July 10, 2016

All awful on the pension front

Sir, John Authers responsibly puts his finger where it hurts, the issue of whether there will be sufficient resources to provide those pensions that so many take for granted will be there, “Hunt for the middle ground to avert pension poverty” July 9.

And doing so Authers discusses the implications of defined benefit and defined contribution plans, especially in times of extraordinary low interests. His suggestion to find an in-between plan that takes a little from both, sounds very logical, though of course, unfortunately, that cannot guarantee either there will be enough to meet the needs and much less the aspirations.

But the state of the economy at the time of any drawdown of a pension also matters tremendously and, if bank regulators are allowed to continue distorting the allocation of bank credit, that state of the economy will be very bad.

The risk weighted capital requirements for banks are causing a dangerous overcrowding of the safe havens, like public debt to which a risk-weight of zero percent was decreed; and for the economy an equally dangerous lack of exploration of the risky bays, SMEs and entrepreneurs, and which got hit with a risk weight of 100%.

As a consequence banks are now mostly refinancing our safer past and not financing sufficiently our riskier future. And that bodes very badly for the future pensioners, and very badly for the future prospects of the pensioners’ last reserve and hope, their children.

@PerKurowski ©