Pensions are complicated. At a micro level it makes sense to accumulate assets today that can be exchanged for the services we will need (healthcare, personal care etc.) when we get old. But this fails if the assets we accumulate cannot be exchanged for what we will need and at a macro level, this is a real risk. With ever growing numbers of elderly will there be sufficient workers prepared to labour in the care industry to look after them all – however much “wealth” the older folk have accumulated? Yes, but only if the investments made today are delivering the right things – real things…. not just shuffling paper in a huge Ponzi scheme.
OK, so those assets we’ve got. Those bonds, bank accounts, shares, whatever. We need to exchange them. Which means we’ve got to be able to sell our 40 year old investments to someone. That means a market in second hand investment paper.
Spud an acolytes see money being saved into pensions as the investment fund. It isn’t. It is only the excess of new savings over the consumption of mature pensions which is the new investment fund. Everything else is buying the old savings instruments off those who now need to consume while buying those savings instruments for ourselves.
Everyting Spud sayson this subject is killed by his inability to grasp this basic fact. The pensions savings of the young in a FTSE tracker – say – are in fact buying the FTSE tracker off some old codger who’s selling in order to be able to eat. The second hand transfer market is vastly larger than the new investment going into the real economy for exactly this reason.
There’s an entire field called “workforce planning” which looks at things like the long-term supply of care workers; but yet again, Murphy believes he is the first person to invent it.
Tim
Great headline and another in a long line of ‘zingers’ for this idiot’s output. However, it’s actually a guest contributor to the blog. :
This is a guest post on pensions from regular commentator Clive Parry, who has had a long career in financial services-related issues.
Whatever career he had it certainly wasn’t in Asset Management – possibly he was part of some anti-capitalist protests last century but am guessing that’s the extent of his familiarity
Those in DB schemes know that they can expect a decent steady income in retirement linked to their salary and the number of years worked… which is great. The problems with this are
The risk your company goes bust and can’t pay the pension
It’s complicated if you move jobs quite a bit….. and impossible if you are self employed.
The company delivering the pension is exposed to huge investment risks…
So, by and large, the only employer that can offer a DB scheme these days is the Government.
That’s a true statement in that the Government can offer a DB scheme technically (I.e there’s nothing to stop them doing it in law) But all public sector pensions need switching to DC schemes as a matter of some urgency or the road to Harare is a very short one indeed. Once again his ‘expertise’ rather selectively applied.
Regarding the challenge of people moving jobs, there’s been developments like SIPPS and ISAs and other vehicles which can be used to get better returns. What needs to happen is huge reductions in the level of taxation and public expenditure to allow people to save more and switching those that are unwilling to support themselves to a subsistence level of existence.
One answer is to allow people to purchase today an inflation-linked forward starting annuity. Allow a (say) 30 year old to invest £1 today to receive a real terms, guaranteed income when they reach 67. What £1 will buy you will depend (mainly) on index-linked gilt yields and mortality rates but the calculation is relatively straight forward (if you are an actuary). It will vary as market interest rates vary and as the 25 year old ages but at any point in time the theoretical income is known. Now, there are issues related to early death, partners/dependents etc. but are no worse than we currently see. The real problem with offering this product is that hedging the risk is fiendishly complicated and expensive for insurance companies…. so they do not offer it.
Given the tendency to switch Interest rates down and the duration of ZIRP, let alone COVID responses passim and going forward (Let alone for other crises) what sane person would commit to a pension entirely in Gilts, particularly when the likes of Murphy and this clown would simply see it as an Investment fund to be spunked away on whatever fashionable idiocy was in vogue. ‘SCA’, The Fair Tax Mark, CLASS, ‘Introductions to Economics’ , TJN (in the past) and various other taxpayer funded sockpuppets – every single one with a return of absolute zero.
Cretins is arguably insufficient – these guys need shipping over to Hamas post haste.
Those in DB schemes know that they can expect a decent steady income in retirement linked to their salary and the number of years worked… which is great. The problems with this are: The risk your company goes bust and can’t pay the pension
The company isn’t paying the DB pension, it’s paying into an invested fund, which pays the pension, the future financial health of the company has no bearing on this*. This is Pensions 101 stuff.
