Baroness Altmann, a UK pensions expert, was brought into the British government in 2015 by David Cameron, then prime minister.
The baroness now warns the Bank of England’s QE strategies have pushed pension schemes “over the edge” because of declining yields.
The Bank of England essentially agrees, stating that it “fully” recognized that a long period of low interest rates put savers in a “very difficult position” which could result in bigger institutional savers moving to riskier assets.
Nonetheless, the Bank of England says it will not change anything.
Over the Edge
Please consider Parliament Must Probe Company Pensions Crisis, Says Ex-Minister.
The UK’s former pensions minister has called for MPs to launch an inquiry into company pensions, saying they have been pushed into a funding crisis by measures taken by the Bank of England.
Baroness Altmann said the low interest rate environment and other Bank of England measures designed to stimulate the economy had already helped push up corporate pension deficits to almost £1tn.
This was because the Bank’s bond-buying programme, known as quantitative easing, was pushing down the yields on UK government bonds, which “defined benefit” pension schemes use to price their liabilities, and was thereby inflating their deficits.
Baroness Altmann warned that the Bank’s decision last week to cut interest rates to 0.25 per cent and launch a new £70bn round of asset purchases, would push more schemes “over the edge”.
“The Bank wants to stimulate the economy by bringing down interest rates, but the Bank is not acknowledging the negative impact these measures are having on pension deficits, and neither is the government.
“We need a national inquiry by MPs so they can look at the damage QE has done to pension funding and it needs to look at the ways that the damage can be mitigated.”
The Bank of England declined to comment on Baroness Altmann’s remarks. But in its inflation report published last week, it said that it “fully” recognised that a long period of low interest rates put savers in a ‘very difficult position’ which could result in bigger institutional savers moving to riskier assets.
Baroness Altmann’s call came as the total deficit of the UK’s 6,000 private sector defined benefit pension schemes climbed by £24bn last month, as gilt yields fell to record lows, according to Pension Protection Fund estimates.
“I don’t see how it is reasonable to ask companies with pension schemes to fill a £1tn hole and put money into their businesses as well. It doesn’t add up.”
Doesn’t Add Up
Indeed this doesn’t add up. Moreover, the BoE is clearly aware of the risks to savers. But damn the consequences, full speed ahead.
Mike “Mish” Shedlock
Collateral damage. But all is well.
The QE drones are working as intended.
Perseid meteor shower better than ever this year. Saw one cover almost half the sky center to almost due north behind the trees. Much nicer to see something fall that’s supposed to fall.
Mission Accomplished said:
Come on Giant Meteor 2016!!
You mean SMOD, sweet meteor of death?!
As Japanese finance minister remarked ” why don’t they expire fast”.
Printing is the bank’s evil war on their elders.
Stuki Moi said:
Only on the elders who don’t own pumped up “assets.”
It’s not really a “war on elders” as much as a “war on the non wealthy.”
The young are getting absolutely killed by the printing, as they can never afford to even buy a roof over their heads. Simply because the CBs wants to keep the lie that geezers “remodeling their kitchen” with money “made” from “home” appreciation, is adding some sort of value to anything. As a result, young people aren’t forming families, so we’ll go full Japan/Italy/Russia in a generation or two.
Except for the young who happens to be wealthy, or employed in the political/financial/legal rackets, of course.
The upside is, of course, that dieing out is exactly the appropriate thing to do, for a culture of people so stupid and gullible they fell lock stock and barrel for the progressive delusion.
Yes, printing is also the bank’s war on youngsters, and the poor. Bank printers are absolutely merciless.
Government and politicians plus their civil servant are ring-fenced when it comes to their gold-plated pensions so why should they worry about the peasants?
Eric Coote said:
Exactly Baron. Rome burns – slowly at first. There is no escape from the end game when the totalitarian State reserves everything and money is worth nothing.
Although pension schemes must have seen the value of their assets balloon and so can, presumably, make-up income shortfalls from asset sales for the time being and without damaging their solvency.
If “the time being” was one or two years, they could possibly try that. But this has been going on for 8 years – the insurance business cannot operate that way for that long as they will be left with (wealth-losing) cash and even riskier assets. The entire point of pension schemes is to be low-risk – any person with the option to join or not join a pension fund would be a fool to join one at this stage.
You rarely have an option. All my pension contributions my whole life, be it the government scheme or at companies I have worked, were levied without any moment of choice whatsoever.
In the US, most pension funds are restricted in the percentage of assets they can invest in risky stuff. And in reality, stock market performance is very mediocre in the last twenty years, and downright poor if you didn’t own certain stocks….
Is there no way to stop the central bankers? Assuming that politicians and central bankers are in the same bed, how do savers and retirees save themselves. Constitutional courts are of no use (as we saw in Germany) as markets are more important than constitution for these guys too… Where is the rule of law?
