In this new world where the all powerful state can take on any financial obligation, I guess nationalising the Post Office pension fund deficit is small beer. After all, a one percent loss on the gross assets of RBS is three times the size of the pension fund obligation we read we are about to take on.
For those of us who still think governments too have t to control what they borrow, spend and guarantee, it is yet another large sum that taxpayers, sometime, are going to have to pay for. Pensions have become shrouded in jargon and regulatory complexity. Actuaries and experts exchange complex sums, attempting at any given date to come up with a figure for the “deficit”, the shortfall of money in the scheme to meet its future liabilities.
These deficit figures can be very volatile. They are the product of two very difficult forecasts. The expert needs to work out how much all the pensions are going to cost. That is a moving feast, as no-one knows for sure how long the pensioners will live, or how much their pensions will increase by in an inflationary world. Then the expert needs to decide how much the fund will make on its investments, an even more difficult matter to estimate.
Trustees responsible for the schemes are then faced with the issue of how they will fill in the deficit, if that is what their experts tell them they have at any given time. There are three ways of “correcting” a deficit, if all the assumptions in the deficit calculation are accepted and do not change over time. The trustees can improve the investment returns, above the Actuarlial assumptions in a way which persuades the Actuary. The Trustees can obtain more contributions from the company and the members. The Trustees can agree lower benefits with the members.
If the government is planning to take on the Post Office pension fund, it should first reach agreement with all involved on how it is going to tackle the deficit. Is the future semi privatised body going to increase employer contributions? Are members going to accept higher contributions or lower benefits? Can the investment strategy be improved? Or is the long suffering taxpayer simply going to pay whatever it takes to fill the present deficit, with no guarantee that there might not be another deficit in a few years time? If they go on getting the investment strategy wrong, or offer more generous benefits, will the taxpayer be expected to stump up?