Labour’s policy of featherbedding public sector pensions and clobbering private sector ones is being implemented with great success. We have all admired the new way to riches – lose a lot of money for a public sector bank, get fired and pocket an enormous tax payer backed pension. Today we are reminded of the Labour way to lose your private sector pension. Work hard for a private company, save in a pension scheme, then discover the fund has a huge black hole and has to take action to cut its costs.
The accumulated deficit is now around £240 billion in private sector schemes. The government has made a major contribution to creating that mess by taking the following actions:
1. Imposing a £5 billion a year tax on the funds – that directly relieved them of around £50 billion so far, £50 billion they clearly needed.
2. The £5 billion a year tax also made the shares they own less valuable. As the shares yielded less income after tax, so they were judged to be less valuable by the Stock market. That cut the value fo the capital the funds had invested.The last decade saw no positive return from holding UK equities, which is a commentary on the government’s tax and regulation policies towards business. It didn’t hit the fat cats – they took the money. It hit the small savers and the future pensioners.
3. Driving the interest rates on longer dated government bonds or savings instruments down by their repsonse to the slump and through government purchases of its own bonds. One of the ways of measuring the pension deficit is to ask how much monedy the fund would need if it were all put into bonds so the interest and amortised capital could pay the pensions. Low rates means bigger deficits and the need for more contributions.
4. The introduction of the Pensions Regulator’s tax. All funds now have to pay so the Regulator has money to pay his salaries and to pay for any funds that go under. It’s another charge on employers, another straw which can break the camel’s back.
5. Presiding over the collapse of great banks by failing to control their capital and cash in the good times. The big falls in bank shares and the cuts in dividends that have followed have cost UK pension funds large amounts of money.
6. The slump. This has hit the shares of other companies, again undermining capital values in pension funds.
7. Failing to control inflation as promised. Inflation imposes large extra costs on pension funds, as they need to find the money to pay increases in pensions. Few pension fund actuaries or Trustees are going to value the funds on the basis of zero inflation, whatever the government may say about the danger of deflation at the moment, as they know current inflation is high for pensioners. They also see the government is not worried about triggering a new faster inflation in due course, judging by its monetary actions.