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A cynic would say this is by design. The government created those funds to avoid paying pensions, and spend the money themselves (pension funds are designed to let the government spend all the money they collect, increasing government debt. They do not have the choice what to invest in), and this is merely a continuation of that policy. That these funds are going to crash is a certainty, they're designed to delay it as much as possible. They have now achieved that. When it became clear that having enormous debt inevitably causes instability when people doubt the government's ability to pay this back, pension funds became responsible for not just funding the government, but also guaranteeing the ability of the government to loan more money. This requires leveraging their investment, and THAT is what's causing the crash here, that leverage. They've effectively guaranteed N times the government_debt, and that N is what became "big". That guarantee doesn't help pension funds, it keeps government debt payments low. The market is saying they don't want to lend to this government, and the government (not the PM, the rules for pension funds that already exist) is trying to force the availability of cheap debt. Of course, not using their own money or budget, but using pension money of ordinary people. This became out to be so incredibly expensive that even pension funds were in danger of not being able to pay for it, so the BoE lowered government funding costs using money printing, against their policy. Pensions the way they were introduced after WW2 in the majority of places are utterly unsustainable, and the UK is no exception. If you calculate what a person needs to have an acceptable pension at the yields we've seen, you get to about a million pounds per person (2% drawdown, 2% investment yield, for 30 years, giving a person 25k GBP per year after tax = roughly a million. And that's generous, assuming interest rates go up and stay up, on average, above 4% without dropping average stock market returns below 4%, and with dropping inflation to ZERO 0%, because at 2% over 30 years, it's of course more, if you want the standard "parity" investment to work out). Pension funds actually have about 50k per person, not even 2 years worth of pension. Pension funds are going to crash, obviously, and what Truss and Kwarteng are trying isn't the cause of that. In fact, huge inflation ought to delay the point these funds will crash. It's a matter of when, not if, and not a question "who is in office when it happens". I actually think their odds of preventing a pension fund collapse during their term are pretty good. The government is back to the 1920s: they've found a way to force the government budget to be money printed by threatening pensioners livelihoods, and thereby can now effectively spend infinite money. This will of course cause massive inflation, but it will as was demonstrated, save pension funds. It won't, of course, help pensioners. They'll lose big in effective purchasing power. And that is exactly the point of this policy. |
I have yet to see an exact model that shows this. Obviously it could not be one to one because of residential/commercial credit based on a fractional reserve system.