The recent situation with Carillion should force many to consider the larger issue of corporate, or public, pension solvency. The underfunding of pensions is serious in many cases, and the “guarantee” of funds availability in retirement is not 100%. Whether we want to talk about social security, the North Dakota state teachers’ pension fund, the situation below with Carillion or a different company several of the issues remain the same.
Carillion’s fate, like that of retailer BHS, raises questions about whether the pensions regulator should be tougher https://t.co/2zQg6kvND9
— The Economist (@TheEconomist) January 16, 2018
Most people simply assume their pension will be available upon retirement. I think they should believe that less and less. The public seldom even hears about the assumptions driving the models used by the pensions. The stark disconnection from current reality in many of these plans, let alone a connection with demographic and economic forces in the future, should be cause for mass uprising.
I am completely in favor of pensions both private and public. They appear to be an effective measure fighting poverty in older age groups. They must get onto firmer financial footing. For the public pensions this would represent a loss of fiscal flexibility now and into the future. It clearly impacts tax and spending decisions, but the voting public needs to be made aware of that in explicit terms. The same goes for the private sector where shareholders would be pit against employees with pension benefits for shares of revenues.
There will always be circumstances judged to reasonable be outside the control or foresight of firms and government. However, demographic assumptions failing to take into account the possible extension of lives and overly optimistic assumptions about asset growth potential do not qualify as such. If anything it is the pension recipients that allow this to happen by failing to oversee the managers of the pension.
How firms and governments manage their balance sheet need to be something pension recipients examine, and closely, going forward. It is clearly in their financial interest to do so. However the public needs to watch this too. Public pensions are one thing, but a public guarantee to private pensions is another and the regulator needs to make sure plans remain solvent or the taxpayer suddenly is on the hook for everything once again.
