Ritchie still doesn’t get the problem with his Peoples’ Pensions

it creates an entirely new investment framework,
completely free of the stock market, to provide a
secure and safe place in which an individual or
company pension scheme can invest to provide for a
pension in retirement

Ooooh! Lovely!

All of this is possible because the People’s Pension will be
backed by People’s Pension Funds. These entirely new
funds will be created to provide a way in which pension
contributions can be invested in the building of new public
infrastructure projects such as:
• schools and universities

• hospitals and other health facilities
• transport systems (including railways, trams and bus
networks)
• social housing
• sustainable energy systems

OK, super!

So, why aren’t current pension funds invested in such schemes?

Well, two reasons.

1) Some of them don’t have a mechanism by which a return is provided. It’s not actually possible to go and buy social housing and make a profit from it, nor do housing associations issue bonds that one can purchase as a retail investor.

2) Where such schemes do exist, where the structure does allow investment for profit in such things then investors, yea including pension funds, do indeed purchase them. Rather a lot of hospitals are in fact provided under such schemes……who is it that refinances the PFI projects once the equity partners have taken the risk of bringing the project in on time and to budget?

So, the problem isn’t in fact having new pension schemes. It’s in making sure that it is possible to set up a structure that will provide a return to investors. And once you have done that then people both can and in fact do invest in those very things.

So they’re just entirely barking up the wrong tree in the first place.

And that’s without beginning to note their second problem, which is the idea of bond financing being used to fund the equity portion of such schemes. Anyone really want to lend money to the bureaucrats at 4% without some buffer between investor and cost over runs?

And that free of the stock market bit is wondrous too. When tackled on this back then …..well, let’s look at the problem. Not all investors have the same time horizon. People are of different ages, have different investment goals. People also die, their estates must pay taxes and so on. So, we can’t have an investment system which locks people into an investment for, say, the 30 year life of paying back the cost of a new school. There must be a secondary market in these bonds. So that people can indeed move in or out of them over time.

And what do we call a secondary market in already issued stock and or bonds? Why, it’s something very like a stock market, isn’t it? And when tackled on this the Murphmonster did indeed agree that a secondary market would have to be set up. Which, umm, rather obviates the original point of being free of the stock market, doesn’t it?

53 thoughts on “Ritchie still doesn’t get the problem with his Peoples’ Pensions”

  1. It’s becoming quite common for pension funds to invest in housing association bonds. Either direct from the housing association or via aggregators such as the Housing Finance Corporation.

    Again, Murphy is way behind the times and doesn’t seem to know how the industries he comments on work.

  2. You’re not getting it. The whole point of People’s Pensions is to expropriate the savings of the Kulaks and give them ‘Social Returns’ ie ‘Your evil capitalist gains are helping the poor Comrade, is that not return enough for you? Now get back in the queue for cabbage soup.’

  3. Richard – yes, my day job is this very thing, although for an annuity provider and not a pension fund.

    Within 20 feet of my desk sit some of the industry experts on this subject, and any one of them could put Ritchie right in seconds.

    He wouldn’t listen to them though; clearly they are neoliberal neofeudalists, whereas he speaks truth to power.

  4. This is one of the problems of saving for a pension – the extended time period (30-40+ years) means there are decent odds of an extremist like Murphy just stealing them in the name of the People.

  5. “Secure and safe” – is it really? I’m presuming these bonds wouldn’t be backed by central government (what would be the point for them, at such high rates?) but there must be financial risk attached to the cash flows of a housing association (on the wilder end of the spectrum, the discovery that their stock has a common and serious design flaw requiring urgent remedial work) or to a facilities management contract (e.g. If there is a legal dust up between contracting parties over management issues, or costs spiral but the contract prevents them being passed on). In fact I thought part of the point of PFI was explicitly to pass on risk to private investors. So how could they be a risk free investment?

  6. Social housing providers can be profit making. Section 115 Housing and Regeneration Act 2008.

    Eg Grainger PLC has a subsidiary called Grainger Trust.

    It’s the usual Richard Murphy gormless fantaloon problem.