* unless a Maxwell has ‘persuaded’ the fund to invest in the company – this is called “fraud” and is most unlikely to be repeated.
The company could be on the hook to make up actuarial deficits in the fund. This would impact pensioners and future pensioners if the company went bust, or some change of ownership allowed them to legally repudiate such commitments.
The risk your company goes bust and can’t pay the pension
I used to be on the board of a small housing association, and the finance manager would state in the annual report: never ever ever ever ever put the company pension in the company.
As CM says, it’s fraud; and even if it isn’t fraud, it still looks like fraud, and should be treated as fraud.
Does anyone actually buy pensions any more?
I have mandatory state pension pots in 3 countries. Forced to pay in, all of the states concerned run it as a “social contract” system rather than investing the premiums.
I have (counts) one public sector and two private pensions in two countries. The NHS one was “sign here and you get a pension” and I was young and impressionable, and knew not better. It is also, relatively, the best investment I have ever made. The two private ones were 1 enforced wage deduction and 1 company pays everything.
The NHS pension is a no brainer – like any public sector DB scheme, the taxpayer funds 5x what the employee does, so you’d be stupid not to join.
Of course the public sector don’t appreciate this so you have a strange phenomenon where we provide a benefit worth 5x which is valued by employees as worth x. When we should be looking to provide benefits which are valued by employees as x but cost the taxpayer x/2.
It is worth reading the thread.. Murphy has had a good kicking off someone called Simon Cauldwell, he murphy look an idiot so naturally the toys came out of the pram.
Akin to the kicking he got off Anton Newcombe recently on Gilts.
Murphy is full of hot air and no substance.
Guilty as charged, I’m amazed I lasted as long as I did.
It’s just too much fun to try and wind up the arrogant c*nt.
But so funny when he accuses others of ‘lacking charm’ immediately after he written his usual abuse when someone points out why he’s wrong.
I’ve no idea why people like John Warren and Clive Parry (who were involved in the discussion) continue to support Murphy like they do – they seems quite reasonable people and can argue an opinion rationally and reasonably without resorting to abuse. Unlike Murphy.
How does any credible organisation want to be associated with him? Or do they do not monitor what he does on his blog?
Stuart Cauldwell, i salute you… are you an actuary btw?
Genius from Stuart Cauldwell – brilliant stuff – I attach a sample here
Stewart Caldwell says:
November 27 2023 at 8:37 pm
In the real world, you can’t create money out of nothing, without consequence, Richard. That’s the reality.
That’s why actuaries work in real businesses that deal with real economics in real markets with real constraints.
+1
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Richard Murphy says:
November 27 2023 at 9:05 pm
You really need to learn about money.
All money is made out of nothing. Every single penny of it. It’s all based on promises, including an inter-generational one. And there is literally no limit to its amount.
So much of what you have said here is so wrong.
I really don’t think you understand finance or economics at all. The maths, I am sure you do. The real world, maybe not much at all.
It’s like looking at a non-overlapping Venn diagram
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Stuart Caldwell says:
November 27 2023 at 9:12 pm
Of course Richard, you’ve solved everything – money can be made out of nothing without consequence, so we can just offer everyone a £100k retirement pension for a contribution of just 6% of their salary p.a. and just create the money to pay for it.
What could possibly go wrong?
To become an actuary you need to pass exams in economics and finance, as well as a variety of other subjects. Qualifications that you clearly don’t have.
Can you remind me which ‘real world’ business are knocking on your door, desperate for your amazing knowledge and understanding of finance, economics and ‘real world’ solutions?
+1
Richard Murphy says:
November 27 2023 at 9:25 pm
So, we are reduced to trolling.
I have a degree in economics.
To be a chartered accountant you have to be qualified in finance.
And for my work in political economy I have been elected a Fellow of the Academy of Social Sciences.
And what I did not say is we can make unlimited money.
What I did say is literally every penny we have is made up, or created out of thin air. Read the Bank of England on the issue in the first Quarterly Review of 2014.
It would seem you passed an exam on an archaic syllabus in economics but the continuing professional education might be lacking. It is obvious you do not understand economics as it is now understood.
Frankly, I now doubt you are an actuary. You could not read my cv on this blog and made up ludicrous claims instead. As I said, pure trolling.
