Richard Murphy on private pensions

In his blog, and in an earlier report, Richard Murphy makes a blistering attack on the private pensions industry.  Private pensions currently receive £38 billion a year in tax reliefs and subsidies – an amount so large that it pretty much pays for private pensions.  The private pensions industry does what it does at a staggeringly high cost, and it has lost a substantial bite out of money it was supposed to be safeguarding.  Murphy asks:

  1. Why are we investing pensions in this way when there are clearly better options?
  2. Why are we structuring pensions this way when it clearly allows the extraction of excessive fees for poor return from the system?
  3. Why are we subsidising this failure with so much state money – enough, in fact, to represent a third of our real state debt right now?
  4. Why are we tolerating the massive redistribution of wealth from many to a few that this system permits?
  5. Why are we allowing so many funds to be put to idle and non-productive use outside the mainstream economy?
  6. What can we do better?
  7. Why aren’t more people asking these questions?

The sixth question is, of course, the difficult one.  I’ve argued many times that, regardless of the mess caused when benefits are badly designed, setting them right is never an easy option.  Redistributing costs and benefits means that whenever some people are made better off, someone else has to be worse off.  The only way out of the bind is to spend more money, at least enough to protect people from the more serious anomalies; and reshaping the system of subsidies and reliefs will have to be done gradually, to ease the pain.

 

One comment

  1. Mark Crown

    The reason why is simple. The financial sector uses the private pension money pots as a source of cash for their escapades in financial cannibalism. So they lobby like hell to maintain the sector because it is their cash cow. The problem with that is that you then have a bunch of retirees putting pressure on companies to either cut the wages or divest of the jobs of younger people who are still working. I’ve never minded working to keep the retired people in a good standard of living because I have always assumed that I too will benefit from such a system when I retire. However, the idea that whilst working I should also suffer a lower living wage and poorer conditions (or that my job can be given to someone else in Asia whilst I get thrown on the scrap heap) was never part of the deal for me. The pension system in the country needs a complete overhaul. Using pensions as sources of investment needs to be looked at. It is not an evil concept in itself but the way in which the financial sector puts it to work does indeed transfer money from working people (who are building capital) to those who have mostly already built up their capital and want to maintain it or (more likely) increase it through financail engineering (not all people get to do this – there is still plenty of pension poverty out there). As Satyajit Das says, all the financial sector ever does is move money around – it does not really create new money – even the ‘profits’ they report are just the sector helping itself to this exisiting money in the form of fees as they move it around from one set of the population to the other or more likely to offshore tax havens etc.

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