Investment returns are the basis of any good pension fund management but like everything else in pensions have lost their way in the fast buck financial society and the gambling casino of the Stock and Futures market, speculative trading in Currency, debts, property and even pensions.
Pensions need stable and long term investments which increase in a steady and possibly modest manner, previous blogs showed that these can yield adequate and secure returns on present contribution levels meeting both population and inflation increases.
Even in the present recession, saving returns of 4% are still available over 1 or 2 year fixed after charges; pension funds are still reporting returns o around 6%; internet comparison sites report monthly saving investment fund returns over 10 and 20 years of 7% and American PS funds report 25year yields over 9%.
Commercial and Company investments aim for 15 to 20% which is often exceeded, PFI in Hospitals and Schools suggest even higher returns, mortgage and Equity release rates are over 6%; Banks and Credit cards charge 18 to 29%.
It is therefore not unreasonable to expect modest returns of 6%, after costs and charges, on long term pension savings and to plan forward on these; infrastructure projects should be able to readily pay such rates, as should rents on housing, hospitals, schools etc. Pension funds are already financing Shopping precincts, Supermarkets, Office blocks and Industrial Estates.
Higher risk can still play a part giving higher returns in large funds and the early year savings, the idea of Super Trusts in pensions has been put forward (NAPF) and large funds offer stability and security; they can absorb income fluctuations, reduce charges and often dictate terms to the benefit of members.
In the consideration of the pension mechanics of funded schemes, the concept of pension yield factors was introduced in order to simply predict and monitor pension saving performance, which was related to investment returns, inflation and number of years of contribution savings.
This showed how over-contributed and under-performed current pension schemes are, particularly the State who are tied up in the pernicious pay as you go trap, which needs to be broken. If the money was made to work properly, there would be none of the problems of affordability; State expenditure, life expectancy with its delayed retirement or reducing benefits and poverty in old age.
It may seem like Utopia but it is possible and the new universal pension contributions could allow a smooth transition to this Mecca over the next ten to twenty years. The benefits are enormous not just to pensioners but to the State and the whole population, creating a revolution equal to that in the 19th Century which transformed the whole of Britain. It just needs similar faith and vision for the 21st Century.
Unfortunately our Politicians do not appear to understand this and are too tied up in the status quo and unreceptive to any major change. Fortunately the new current communication technology allows everyone to research, think and use their voice, e-mail, text, chatter, etc. to force change, make the Academics, think tanks and eventually the Politicians to take off their blinkers, look around, take note and act.
Let us hope it happens soon before it is too late, we all need to make major changes in our attitudes, aspirations and living styles to create a future for our children and grandchildren, it is their right.
Savings Annuities Public Sector NHS Teachers Police Local Government Hutton State Pensions
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