Jun 14 2007
Great news - pension funds have lost money so they are better off
In the upside down regulated world of the actuaries and pension advisers there is bad news and good news.
The bad news is that the bonds pension funds were told to buy in large quantities have gone down in value. That’s no surprise to readers of this site, as government bonds were very dear a year ago. Funds have lost around 10% on the ones they bought at the peak.
The good news is that pension deficits have gone down, not up. The actuaries base the estimate of the long term costs on the funds on the interest rate. When the rate goes up (bond prices falling) they say the long term liabilities fall!
So that’s??OK then. It was a masterstroke to make people buy assets that have gone down.
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
You’ve lost me (as usual). I understand that governmnent bonds are traded, and that they vary in terms regarding how they are paid back and at what interest rate. What you’re saying is that they measure the pension fund deficit on what they believe will be there in the future (which makes sense as people retire then die in the future) and that in the UK they link this directly to UK interest rates?
Nah, doesn’t make sense to me. Mind you I can’t help thinking that if Brown keeps borrowing at this rate, while running such a high trade deficit, UK bonds will end up worth nothing as whispers start that we can’t actually pay them back without trashing our economy. Then again I didn’t really understand this stuff about how the economical cycle had changed or something like that.
Best leave it all to the guys that know how huh? Isn’t that what they told pension fund investors 30 or 40 years ago?
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