Bit of a surprise

So I made a comment at The Guardian about Green and the BHS pensions:

“The pension scheme was in surplus when Green bought BHS in 2000. Green and other shareholders since took out more than £400m in dividends from the business.”

Yes, and the pension scheme was just fine after they’d taken those dividends too. Even this newspaper has reported that the deficit was trivial as late as 2006, some years after those dividends. And I’ve seen an analysis stating that it was all fine in 2008.

“The deficit may now stand at more than £700m after the Bank of England’s post-Brexit measures reduced yields on government bonds, in which pension schemes invest.”

That’s what has killed it. When interest rates fall the capital sum you need to pay a pension rises.

Might be worth a newspaper pointing all this out.

Wasn’t sure they’d let it stay up even. But they’ve only gone and made it their pick of the comments, haven’t they?

13 thoughts on “Bit of a surprise”

  1. Some usual idiotic comments from some and some thoughtful or interested comments from others. Ahead of the game for the Guardian.
    If it had been our favourite Richard then he would have commanded far more agreeing with him. Catering to his audience rather than pointing out their premise is wrong.

  2. It was probably nothing to do with you threatening to find out how the Guardian pension scheme is managing in a previous post.

    And surely they wouldn’t use low interest rates as an excuse when it is revealed how badly their plan is performing.

  3. The Guardian’s sagas reminds me of a lot of leftist management, such as in local government. Municipal Socialists got elected and ran cities in the 1920s-1940s for the benefit of everybody, building infratructure that allow people to live and business to thrive, and rebuilt those cities after the war. Then in the 1970s a new generation came along and inherited what their predecessors had carefully built up, and manage it into a nose-dive into the ground.

    Compare inter-war council housing with post-war council housing. Somewhere I read that when Roy Hattersley was in charge of Sheffield Housing in the 1960s throwing up tower blocks, somebody from the previous generation told him: you don’t want tower blocks, you want proper workers’ houses. Roy poo poo’d him telling him that Streets In The Sky was the future.

  4. Oh, so back in the old days, the dissident voices in the Labour Party were correct in their reasoning and analysis of plans put forward by their leadership? How times have changed.

  5. @Tim W

    Love this reply:
    “WhistlingNeil

    “That’s what has killed it. When interest rates fall the capital sum you need to pay a pension rises.

    Might be worth a newspaper pointing all this out.”

    Where’s the fun in that , you come here with your accuracy and actual facts when you should be bringing torches and pitchforks.”

    LOL

  6. If your pension fund holds lots of bonds, doesn’t it do rather well when their price rises? A lack of high yield assets to invest in is a problem for the future, but I don’t see how a fund can run into trouble around the time when bond prices rose

  7. Hi Luis Enrique – yes, lower yields mean fixed income assets rise in value.

    But it typically (not in all cases, but almost all given the characteristics of the balance sheets) makes the liabilities rise in value even more. The difference between the two numbers being key.

    Why? The liabilities can be imagined to be a bond that you owe to someone else, a ‘negative’ of the bond(s) you own as assets and are thinking of.

    And typically it’s a bigger bond, which stretches further into the future, and often is indexed with inflation and has all sorts of side insurance benefits like paying your partner if you die first. So it tends to be more sensitive to interest rates too.

  8. @ jgh
    As a teenager with a not-particularly-sheltered upbringing I could still be shocked to learn that the 1930s council houses in the largest council estate near my home were built without inside toilets.
    The 1920s estate adjacent to it had inside toilets.
    Take off your rose-tinted spectacles.

  9. @ Luis Enrique
    If and only if the pension is “mature” and declining in size as pensions paid out exceed the contributions paid in and the fund’s investment income combined – then, and only then, a decline in interest rates helps the fund.
    If the fund’s income from contributions and investment income exceeds expenditure then the fund has incom,e that it needs to invest and the lower the interest rate the worse off the fund will be.
    The *price* of a bond is *not* the same as its *value* to the fund. If the fund intend to hold the bond to maturity then its price is irrelevant to value since the receipts from interest payment and redemption poroceeds are unchanged if the day-to-day price halves,
    What the Actuaries and PPF do is calculate whether the fund will be able to pay the contractual pension to every member including the youngest so FUTURE receipts and payments, not just today’s, matter.Lower interest rates mean lower future receipts from the reinvestment of today’s net income. BHS, Tata etc are being crucified by the low-interest-rate policy designed to bail out spendthrift borrowers.

  10. Aquarius9 TimWorstall
    16h ago
    This comment was removed by a moderator because it didn’t abide by our community standards. Replies may also be deleted. For more detail see our FAQs.

    Damn. Other places hide these sorts of comments but don’t delete them or allow quoting/response in case anyone wants to read them.

    Its always interesting to watch people negatively react to data they don’t want to be true.

  11. No they were right to cut that one. The fool commenter had made the allegation that Green had actually dipped into the pensions funds themselves. Grossly libellous and of course he did absolutely no such thing.

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