MG, in an ar5e about face way, I think he's saying pension managers have pushed pensions as a safe investment for their bonuses when the reality is that an annuity from your average pension pot isn't worth sh1t as inflation has eroded the buying power e.g. the 3300 p/a in his example. Basically he believes that fund managers have underperformed in the sense that Joe Average's pension hasn't beat inflation.
Now that's all well and good as a theory IMO but my beef with this argument is where are the figures? Proper figures not DailyMail headlines.
Well, that's my point... Young ODT knows not the subject of which he speaks.
Firstly, the underwater pensions that so infuriate him are actually the older "defined benefit" schemes. The problem with those is most emphatically not that the annuities are too small, but rather the opposite. Specifically, the payouts unconditionally promised to pensioners are excessively generous (especially, the indexation terms, i.e. inflation linkage). Given the life expectancy of the participants in many of these schemes, there isn't a manager in the world that can consistently deliver returns of this sort. That's the problem with the big legacy black holes that companies like BT, BA and Royal Mail are saddled with. (BTW, guess who promised these payouts?). The more modern "defined contribution" schemes are a lot healthier, in this sense.
Secondly, it would be vastly superior, actually, if pension payouts were actually performance-linked. This is how the Dutch pension schemes are organized and, while they've undoubtedly sufffered in the crisis, they're the best example we currently have of a relatively well-organized pension system. Point is that it's a system that encourages responsibility and, most importantly, maintains realistic expectations, especially with regards to the inflation linkage. So if pensioners who have contributed get paid too little and are unhappy, the board of trustees (elected by the pensioners themselves) and the manager all get fired. That's a system that makes a lot of sense to me.
Finally, indeed, young ODT is not really offering much in the way of substance. I have no reason to believe that pension funds, by and large, have underperformed inflation so far, given the explicit RPI linkage (e.g. ironically, the BoE employees' pension scheme). The problem isn't really about now, it's about the future.
