Phillip Inman noted in the Guardian yesterday that it was entirely possible for someone to have saved for twenty years in a personal pension using an actively managed fund and for their investment now only to be worth what they paid into the fund. Indeed, that is not just possible but likely since most managed funds have seriously under-performed the FTSE indices before charges are taken into account.
As I have shown, the subsidy to the pension industry form the tax payer each year is enormous: some £38 billion in a year when last I looked.
And as Philip Inman rightly notes, vast amounts of that have been used to pay management fees, brokers fees and commissions all of which have enriched the financial services industry and none of which have produced a return for pensioners - many of whom will face poverty in old age because their funds have been stolen (I use the word deliberately) by the City.
Why say this again? For three reasons. First, because it says massive pension reform is needed to stop this abuse. That is possible - Dutch pensioners get 50% more pension for their investment than do UK based pensioners because they are not ripped off as we are.
Second, to say that as a result the refusal to consider the pension reforms I recommend - requiring that at least 25% of all new pension contributions made in the UK go into new investment that will result in new investment and job creation in the real economy - is absurd. The result to pensioners is bound to be better than now and yet even those who should be horrified with current pension abuse cannot see that they have a duty to support such change.
Third to make the point that in the 1980s we were told that private pension funds would solve all pension problems, no one would be exploited and the world would be a better place for the private pension revolution. We were lied to by a Tory government. we're being lied to again by a Tory government now who are saying that NHS reform will result in efficiencies, savings, no charges and a better service. That's not true. It's not possible that it can be true. I'll be exploring why in some depth in the Courageous State. But still the lies are rolled out. And what will actually happen is something like the pension debacle - the rich will get richer and the est of us will get a lousy service leading to desperation at the prospect of real loss of well-being we once enjoyed.
You have been warned.
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Hi Richard, very interesting blog. And not at all surprising findings.
I did a very brief piece of research to compare two periods of economic settlement: 1955-1980, and 1981-2010. I chose these periods as the first we were building the welfare state, having some social mobility and the background was high taxes, tighter fiscal policy, ‘repressive regulation’ and so on. The second period is co-terminus with the ‘The Great Moving Right Show’ has Stuart Hall famously called the neo-liberal ideology of Thatcherism. What I was really interested in finding was what happened to GDP in these two periods.
If you followed the magic logic of neo-liberalism accepting that lower taxes, less regulation, moneterist fiscal policy, privatisation and so then the latter period should deliver higher growth. We are told by everyone from Hayek to Laffer that money not in the hands of the government is money in the hands of investors, so we should expect higher growth right?
Interestingly, the quarterly compound growth between 1955 and 1980 is 0.56%, in the latter period it is 0.57%. So for all we are told there is no evidence that the neo-liberal policies lead to greater growth. So we might ask who benefited from lower taxes, less regulation, easier credit, etc, etc. But that might be too rhetorical.
Curiously, using the same ONS data I found average annual rates almost 0.5% higher in the first period than the second – data in The Courageous State.
I guess it depends on the way you look at things
But I found growth was lower
So much for neoliberalism
Just as an example. Since 2001 one pension is now worth 8% less than it cost in contributions, even after 10 years of so-called growth. Would I recommend someone contribute to a pension scheme? (Another pension was Equitable Life, even worse.)
Re your recommendation for a requirement that at least 25% of all new pension contributions made in the UK go into new investment, for new investment and job creation in the real economy)
Are you stipulating investment in the UK, and for UK jobs, or just leaving that as a pie in the sky presumption?
If its just a presumption – it would not and could not happen under current rules. The UK govt is a million miles from such a stipulation both because of the rules, which it has been a main force in creating, and its own ideological drivers.
If you are recommending it realistically, there there is a need to start to deal with regulatory frameworks (as well as challenging the ideology) that would currently prevent such a stipulation.
Reminded of the definition of a broker…
“Someone who invests your money until it is all gone”