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Stuart Caldwell says:
November 27 2023 at 9:38 pm
Richard, I’m sorry to have to tell you this:
You do not have a degree in Economics, you have a degree in Business Economics and Accountancy – that is far from being the same thing.
You are a qualified accountant – most people (and the available evidence) would suggest that the actuarial qualification is much more onerous and rigorous than that of accountancy.
Your other ‘qualifications’ are not actual qualifications just somewhat meaningless titles that you’ve been awarded, but which have no relevance to the world of finance / business. That’s why you don’t work in a ‘real world’ finance role.
+1
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Richard Murphy says:
November 27 2023 at 10:15 pm
Quite amusing really because I just realised you commented under two names on this issue. You changed name after your first comment. You might like to write nonsense about my qualifications, but you are not what you claim to be. And you are now banned for trolling.‘
@stiv bators
Yes, I am an actuary with c. 30 years experience (although I don’t work in pensions).
On a complete tangent, my missus is a fan of The Lords of the New Church.
@joe i’m much more the Dead Boys, incredible front man
Stuart Caldwell
That did make my morning I have to admit – just genuine genius and I’m kicking myself as I got booted off (I thought I had been kicked out years ago) for the accurate comment he has blocked more than 20,000 commentators on Twitter rather than making him look utterly ridiculous.
I Think it was the great Noel Scoper who pointed out that logic students could see an example of every logical fallacy if they read Murphy’s blog for a month (I think one commentator said he could solve the UK’s trade deficit if Straw men were worth anything) – but your last question deserves an answer?
How does any credible organisation want to be associated with him? Or do they do not monitor what he does on his blog?
– I think you rightly use the word credible. I don’t consider (for example) the BBC or Guardian to be ‘credible’ organizations so there is no organization credible who does business with him. It’s all hard left organizations, the public sector and various sockpuppets.
– His blog is like a stream of consciousness and it’s badly written bullshit so many people can’t bring themselves to read it and he blocks anyone critical on Twitter so following it is less straightforward than it appears
– He is as close to pure evil as anyone in the blogosphere – a nasty, vindictive piece of crap – evil is attractive. You want to steal people’s money? You want to discriminate against people who have worked hard? He provides the superficial framework – It’s not a new or original message but never underestimate its seductiveness.
I’ve probably used 50 or 60 different fake names so far to get posts accepted – best to start with a seemingly innocuous post before drawing him in and then highlighting his idiocy.
Obviously plenty get blocked before appearing on the page, but I like to think this actually requires him to read them and then do something to block them, so that I’m at least wasting a bit of his time when he might otherwise be doing something more dangerous?
😉
@stuar cauldwell, ye i’m much the same though i only steam in on an issue i know about and he talks bollox… he is frightening low on knowledge of financial markets
@Stuart cauldwell
Great stuff – of course I think many of us have been behind comments from such luminaries as:
– Erich Honecker
– Chang Song Taek
– Genrikh Yagoda
– Alexander Lukashenka
Among so many others. As my commentary alias I haven’t yet been picked up but my comments are usually quite oblique so they go below his radar. He hasn’t declared a ‘holiday for the trolls’ of late – although kudos once more for getting him to use the phrase ‘trolling’ in the sense of:
‘ this guy has far greater knowledge than me on the topic at hand and I’m looking like an imbecile so better cut the conversation short and resort to ad hominems’
It’s great to see and to keep him occupied is certainly a public service!!
stiv: Murphy is full of hot air and no substance.
The Ely Phantom in the room?
The company could be on the hook to make up actuarial deficits in the fund. This would impact pensioners and future pensioners if the company went bust, or some change of ownership allowed them to legally repudiate such commitments.
It’s true this can happen, though a company continually running a pensions deficit ought to be a red flag for investors. In the worst case (in the UK), you’d be reliant on the Pension Protection Fund, which might involve a 10% ‘haircut’.
Anyone investing (or invested) in pensions needs to be aware the chances of your money being expropriated (or ‘invested for you by the State’) by someone similar to the likes of Spud is rising rapidly year by year. The State has an insatiable need for cash, and having been forced to stop its money printing antics will increasingly be searching around for sources of funds it can ‘liberate’ without too much trouble. Pension funds will be high on that list.