Isn’t Ritchie just so gorgeously marvellous?

So, he’s talking about tax relief for pensions:

Over the period when these funds managed to lose the pensioners of the UK money (even though those of many other countries made positive returns) we spend a total of £451 billion subsidising these pension contributions.

Now, I admit that in this time series some of the tax paid by pensioners will need to be deducted from the cost of tax reliefs given, because clearly over time there is a partial matching process going on here. Equally, not all need be matched: much of the tax paid will have been by people who made contributions before the period began, and so you could argue that the next cost was a but lower than £450 billion. I have no way of knowing by how much that might be the case (and nor has anyone else) but it would be very surprising indeed if this was £100 billion, but just in case let’s call it that.

That still leaves a net £350 billion investment by the state in pensions and apparently that’s all been lost, and more besides.

The problem with this is that when you go and read the report that this is based upon, the one that tells us that the real return is 0.7% minus, that return is after the tax that pensioners pay on withdrawing their pensions. Ritchie hasn’t bothered to read his source material.

It’s also the real rate of return, marked to market, over the 2000 to 2013 period. Ritchie would have everyone investing in infrastructure bonds instead of equities. Anyone care to calculate the real return on bonds over the past few years, when inflation has been higher than bond interest rates?

10 comments on “Isn’t Ritchie just so gorgeously marvellous?

  1. Are you saying that Ritchie is selectively quoting to suit his arguments? Well I never!

    Meanwhile, here in Hong Kong, here are the crowds celebrating “The Courageous State” on it’s celebratory day:

    https://twitter.com/tomgrundy/status/517200133323116544

    …and here is part of one of 3 sites where the people asking to be free from it:

    https://vine.co/v/Om7JnzE2wMU

    Here the “Occupy” people want more democracy, Ritchie deleted when I suggested other Occupy events just wanted more socialism.

  2. To be fair, the last 15 years have been sh*t for equity returns for pensions. I was talking to a plumber friend who is about to retire next year, he’s been paying it to a private pension for most of that time and he’s going to get about 25% of what he was told he would get. He’s naturally rather p*ssed off about this, and regards the pension business as a legalised scam. He reckons he could have bought a house with what he’s paid in, and have a better income and capital value.

    Its the logical conclusion of system that allows unrestricted growth of credit (which is money in a fiat system). Saving in anything other than hard assets will always be a loser long term. Add in the ability of the City to destroy capital by investing in every stupid idea that comes along (boo.com anyone?) means savers get shafted from all sides.

  3. He’s conveniently picked the peak of the market (FTSE 100) in 2000 as the starting point.

    Had he chosen the start of 2003, the market has doubled.

    A similar return would occur from the start of 2009.

    Most credible commentators (which presumably excludes Ritchie?) understand that equity markets are volatile and that markets go down as well as up.

    So picking the peak of the market is at best disengenous, at worst blatant misrepresentation.

    But that’s Ricthie for you.

  4. What about the “investment by the state” in the unfunded public sector pensions for which we’re all going to have to pay, including – oh let’s think now – the scheme that applies to part-time GPs on outrageous salaries or profit-shares?

    Cvnt

  5. If he thinks schools’n’ospitals are an investment perhaps he point to the stellar returns made by Gordon’s investments when he was Chancellor?

  6. “Anyone care to calculate the real return on bonds over the past few years, when inflation has been higher than bond interest rates?”

    As noted above, depends on your time frame. If you bought bonds in 2000, I reckon you’ve done pretty well as the value of those bonds will have soared.

  7. “As noted above, depends on your time frame. If you bought bonds in 2000, I reckon you’ve done pretty well as the value of those bonds will have soared.”

    But that’s the nominal return, not the real return, which is exactly the point Tim is making:

    RPI has average over 3% over the period, so that compounds to over 150% over the same period.

  8. The primary value of a pension vehicle is the immediate tax relief, which is probably worth more than the meagre gains in the pot. It certainly is in my case.

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