  7. Names matter so much to lefties and politicians.

    I had a friend who worked for MAFF.

    Not “fit for purpose” in that illiterate Scotchman’s phrase.

    Changed to DEFRA. Problem solved.

    Same people, same office, same contracts of employment with just the name changed. Same everything. But, problem solved.

    The pensions are safe because if it turns out they are not, the taxpayer will fund them. So poor people get to pay for other peoples’ pensions.

  8. Has anyone in the Corbyn/ Murphy camp stopped to consider the historical examples of prefixing seemingly everything with the phrase ‘The people’s’….. Even leaving aside Tim’s pointing out of fairly fundamental flaws with the implementation. What a piece of work is Murphy!

  9. GlenDorran, very interesting; may I pick your brains for a minute?

    Do you know what sort of size a housing association bond needs to be before it’s cost effective?

    I’m a trustee (unpaid, sadly) of a small charitable association, we’ve been looking at raising amounts around £500k but at that level it seems to be cheaper to borrow from a bank than issue a bond.

  10. “Same people, same office, same contracts of employment with just the name changed. Same everything. But, problem solved.”

    Like ‘Windscale’ to ‘Sellafield’.

  11. Richard

    With the extremely heavy caveat that I’m not allowed to give advice, and noting that I’m on the buy side rather than the sell side, I would suggest the £500k level is too small for a charity bond issuance.

    Advice costs etc would soon mount up; getting a purchaser for such a small amount would be difficult, especially as being a charity you’d probably have trouble getting a credit rating that would satisfy buyers. I’d also imagine that the compliance issues may not be worth getting involved in if you are unpaid trustee!

    This is of course skewed by my own experience. My company will be looking at tranches of issuances in the tens of millions. Below that then it doesn’t become cost effective for us.

    Perhaps someone else here who deals with this more specialist area may have a different view?

  12. Will they at least send the pensioner a picture of the school he helped build, so that he can feel good as he starves?

  13. bloke (not) in spain

    Can’t say I disagree, in principal, with Richie’s proposal. Pension industry takes your money, plays with it, appropriates half or more of the appreciation, doles out what’s left. Richie wants to take your money, play with it, dole out what’s left.
    It’s hard to see what the difference is, apart from the absence of Porches & 6 bed mansions in Berkshire.

  14. GlenDorran, thank you. Much in line with our initial investigations, so good to have it confirmed by someone on the inside.

  15. B(n)iS:
    I think that the difference is that with The People’s Pension there won’t be much left for (lower case) the (lower case) people.

  16. “It’s hard to see what the difference is, apart from the absence of Porches & 6 bed mansions in Berkshire.”

    How about the lack of any real chance of any… erm… appreciation to cream off to spend in Porsche dealerships?

    What’s the return on investment on a *state* school these days then? Unless we’re really talking PFI by another name, when your return will be the LEA paying your bond back over time.

  17. New universities? For Christ’s sake you’d get a higher return from selectively bulldozing universities.

  18. “New universities? For Christ’s sake you’d get a higher return from selectively bulldozing universities.”

    Of the one thing the UK needs, it’s definitely *more* universities. I mean, it’s not like you can already go to uni on a couple of E grades or anything – just think of all those poor needy people with NU or UU going without at the moment.

  19. How is this different from NS&I? They issue a range of short-term bonds, and the money can be used by government to piss up the wall invest. There’s no secondary market: you either hold your bond to maturity or pay a penalty for early withdrawal.

    Ritchie’s habit of suggesting things that already exist is going beyond ridiculous.

  20. Andrew

    Currently the limits on NS&I certificates are such that you wouldn’t get much of a pension but that might not bother his Murphness

  21. Among many other irritating tendencies of the man is he shares to the nth degree the overwhelming urge to ‘do something’ in modern society. This is usually combined with a propensity to blunder in without stopping to consider what is already in place – in fairness, he is far from unique in this regard but I doubt there are many people who choose to remain invincibly ignorant and dismissive of the concept of second order consequences…..

  22. dearieme

    “New universities? For Christ’s sake you’d get a higher return from selectively bulldozing universities.”

