I wrote this originally for Any Other Business
Since 2008 we have all been witness to governments across the world waxing lyrical about the measures they have put in place to protect us from another financial crisis. But, as events in recent weeks leave us asking whether we ever even emerged from the crisis at all, it appears that nothing fundamental has changed.
The announcement late last Friday that the USA had lost their triple AAA rating for the first time capped a bad week for the financial markets. The Daily Express called it ‘Black Friday’ and claimed that billions of pounds had been wiped off saver’s pensions. According to NAPF it is estimated that UK schemes could have lost as much as 7% of their asset value in the past week’s market unrest. Pension funds, which lost an average of 17% of their value after the economic crash in 2008, are once again vulnerable to financial turmoil and many people may well be asking themselves if any real lessons have been learnt since the last crisis.
Investors, whose nerves have certainly been tested this week, had moved their money away from equities and into longer term and seemingly safer government bonds (or gilts). Billy Burrows, the director of Better Retirement Group, explained that pension savers are set to suffer as yields on long dated gilts are ‘dropping like a stone.’ Bond prices are rising as more investors move away from shares and this price rise is likely to be felt by pension savers. Now, with investors losing trust in the bond market, they are turning to gold as a safe haven. The question, when investors have moved as far towards ‘safety’ as possible, is where do they have left to go?
We are all going to be increasingly relying on investments for security in the future. According to the ONS a twenty year old is three times more likely to live to be 100 than our grandparents while a baby born today is 8 times more likely to live to be 100 than one born 80 years ago. Add to this the fact that pension auto-enrolment begins next year and the need for change becomes even more apparent. We all rely on long-term economic stability but we are yet to see any action from the government that goes beyond sticking together a system that is clearly falling apart. Surely we should no longer be relying on investors jumping from shares to bonds to gold in order to avert imminent disaster.
In light of this the announcement by Vince Cable’s of an independent review of investment in UK equity markets must be a good thing. FairPensions will be engaging with Professor Jon Kay, who is heading up the review, to ensure that fiduciary duties, which exist to protect savers, are no longer used as a justification for short-termist behaviour.
Society cannot endure teetering on the edge of economic disaster for much longer. We need radical, fundamental reform that goes to the heart of the problems we face or else it will be pension savers and the public at large who suffer.