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    At last the country wakes up to our pension problems

    Wednesday, 17 August 2011 04:23 by Simon Fineman

    One of my first duties as I established myself in Timbmet was to take the chair of the company pension fund.  It was a cushy number to say the least involving twice yearly meetings, a decent lunch spread, and a rather dull review of the markets.  Back in the 1990’s Timbmet’s scheme appeared to be grossly overfunded, so much so that we were effectively forced into a contributions holiday by the then, light touch, regulatory regime.

    How times change!  Overfunding gave way to stock market crashes; a certain Mr Maxwell raided his funds undermining trust in all schemes; and actuaries realised that people were living longer.  All of a sudden the cosy surplus was a gaping deficit.  It was only a question of time before one of the major platforms of my philanthropic predecessors at Timbmet had all but collapsed and final salary pension benefits ceased from that moment onwards.

    That was six or seven years ago.  I looked on in amazement as the whole private sector clamoured to the same, sad outcome whilst the public sector hurtled on seemingly unaffected.  Only now the chicks have come home to roost with the realisation by our coalition government that something has to be done to manage the colossal financial time bomb of its public sector pension liability.  Or has it?

    Before we jump to hasty conclusions on the matter there is one question I want to highlight that seems to have been rather ignored in the debate so far.  Perhaps final salary schemes are unaffordable but does anyone actually know for sure?  Measuring future pension liabilities is a very tricky business requiring assumptions on pivotal forecasts such as interest rates, inflation rates, investment returns and bond rates, going forward up to forty years. 

    Actuaries dazzle us with all the most complex formulas ever invented to forecast a fund deficit; but regardless, adjust only marginally any of the above inputs and the outcome can swing massively up or down.  Can you tell me the likely rate of inflation in ten years’ time?  The Bank of England evidently can’t.

    Now anyone who follows financial markets knows that nothing upsets them more than uncertainly.  At the slightest whiff of a financial mystery accountants are all over the issue, and once the grey suites arrive caution becomes the key theme.  Every forecast will always be worst case scenario…hence the apparently huge deficits that have annihilated the private sector provision.

    The ironic aspect of all this is that the previous less highly regulated, less bullet proof pension regime provided millions of private sector workers with a financial future, where now there is none.  The red tape imposed to protect pensions from uncertainty has been so draconian that no private sector employee in their right mind would now offer cover.  Lighter touch regulation was far more bearable even if the risk of default to a small minority of workers might have been higher.

    Conclusion;  surely we shouldn’t be undermining pensions in any sector but instead looking to solve the tragic situation whereby private sector pension schemes have been effectively regulated out of existence. 

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