    Oh, I don’t know? You could turn some of the newer ones back into swimming pools (or whatever they were before)?

  23. “@PF

    Oh, I don’t know? You could turn some of the newer [universities] back into swimming pools (or whatever they were before)?”

    I’m fairly sure one of my local universities was a bus shelter before being converted. I do wish they’d change it back.

  24. Bloke in North Dorset

    “It’s hard to see what the difference is, apart from the absence of Porches & 6 bed mansions in Berkshire.”

    You can bet they will still be in big demand, party apparatchiks need to maintain their status.

  25. dearieme: “New universities? For Christ’s sake you’d get a higher return from selectively bulldozing universities.”

    Brilliant.

    Although I’m still hoping a few universities will go bust, so they can be bought by private providers and decent non-profits. The current ones are run shockingly badly and I suspect there’s a market for an Easyjet model of universities; it should be possible to charge less than half the current £9,000 p.a. fees and still make a decent profit.

  26. Richard

    Isn’t one of the top U.S. universities offering online tuition now? (Can’t remember if it’s Harvard or Princeton). I seem to remember professors at other universities going apeshit over it, as it threatened their little fiefdoms.

    No reason why most uni teaching can’t be delivered this way now.

  27. New universities? For Christ’s sake you’d get a higher return from selectively bulldozing universities.

    With the senior lecturers still inside, presumably.

  28. GlenDorran, Harvard does a mostly online degree, but it still costs $43,000 in fees. Princeton makes courses available online, but “non-credit” – you can learn, but you can’t get the qualification.

    But from my experience of university teaching, most of the 18 year old muppets who go to university these days wouldn’t cope with an online course. What I’d like to see is a cheap on-campus degree.

  29. GlenDorran, the main causes of high university costs that I can see are:

    1) Massive over-bureaucratisation, both obviously bureaucratic jobs but also a lot of disguised bureaucracy by academic staff (a lot of which is tied to a “standards” agenda that seems to measure the recording of processes rather than outcomes).

    2) Chronic under-utilisation of assets, in part tied to the 3-year, 3-term model (which in practice in many institutions means only 2 terms a year, the 3rd being taken up with exams, so a lot of the teaching space and teaching staff are effectively used for less than half the year).

    3) Trying to do a cut-price Oxford model (they’d like to do small group tutorials but can’t afford it, so instead they put more students in and call them seminars, rather than finding a real alternative).

    There are probably others. Non-productive professors are also a cost, although probably much smaller than the others.

    Essentially we’ve got what should be core parts of the knowledge economy being run like British Leyland in the 70s.

  30. Gareth said “And The People’s Pension is already taken.”

    By a Trades Union body as well (OK, joint with the employers’ organisation) – you’d have thought Murphy would know about that!

    Let’s hope he gets into a row with the brethren over stealing their trademark.

  31. Bloke not in Cymru

    I have some Argentinian acquaintances that would be happy to enlighten him on people’s pensions and the trustworthiness of the state

  32. Richard>

    A no-frills university would simply teach an entire degree in a year – or maybe a term – of full-time work rather than three years of a few hours a week a few weeks a year. £9k is ok if it’s only for one year.

  33. “A no-frills university would simply teach an entire degree in a year – or maybe a term – of full-time work rather than three years of a few hours a week a few weeks a year. £9k is ok if it’s only for one year.”

    I read that in the context of an engineering degree at neither Cambridge nor Hull and spat my coffee.

    But then I guess you could probably cram a bog-standard ex poly’s degree into a year….

  34. I read that in the context of an engineering degree at neither Cambridge nor Hull and spat my coffee.

    But in the context of a social ‘science’ degree? You just get two years less brainwashing.

    BTW – Mrs SE’s degree is from ‘ull.

  35. A degree in a year would be hard work, which the muppets aren’t used to, so the drop-out rates would probably be horrendous (although if they’ve paid in advance…).

    But 2 years for non-sciences should be fine and I think it should be possible to make a profit by charging £3,500 a year for 2 years.

