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Another thought on the P³’s pension plans

I had a look at the assumptions beind The Tuber’s pensions plans back here. People need to save their entire lifetime income in order to gain a 40% of working income pension.

This can be relaxed if people can eat the captial in their pot. But Spud insists that his plan is a solution to finding the capital to invest in real things, not pieces of paper.

His real rage is against that trading of second hand pieces of paper. Just claims on this or that, stuff that does not then produce real investment in real things.

OK. So, folk invest £50 billion a year in these 1% bonds. They can’t eat the capital when the pot matures, this means they must save all their income for 40 years (ignoring compounding, which at 1% isn’t very much, just to make the maths easy) in order to have a 40% of working lifetime pension. This might not work.

So, we relax the condition that the bonds cannot be sold. We’ve just recreated the trading of second hand pieces of paper, haven’t we? People saving for their pensions are putting in £50 billion a year, people cashing in the capital of their pensions are pulling out £50 billion a year. Pensions pots are – designed at least – to exhaust at death, so withdrawals over pension period should equal payments in during working lifetime in gross.

We’ve just come back to the system we have now. Over 40 years – say – the gross amount saved is 40 x £50b, that’s £2 trillion. But we’ve an inflow of £50b, and outflow of £50b, there’s no nett new investment at all.

This is true whether it’s the actual operations themselves that pay out the capital – bonds mature and are paid off – or we’ve a secondary market in the bonds. The second is obviously more desirable because this produces more flexibility in timing for recouping the capital but it’s not an important point for the logic here.

Spud’s plan still ends up with our having an outflow of capital – population being equal – equal to the inflow, no new investment in anything once the system is mature.

So, either everyone lives on fresh air to save for their pensions, or we end up where we started, with a system which produces very little of that new capital and near all of the system is the recycling of the same capital through the generations.

Pretty cool, eh?

7 thoughts on “Another thought on the P³’s pension plans”

  1. Murphy is a dangerous twat

    What you’re suggesting is that Richard Murphy doesn’t really have the faintest understanding of the topic he’s commenting on.

    Which surely can’t be true, can it?

  2. Total compensation in the system remains unchanged whichever way you run it round.
    Unless government can invest or spend in ways more productive than letting the private economy do it, no value has been added at all.

  3. ignoring compounding, which at 1% isn’t very much, just to make the maths easy

    Even at 1%, your initial £1 becomes almost £1.50 after 40 years lurking in Capt Potato’s slime encrusted green dungeon.

  4. TMB.. By which time inflation has made that £1.50 worth a lot less, to put things mildly.

    I also note a distinct lack of mention of operational costs administering those amounts and payouts. And some other Sundries.
    I know that in Spudland the State can just Print Money to pay for all those civil servants, which then can be taxed right off them to prevent inflation, but somehow I don’t think people will put up with this, especially when taxes hit 150% and still fail to contain the raging inflation..

  5. Spot on. He is basically saying that pensions should be invested in bonds. People can do this now if they want to, but most people don’t (unless they are very close to retirement or highly risk averse).

    I’m not sure if he genuinely believes bonds produce better returns than equities (he has been saying for a decade or more than stock markets are vastly overvalued and are about to collapse) or if he has invested his own pension and savings in bonds and wants everyone else to have the same experience.

  6. Murphy’s plan is, despite being dressed up as a Pension scheme, to steal wages from workers in order to invest them in things that he wants but they do not.
    Even ignoring inflation the unsaleable bonds will only give back half, in monetary terms, what the guy pays in.
    Adjusting for inflation at normal, pre-pandemic rates, the first year’s contribution will be worth 30p (assuming 4%) or 45p (assuming 3%) in the £ after 40 years when he reaches retirement age so he’s lost 55% or 70% of its value.

  7. Bloke in the Fourth Reich

    I always assumed the point was that the government got to keep the capital. And of course said capital would need a Fat Controller appointed. To control it.

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