There is a dire need for a system which protects common man, the idealist in me is crying out…
Jon Sellers said:
Too late. Corporations are people now. And the “common man” can’t compete anymore. Thank you Mont Pelerin Society!
It should be noted that underfunded pension funds is not a problem only here in America, but it exist all over the world. Here in America, the Central States Pension Fund which represents more than 400,000 International Brotherhood of Teamster union members, retirees and survivors is in trouble. Because of this the fund has proposed reducing monthly benefits currently being paid to pensioners by 22% on average.
The PBGC, America’s safety net for failed pensions has total assets of about $88 billion and liabilities of $164 billion, this is an indication of how dire the situation is. The article below delves into why in the future many pension payouts will be cut.
Tony Bennett said:
“Moreover, the BoE is clearly aware of the risks to savers. But damn the consequences, full speed ahead.”
There is no free lunch.
And current monetary policy of ZIRP/NIRP/QE is no stimulus … rather it is outright theft from savers to support owners of assets / speculators.
The Elites no longer bother to hide their complete contempt for anyone below the .1%, because they know you can’t vote your way out of this trap.
“The Bank of England essentially agrees, stating that it “fully” recognized that a long period of low interest rates put savers in a “very difficult position” which could result in bigger institutional savers moving to riskier assets.”
That’s the object. Inflate the bubble of asset prices by forcing pensions and savers into the equity markets where the majority of shares are owned by the top 10 percent.
What about the US pension funds like CalPers?
In a booming stock market they can’t keep their heads above the water line.
We’ve got nothing on England. Go research the increase in the numbers of CalPers pensioniers who belong to the $100K club in the last 5 years. It would make you vomit. Government work was never intended to make people rich.
If CalPers is struggling now what happens when the markets actually tank – which is CERTAINLY IMO on the horizon?
Forget about England. Coming soon to a theater near you.
CalPERs pensions have been canceled after 2025.
If Goldman, or any of the so-called “banksters” behaved like the public sector — even the banksters would be in jail. But the public servants deserve what they have coming.
To paraphrase the Soviet saying — the public sector pretended to work, so we pretended to fund their pensions.
No need to research Calpers, the story is right here:
All the central planners should have their pensions delayed and reduced — demonstrate to the peasants that “we are all in this together”. Cancel the pensions of any public servant who doesn’t “volunteer”.
And cancel the pensions of Bernanke, Yellen and Draghi no matter what. No excuses. They are responsible for this disaster.
I’ll bet that the central planners would have normalized rates by 2010 if they had to live by the same laws as everyone else.
Ron J said:
Read a comment the other day that supposedly, public pensions were 8 trillion short of a dozen.
Ron J said:
“Nonetheless, the Bank of England says it will not change anything.”
Secrets of the Temple
A group of congressmen representing farming districts, met with Paul Volker, FED chairman, to complain about what FED policy was doing to farmers. Volker told them that the farmers were not his constituents.
Farmers lose money when rates are double digits. They lose money when rates are zero. They lose money when international trade terms are equal or unequal — they even lose money with agriculture export subsidies.
Farmers lose money at all interest rate levels — Fed interest rates have nothing to do with farming
Bernanke and Yellen are the criminals. Stealing from EVERYONE (not just farmers) and using the loot to bail out the banks the Fed is supposed to regulate.
Not exempting Greenspan or Yellen — but neither has spewed more lies and bullsh!t then Bernanke. I went so far as to stop doing business with PIMCO because they “hired him” (for six figures!!!) to advise them on how to make things even worse.
Blame Ben Bernanke for all the bank failures, because if one person is mostly to blame it is him. Regulatory failure after regulatory failure, lies about deflation, lies about subprime lending, and lies about him “saving the world” from the mess he created.
And for all of you about to “lose” the pension that was never fully funded and then Bernanke stole the part you might have gotten: go take that miserable public servants assets as compensation for his crime — or else sit in your own squalor.
Bernanke took your retirement; go take his
Take a look at the “three-legged stool” of retirement:
Social Security – perhaps a fraction of this promise will be kept
Pension – few have one, and those who do will find this promise may not be kept either
Savings – negative to zero interest rates are no help
Conclusion: I’ll have to work until I drop. My earnings equate to subsistence survival.
As the wicked witch in The Wizard of Oz said, “Oh, what a life, what a life.”
Governments borrow to invest in welfare single moms. Heavily indebted governments can no longer pay the interest on their debt. Contrived zero interest rates let government divert investment from productive endeavor to welfare moms. Yet we are up to our butts with illiterate bastards. Rather we invest in oars and oarsmen that someone should row the government boat.
Actually the interest has never been less (proportionately). The real problem will be rolling the debt over if rates were ever to rise again.