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?