More Pension Propaganda

Remember this head line; Lost in Iceland: £1 billion from councils, charities and police.

Seriously do they think we have no memory at all? Over the last few months the government have been using a strange language when it comes to public sector pensions. Apparently public sector pensions do not function in the same way as all other pensions. Workers pay their money in every month, the organisation pay’s its contribution thus far all is equal (and I don’t mean in monetary terms). When it comes to payment time however the language changes and it is now the tax payer that has to foot the bill for the pensions of these horrid public sector workers. The language used could leave us thinking that these workers were receiving a pension for free. Not that they were simply receiving a return on money they have invested over time.  I honestly think I need educating in this area! I thought that when public sector workers paid their pensions, that money was invested in the markets just as per any other pension.

The idea I thought was that their money along with the contribution from their employer would go to work for them, and their pension would be paid out of the profits made on their original investment. The truth is public sector pensions are invested in the markets and every Local Government Pension Scheme has to have a statement of investment principles.

Here is part of an example I found online.

The target asset allocation and scheme specific benchmark are:

                        s          30%     in UK equities

                        s          30%     in overseas equities

                                                  9%     in US

                                                  9%     in Europe

                                                  6%     in Japan

                                                  6%     in Pacific Basin and Emerging Markets

                        s          15%     in index linked securities

                        s          10%     in corporate bond securities

                        s          10%     in property

                        s           5%     in private equity investments

So basically the new plan is public sector workers pay more in and get less out as the public purse cannot afford to keep its workers so well.  

I do admit that there may be a debate to be had about public sector pensions; the whole pension based on your final salary may well be unfair and the truth is we are all living a lot longer and that means receiving our pensions for much longer. I have heard some pretty good debates about this all week. I am afraid that none of these including Cameron’s eloquently delivered speech today have completely convinced me that such drastic changes are entirely necessary.

As stated above I am thrown by the argument that public sector pensions are breaking the public sector piggy bank. This argument looses me because I have a tiny bit of understanding around how investment works. Enough to know that when we give our money to financial institutions to invest and they pay us a return of say 4%, that is not how much they have made with our money. They have probably made a minimum of 8%. What does this like in monetary terms? If I invest £10,000 for twelve years at 6% I will double my cash to £20,000. The financial institution that had my money for those ten years could have invested that money straight into the stock market. Let’s say for arguments sake that they have made a 12% return. By the end of those twelve years they will have also made £20,000 for themselves with money that was not even there’s. I agree, these figures do not sound too bad when you consider that they are taking all of the risks and if they lose my money they still have to pay me my agreed 6% right?

So how much money can they make on the markets? Just have a look at banker’s wages and bonuses and that will give you some idea! Way more than 12% I think. I have heard of people who made literally a 100% return over 12 months by investing in Gold Just before the “recession” began in 2008.  So 1 million pounds became 100 million pounds.

The truth is that the local government should be making way more than it is paying out and if it is not, well then, they need to sack their investors.  The real truth maybe that their profit margins are down!  Just imagine how high those profit margins were when most people died within 10 years of cashing in their retirement.

I have to ask? is it a coincidence that out public services lost significant amounts of money in 2008 that apparently did not matter much at the time but now they do not have enough money for pensions.  I acknowledge I could be way of track here but It seems to me that public sector workers may be being asked to do a fair bit more than just pay for their own pension. They might be being asked to refill the coffers of the public purse and foot the bill created by the financial organisations that lost the money in the first place. Oh does this sound familiar? I guess it’s a given now in the UK that poor Joe Bloggs will bail out our financial services whenever they mess up.

I guess I just feel that the political spin doctors are at work again, using phrases “like the tax payers purse” to justify their actions. In fact I think it would be helpful if our government woke up to the fact that the general public are not so easily fooled by their spin as we used to be. The people are a little more educated now; no matter how hard they push their agenda’s in the media. You only have to look at the response to the NHS reforms and their forestry commission plan to see that the people will not simply roll over and say ok; just because someone important tells them that their latest policy or plan is best for our country.