had the additional benefit of highlighting the real pension crisis in this country, which is that it is the private pension sector that is really failing.
There are good reasons for that, and all intensely logical.
First, employers have removed provision to increase profits. It’s not that they can’t afford it. Over the last 15 years or so about 5% of GDP has been shifted from payments to labour to payments to capital in the form of profits in the economy – that’s near enough explained by the refusal of employers to fund pensions.
Hmm, not convinced myself.
Chart 1 on page 18. Corporate contributions to pension funds rose in the 90s to 1.2% of GDP.
So it\’s nothing at all to do with 5% nor with falling contributions (if someone has more recent numbers then bring them on, please do).
There\’s also an interesting technical question there: does anyone know the answer? Corporate contribuitions to pensions: are they counted as labour income or capital income? I know that they\’re really labour income ( delayed labour compensation) but is that how they\’re actually counted in those accounts which show labour and capital income? I can imagine, but have no idea whether it\’s true, that as they\’re sliced off a chunk of the company profits they might be counted as capital income.
5% of GDP would be about £70 billion a year. Which is much more like total pension contributions than corporate ones.
And the rest of it is that we should all be investing in bonds now not equities. Because, as any fool knows, investing in bonds when long term interest rates are 3% and inflation is 5.5% is just a massively wonderful and surefire way to make pots of money.