That sounds like good news, but don’t be deceived:
The combined deficit of FTSE 350 companies with final salary pensions schemes, which pay a guaranteed income for life, fell from £84bn at the end of December 2016 to £76bn at the end of December 2017, according to consultancy Mercer. The value of pension fund assets rose nearly 6 per cent to £781bn at the end of December 2017 because of strong markets for stocks, bonds and other assets.
To put it another way, this is just the measurement of a bubble. The real news was:
However, “liability values” — the amount required to pay retirement benefits — also increased by £36bn over the course of 2017 to £857bn, more than 4 per cent higher than a year previously.
Or, to again out it another way, thing are going to look one heck of a lot worse when the bubble bursts, as surely it will.
This takes me back, however, to the long term issue of pensions. First, let me reiterate that this deficit simply highlights a long term concern of mine, which is that the logic of mass pension saving represents one of the greatest examples of a fallacy of composition that there is. I explain why here. Because it is possible for an individual to save for their retirement does not mean that populations as a whole can.
Second, if this deficit is persistent and ongoing, and it is, whether or not the logic of pension saving is flawed or not there is the most massive fraud by false representation going on here.
If you were going to set up as an expert on the issue of pensions you would, we would at least hope, find out something about pensions first.
Specifically, about the funding of them.
Low interest rates make the assets in pensions funds rise, absolutely true. This will reverse when interest rates rise again, also true.
But, and it’s rather A GREAT BIG RED WAILING SIREN OF A BUT YOU SODDING IDIOT sorta but, low interest rates increase liability values by more than asset values increase. They will also fall by more than asset values when interest rates increase. For the technically minded this is because the liabilities last for longer than the typical life of the bond portfolio’s maturity.
Or, as we might put it, when the bubble bursts, then the problem solves itself in large part. Liabilities fall by more than assets do.
No, you don’t have to know that, no, he doesn’t either. But given that he has decided to tell us all how pensions should be run and funded THEN IT WOULD BE HELPFUL IF HE KNEW WHAT THE FUCK HE WAS TALKING ABOUT.
You know, maybe?