  36. @ Richard & GlenDorran
    Don’t give up because the next para is irrelevant, see the bottom.
    The London Stock Exchange’s ORB has been working on this problem for years. Tim will probably latch on to the fact that the problem was created by the EU rules which require horrendous compliance regulations on anything offerred to retail investors who are the ones most likely to subscribe to a bond issued by a charity. The ORB costs are gradually coming down as the guys wanting to be involved in ORB are seeking ways to cut costs by standardising.
    The cheapest solution for £0.5m would not be ORB, ‘cos the compliance costs, but a private placement with a single lender – there are a range of grant-making charities using income from their investments to fund other active charities. If the housing association offers them a return comparable to that on their investment portfolio, they should listen.

  37. @ Richard
    Who told you that the Oxford model was “small group tutorials”.
    One undergraduate is not a group. Group tutorials are significantly inferior – I know,
    I shared a tutorial for one term in my second year, so that term I concentrated on sport and relied on my more dutiful friend to do 90% of the work. At the end of that year, the dud tutor was replaced by a brilliant young guy (he played rugger for Teddy Hall and got a personal professorship) who gave me 1-to-1 tutorials and made me work far harder while still allowing me get a ‘Blue’

  38. John77, it was two of us in my day, so we could take it in turns to be hungover (more commonly still drunk). My worst one was 9 o’clock on a Saturday morning when the girl on sober duty didn’t turn up.

    I went up in ’89. From talking to people in other colleges and reading other subjects, 2:1 seemed to be the norm, 1:1 was increasingly rare (although possibly still more common in classics and theology), 3:1 was starting to creep in although disapproved of, and I even had one paper taught by seminar, although that was an oddity where they had someone in from outside to teach it.

  39. @ Richard
    Sad to see the decline in standards with the passage of time. 1:1 tutorials meant that I had to do the work every week – they also meant that tutors could recognise it pretty quick if anyone was struggling rather than skiving.

  40. Richard/john77… it was 2:1 for me (similar generation to Richard) in the first year, but this was no biggie. Perhaps I was just too thick to think of it, but I never got away with letting my partner do all the work. From year 2, it was 1:1 for everything.

  41. I think they had a pretty good idea when I was skiving, even on 2:1. I can generally tell which of my students are struggling with a 10:1 ratio, I just don’t have much time to do anything about it.

    What is nonsense is pretending that a seminar with 20 or more students is comparable to a tutorial of 1 or 2, or that the education received is the same.

  42. @ Richards
    “What is nonsense is pretending that a seminar with 20 or more students is comparable to a tutorial of 1 or 2, or that the education received is the same.”
    Of course: I totally agree – in the lower sixth in my year we had just under a dozen boys doing maths, so not big enough to split into two streams as they had in previous years and I cruised, spent Summer Term as Scorer for the 1st XI and only got a double C in Maths ‘A’ level while the bright lads a year ahead of me, when it was split into ‘A’ and ‘B’ streams each got a double B. The next year I got moved into the very shrunken ‘B’ stream of the year above – since anyone not aiming at Oxbridge left after ‘A’ levels this comprised the Captain of Cricket and another guy who changed his mind after one term and went to London. The ‘A’ stream all got scholarships/exhibitions at Cambridge (the remaining guys in the ‘B’ stream went to Oxford). We got taught at our own levels fairly successfully – he got a Cricket Blue, despite having been downgraded to ‘B’ stream at 16 when he was simultaneously 1st XV fly half, 1st XI hockey, #1 in the Squash Team, 1st XI Cricket, #1 Tennis, house prefect [when he was the other half of my form Captain of Cricket and Hockey, Head of House and still the rest], so that he actually passed any ‘A’ levels was a major achievement
    My complaint was that my year 2 Applied Maths tutor just failed to see when I was skiving because David was working. It almost certainly cost me my 1st because my 3rd year tutor had to spend vast amounts of effort sorting out the Applied Maths that I hadn’t been taught and I made a mess of the Geometry and Differential Equations paper because I can’t draw and he could have taught me enough on differential equations to get by if we’d had the time

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