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John Ralfe’s critique of Martin Wolf’s column endorsing the idea that the Pension Protection Fund should serve as a consolidation vehicle for the UK’s 5,500 defined benefit pension funds (Letters, July 29) overlooks a number of material points.
First, it is accepted in every modern financial system that the ingredients of scale, professionally managed diversification and extended time horizons generate better long-term returns for savers than when any of these factors are absent, as is the case with the current DB system.
Second, the achievements of the PPF as a consolidation vehicle represent a potent threat to the architects and beneficiaries of the current, fragmented DB system. This is why Ralfe resorts to scare tactics about the negative things that could happen (eg higher company contributions) if the recommendation made in the report by The Tony Blair Institute in favour of voluntary migration of DB funds to the PPF were implemented.
Third, Ralfe’s warnings about what could happen from an enlarged PPF pale into insignificance compared with the actual consequences that have flowed from the existing DB system, including in 2022 a loss in pensioners’ asset values of more than £400bn; the needless diversion from productive investment into pension funds of over £300bn of UK companies’ precious capital; and, finally, a system-wide UK gilt market crisis last September necessitating Bank of England intervention — backstopped by taxpayers. Fourth, in addition to the TBI report, The Resolution Foundation and New Financial think-tanks arrived at similar conclusions regarding the long-term damage inflicted by the current DB system both on UK savers through inferior returns and lack of diversification, and to the broader
UK economy from the grotesque misallocation of an entire nation’s savings pool and the resultant over-dependence on foreign capital, with its adverse implications for UK national security.
Finally, the consultation questions contained in the current review by Treasury and the Department for Work and Pensions appear to place off limits any fundamental changes to the essential features of the existing, parasitic DB system, thereby perpetuating its worst effects while having the result of protecting pension consultants and insurance companies. If this is a preordained outcome of the present review, it would in my view be a tragic policy dereliction.
Michael Tory
London EC2, UK
The writer co-authored TBI’s report but writes here in a personal capacity
