The perfect storm?
I don’t know if you’ve read the book ‘The Perfect Storm’, or even seen the film of the same name, but I’ve done both and I’m pretty intrigued by the concept of a ‘perfect’ storm being caused by the coincidence of a number of big, but seemingly unrelated events. In the case of the book about the hapless fishing boat caught up in such a ‘perfect’ storm off the Newfoundland coast, it was caused by all kinds of freak weather conditions thousands of miles away including hurricanes in the Caribbean. I’m not too sure of the exact details, but evidently if enough of these things coincide with each other you end up with the mother of all storms somewhere.
What’s this got to do with pensions? Well, I thought you’d never ask. Basically, I was at a meeting somewhere or other a few weeks ago and someone suggested that so many different things were affecting UK pensions at the moment that it was getting difficult to predict what the overall effect was going to be. And it was then that it hit me. We could be in line for the ‘perfect pensions storm’, so we’d better batten down the hatches or something.
It seems to me the big and unrelated things happening at the moment, in no particular order, are:
- The Basic State Pension is reducing in value.
- The stock market has plummeted while so many company pension schemes are heavily invested in equities.
- The accounting standards have been strengthened to ensure pension deficits show up in company accounts and many companies now have so-called ‘pension black holes’.
- People are claiming to be put off saving by a combination of historically low returns and a lack of trust in pension products.
- The rules on ACT have been changed in a way that now ‘taxes’ pension funds to the tune of around £5 billion a year.
- Many occupational schemes promising defined benefit related to salary levels are now closing or have already closed to new entrants, and many are said to be set to follow suit.
- We’re all living longer because of improvements in medicine and lifestyle. (This translates to longer retirements and, therefore ‘increased’ annuity costs).
- Hundreds of thousands of ‘stakeholder’ pension schemes have been set up by employers in the last two years, but hardly anyone has joined them.
- There are never any pensions ‘good news’ stories in the popular press. At least, if there are I’ve never seen them.
And the list goes on. If you have the time you could probably add another ten or twenty to it, as I could if I could be bothered. But the point is, while each of these things is interesting in itself and makes fascinating reading in a magazine article say, what is the effect of them all happening together? That’s what I can’t get off my mind. Hopefully I’ve just been reading too much and letting my imagination run away with me!
15 May 2003
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