We’ve all seen those claims around that pensions savings don’t, in fact, invest in new assets, new companies. That, instead, the money just goes into buying up second hand pieces of paper which funds the rip off of the City houses (cont. pg 94).

There’s a reason for this:

This has meant that UK-listed companies are receiving just £500m in net investment from pension funds each year.

Goldman Sachs said defined benefit (DB) schemes – which pay a fixed income but are largely closed to new savers – are selling £2.5bn of shares per quarter to pay out pensions to retirees.

At the same time, defined contribution (DC) pensions – which do not guarantee a specific income but depend on the performance of financial markets – are buying £3bn of equities over the same period.

People eat their capital to finance their retirements. This might be done inside a pension fund, a tax wrapper or simply directly and individually. But it is not true that a pension is simply the income made from some pot of money. It’s eating into that pot itself, that stock, over time.

Therefore it is necessary that those assets - whatever they are, shares, bonds, direct assets like buildings, windmills, anything - be bought from the retiring generation by those now beginning to save themselves.

Which is why much of the financial markets is indeed trading second hand pieces of paper. Because this generation of retirees needs to sell the things they invested in 30 and 50 years ago.

Any plan based upon an estimation of the gross number is therefore going to be wrong. It is the net which matters. What is left over of the new investment after the old has been purchased? Also, any complaint that The City just trades old paper is entirely missing the point. For, obviously, people need to be able to sell what they’ve invested in, so there must be a market in old investments, right?