which represents a share?
But all of this isn’t the point at all anyway. This is the smokescreen. As Neil O’Brien notes:
That is the actual point here. To give to government the power to direct the investing of pensions funds.
For they’ve already spent, and more*, everything that we’re willing to allow them to have from our incomes. As they attempt to raise tax rates, create new taxes, they find that revenues often enough fall - vide the non-dom arrangements. 44, 45% of everything is what currently flows through government. That’s clearly more than enough, more than we’re all, collectively, willing for them to have.
But, equally clearly, it’s not enough for those who want the fun of spending everyone else’s money. Thus this raid on assets. And yes, the ability to direct what pensions invest in is indeed a tax upon those pensions. For it is to move the decision making from us, or our choice of managers, into politics and therefore the allocation of investment will be done by politics.
This will not, we predict, lead to an increase in the size of pensions funds nor pensions eventually paid from them. For politics does not spend money wisely, does not invest profitably. This is easy to prove. We’re at the tail end of an 80 year period where politics has decided thirty to forty percent of everything. The net result is a significant loss* over all of those years.
The point and purpose of this change in pensions law is to do the same to our pensions. For no politician can gaze upon a significant pot of money without planning how to be able to spend it. And, sadly, spend it badly.
Tim Worstall
*For how much more see the size of the national debt
*For how much of a loss see the size of the national debt.