SO our new Chancellor wants to raid our pension funds it would seem because, in her view: “This is money that could go towards building vital infrastructure, supporting small businesses and helping to put more back into our towns and cities.”
These are indeed noble causes, but as Nigel Peaple of the Pensions and Lifetime Saving Association puts it, “pensions can’t do this alone”. After all, is achieving these goals actually the function of pension funds, or are they actually government and commercial banking functions?
Research by the Commons library tells us that the UK “devotes a smaller percentage of its GDP to state pensions and pensioner benefits than most other advanced economies”.
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It goes on: “Income from occupational and personal pensions is a relatively important source of pensioner income in the UK, in contrast to many other countries where state provision (financed either through social insurance contributions or general taxation) is dominant.”
So in the UK, the private sector has a huge responsibility for the quality of your life after retirement. Yes, along with the House of Lords and First Past the Post, the UK is the outlier when it comes to pension provision for its citizens, and now that many of them have been heavily nudged into becoming “investors” it would now seem that they are being asked to help this new UK administration meet it’s own arbitrary fiscal rules.
(Image: Henry Nicholls/PA Wire)
One of the great privileges of becoming a city councillor is the learning, and since 2022 I have gained insights into areas that I knew little-to-nothing about previously. For example, the geology beneath our streets, arcane planning vocabulary, a host of interesting statistics about the city and pensions. The Pensions Committee requires that you to study to be able to sit on it, and as the value of our own local government pension scheme is over £5 billion, it’s quite important that all councillors can at least attempt to properly scrutinise the management of these fairly sizeable chunks of change.
In the case of the north east of Scotland pension fund, it clearly has some very talented people at its helm. In 2023 it was 126% funded. On a simplistic systemic level this means that the UK currency that our civil servants and councillors deposited into this fund ventured out into the wider world, found profit-making investments and returned with an increased percentage of that currency back to the region.
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This means an increase in the amount of, and circulation of, currency in our own area of Scotland via council spending. However as great pension fund management equals great returns, this does speak to the arbitrary and quite unequal nature of funding your citizens retirement in this way.
In England, local authority pension schemes have now pooled their funds and the previous Conservative Westminster administration also encouraged them to invest in UK infrastructure. So is Rachel Reeves continuing from the same Tory playbook?
What is it the logic of a pension fund investing in government infrastructure? Is it that bridges and roads are to be tolled to deliver a profit for pension investors? After all, the function of a pension investment fund is to increase the value of that fund in order to be able to pay out current and future pensions.
Thus, the ability of the fund managers in ensuring that this happens is clearly even more important in the UK than in other advanced economies, because successive UK administrations made the political decision to devote a smaller percentage of its GDP to state pensions than most other advanced economies.
It would seem that despite working for the Bank of England, Rachel Reeves is unaware that: (a) It can create money to pay for government infrastructure.
(b) It is supposed to supervise the functioning of commercial banks, who should actually be doing the lending to businesses but have pretty much chosen to forego that type of risky activity once they were given the green light to take mortgage business from the building societies. After all, it is so much easier to help someone buy an asset, which the bank owns until the loan is paid off with the accrued interest. Unfortunately for everyone in the UK it’s just not that productive.
I would argue that the function of a pension fund is not to pay for necessary UK infrastructure so that an elected government can stay within its very arbitrary “fiscal rules”. If pension funds are investing all over the world, as they do, and successfully bringing more currency back to the UK than it sent out in the first place, then this is a success. Moreover, all pension funds already substantially invest in government gilts, so in effect they are all currently “lending” to the UK government and therefore already helping them to stick to their arbitrary fiscal rules.
This new Labour administration needs to be more relaxed about deficit spending for public goods and concentrate on ending the tax-havenry that has been facilitated by the decimation of HMRC. They need to get a grip on the currency that they create, stop allowing it to escape and instead ensure that it re-circulates and stimulates the economy for the good of the many, not the few.
Lastly, it should surely be the function of the commercial banking sector to, as Rachel Reeves states, “ensure successful businesses can get the funding they need to grow, invest and spread prosperity across the UK”. If this is no longer the case, then perhaps some commercial banking sector reform is required from this new administration, but that is a whole other article.
If you don’t understand the power of being a currency issuer and of simultaneously having your hands on the levers of all forms of taxation, perhaps you really shouldn’t seek power in the first place.
