Ritchie’s old plan for pensions again

He’s still touting the same old plan for pensions:

In the same year the total cost of subsidies to the private UK pension industry through tax and national insurance reliefs on contributions made and from the tax exemption of income of pension funds amounted to £37.6 billion. The result was that, albeit indirectly, the entire cost of private sector pensions paid in that year was covered by tax reliefs given to the private sector pension funds that paid them. To put it another way, every single penny of the cost of UK pension payments in 2007/08 was in effect paid by the UK government.

Yep, still making that mistake. Looking at the current subsidy to future pensions and comparing it to the current pensions being paid.

Twattish, isn’t it?

Most importantly we suggest that if those pension funds are to attract tax relief in future they must use a significant part of the £80 billion of contributions they receive each year to invest in new jobs, new technology and new infrastructure for the UK so that the wealth that is needed to grow our economy, to create jobs and to build the real capital base that must be passed to the next generation is built on the back of pension fund investment. As the report shows they do not do this at present. Most of the assets of pension funds are currently invested in short term speculation that has no impact on real growth prospects in our economy, and may actually harm it.

And their solution is that pensions must be handed over to the venture capitalists.

Because that is what we call the people who invest in new businesses. VCs.

15 thoughts on “Ritchie’s old plan for pensions again”

  1. The net effect of which is that the overall investment risk associated with pension funds increases several times over, likely producing investment shortfalls. Which means that people saving for retirement will have to put EVEN MORE money into their pensions. What a clueless plank.

  2. Subsidy? He’s still pedaling that line? It’s not a subsidy, it’s my fucking money, only that the government has so graciously decided not to pick my fucking pocket and let me save a few extra pennies for my retirement. What a cunt.

  3. The little dictator really wants to get his hands on our pensions.

    He’s more ambitious than Captain Bob Maxwell.

  4. “Because that is what we call the people who invest in new businesses. VCs.”

    I think he calls them “The Government”.

  5. “invest in new jobs, new technology and new infrastructure”

    Pension fund managers, who’s duty is to pensioners, not cheapass politicians, will invest if there is money to be made. No coercion needed.

    I don’t know how they could make money investing in infrastructure. A very strange thing for Ritchie to say. I think he reveals that all he wants to take is take the money and spend it. The other chatter is just to convince people it’s a good idea. Who could be against investment in jobs?

  6. The sage of Downham Market is not only the world’s leading tax expert and economist, he’s also an investment and pensions guru. is there any field of human endeavour in which he is not expert?

  7. Last time there was major investment in infrastructure locally by investors was our local toll motorway. Many years to build it because there was opposition, and not used as much as expected. Personally have never used it, and probably never will.
    Not a great investment for those who did perhaps.

    Hey, perhaps Ritchie can invest all his money into HS2. To show everyone else how its supposed to be done.

  8. ” Most of the assets of
    pension funds are currently
    invested in short term speculation”

    How did he figure that one out?

    I mean, presumably he didn’t just make it up completely. The idea must have come from somewhere. What figure was he looking at that led to that conclusion?

  9. @MBE
    Presumably Murphy defines any quoted investment as “short-term speculation”. UK Pension funds have 80% of their assets invested in gilts and equities. http://www.efinancialnews.com/story/2013-11-05/pension-fund-hedge-fund-investment-12bn-a-year
    Actually they have a relatively large amount* in index-linked gilts as an asset deemed to match their liabilities, intended to be held until maturity. But, hey, 48 years is short-term to someone looking forward to the eventual victory of the left-wing “Keynesians” over evil right-wingers who actually try to follow the policies advocated by J M Keynes. Some of the shares I inherited have been in my family for twice as long (four generations)
    * two-thirds of the total in issue

  10. Nah guys, he made it up.

    Which is my favourite bit, when there are so many to choose from?

    Well, I could opt for a tax break for me being a subsidy for an entire “industry” – that goes for every tax deductible trading expense there is.

    But I think I’ll opt for ‘payments into pension schemes are just sent straight to useless speculation in the City’. So the solution: make all companies issue new shares to raise money to clear employers’ pension deficits…er, which will then be paid to the pension scheme to be invested in ‘socially useless’ speculations in the City.

  11. I may grok where he gets “socially useless” from, if I try to take his perspective. He could argue something like:

    Neoliberals claim that deep, liquid secondary markets in financial assets like stocks and bonds are necessary for primary markets to function properly when firms in the real economy need to raise capital, and this justifies pension funds “investing” in such assets in the secondary market. However, the financial crash shows how markets fail to provide this much-vaunted liquidity just when it is needed the most, and the size and influence of the City is symptomatic of the dominance of the secondary market, dwarfing the primary market which is actually useful to the real economy. Moreover, while an asset like a share may hold financial value (as a claim on a portion of future profits) it is socially worthless. Whatever project or infrastructure it was issued to fund, has already been funded or even completed. Holding such a share adds no impetus to the real economy.

    A lot of my friends hold similar views and express similar concerns – even broadly right-wing ones. On closer examination it is obviously flawed. If Industrial Inc issue additional shares to fund the construction of a new factory, this perspective says Institutional Investor X is socially obliged to partake. Yet as soon as they do, the new shares they own are in all respects identical to the earlier Industrial Inc shares they held previously and so, unless you engage in the cognitive bias of mental accounting, must also be socially useless. (See eg http://www.en.wikipedia.org/wiki/Mental_accounting )

    To take the absurdity to the full extreme, presumably the institution is obliged to continuously keep selling any shares or bonds it owns (to whom??) as their fund-raising social purpose has been exhausted, and keep reinvesting in fresh issues – for immediate offloading.

    I suspect anybody who falls into this line of reasoning is fundamentally making a stock/flow error. In contrast someone who argues institutions should invest in new issues and hold them long term is likely making a mental accounting error. Consider what happens when X sells some of those Industrial Inc shares to Y, then much later buys some back again. The shares Y holds might be described as “socially useless speculation” compared to the original “socially useful” shares continuously held by X, despite being identical to them in all respects except their ownership. The situation when examining X’s portfolio is even more egregious. One portion of their holdings in Industrial Inc is “useful” and another “useless” (the shares “speculatively” repurchased from Y) depending purely on the ownership history…

    So I can see how “socially useless speculation” might originate, I’ve seen many other people claim the same (“pensions are no more than gambling with other people’s money” and similar tropes), and to give him generous benefit of doubt, perhaps Murphy has a more sophisticated and less obviously fallacious reasoning. But as for pension funds being short term, where does that come from? Based on what figures and what definitions – I mean they’re not exactly hedge funds are they? If his basic objection is that they don’t hold on to the same assets forevermore, does he even deny such a portfolio needs regular rebalancing?

  12. Why do ICAEW not step in here?

    This is utter, utter rubbish. It is ignorant, inaccurate, wildly irresponsible , delusional garbage.

    If I advised one of my clients to invest his money in a trust fund to further “UK infrastructure” he would sue me to kingdom come.

    So, is Ritchie advising his clients thus? If he is, he is guilty of malfeasance. If he;s not, he’s a hypocirite.

  13. What’s completely twattish about Murphy’s concept is that even if there WAS some contemporaneous correlation between pensions paid out and tax relief on pension contributions going in (which there isn’t) then it still isn’t the case that the UK government is ‘paying’ anyone or ‘subsidising’ anything. Murphy seems to think that not taking something away from someone is the same as giving them something,

    One day, I hope someone threatens to cut off four of Murphy’s fingers. Then changes their mind and decides to cut off only three. I’ll then tell Murphy to cheer up as the bloke doing the cutting has given Murphy an extra finger.

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