Subject: Pensions - Value maintained with little interest?
30 August 2017

Financial Institutions cannot hold Pension values for long periods

UNIVERSITY Pension funds suffered ballooning deficits over the last year, with the lack of proper interest rates cited as a principal reason. Very low interest rates for savers engineered by governments and banks are depriving pension funds of a lot of their necessary income. The notion of reducing interest rates to stimulate the economy after the credit crunch is questionable. Interest rates are the Rent for borrowing money - reducing all such Rents would generally drive the economy down. Reducing rents for human time (pay) would deprive people of their income - here its depriving pensioners of their income. Then we have the horror stories that the fees charged especially by UK pension funds are taking away near half of pensioners' value. Will the UK government's auto enrol of people into pensions simply mean 11m more being ripped off by fees? These problems are adding to the doubts about what is done with people's saved resources. This is the conclusion of the Business Trends Library in its scenarios on pensions and savings.

Money has a turbulent history, handling people's money is often misconceived. Where sound, the end use has been in commercial development - the creation of wealth. This is doubtful today with such huge savings flows into institutions - much is flowing into government deficits. How can a few executives deploy these successfully into valid commercial developments? Are there indeed the commercial developments needing this huge volume of finance if they could be found and successfully managed? Inflation is a tax on monetary capital and generally results in returning less value to the saver. Interest rates (after tax) must be greater than inflation - not the case at present. It is not realistic to assume inflation will remain low over the life of someone's pension savings - two decades of even moderate inflation will destroy a pension. The current practice being revealed of financial institutions helping themselves to a few % a year of people's savings without any measure of that institution's skill in investing people's savings to at least holding its purchasing power is likely to be misconceived.

Unsound systems come unstuck when cash flows have to reverse to return savings generally to savers. Easy to deal markets are liable to be bided up by these huge savings flows, but are difficult to liquidate profitably if everyone has to liquidate. Are we there in pensions? Firms have been closing final salary pension schemes as too expensive - now we get horror stories of people trying to retire on 'defined contribution' schemes. 'What is done with Saved Resources, Scenarios from the Business Trends Library',, Email: Email

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