The main ingredient of any safe pension system is a healthy and sturdy economy.

Sir, I refer to Martin Wolf’s “It is folly to make pensions safe by making them unaffordable” FT, June 28.

Wolf writes: “We also need true risk-sharing within and across generations, which is absent from today’s defined-contribution schemes”

But current risk weighted bank capital requirements, with lower risk weights for financing the “safer” present, e.g., loans to governments and residential mortgages, than when financing the riskier future, e.g., small businesses and entrepreneurs, is a clear example of how that intergenerational holy bond Edmund Burke wrote about has been violated.

John Kay and Mervyn King.“Radical uncertainty”? Please, give us a more stupid "radical certainty", than credit risk weighted bank capital requirements.

And way back, when observing how many Social Security System Reforms were based on the underlying assumption that they will be growing 5 to 7 percent in real terms, I also warned, time and time again, that it was not possible for the value of investment funds to grow, forever, at a higher rate than the underlying economy, unless they are just inflating it with air, or unless they are taking a chunk of the growth from someone else. In this respect the 'chickens are only coming home to roost'.

PS. Historically, through all economic cycles, there is nothing that has proven so valuable in terms of personal social security as having many well-educated loving children to take care of you, and that, in real terms, you can't beat with any social security reform.

A letter to Martin Wolf in 2015. An essential component of an Edmund Burke intergenerational holy bond, must be the willingness to take risks.

Another letter on this subject sent to Martin Wolf in in 2017

And another letter on the Covid response intergenerational conflict of monstrous proportions, also published by the Washington Post in 2020

How much lower fertility, less children, is caused by “habitual well-being”?

@PerKurowski

“Radical uncertainty” indicates regulators should stay away from “Bayesian subjective probabilities”

Sir, John Kay in “The other multiplier effect, or Keynes’s view of probability”, August 15, writes that “the largest and most famous Dutch book… a set of choices such that a seemingly attractive selection from it is certain to lose money for the person who makes the selection… would be the collection of ingenious structures products RBS acquired when it bought ABN Amro”. 

Forget it! That book, as a Dutch book, does not even come close to Basel II regulations. Those regulations, which offered a world without bank crises, set the bank capital requirements lower when the perceived risk were lower, and thereby doomed the banks to overdose on perceived risks, and create extremely dangerous and obese exposures to what was, and is, officially deemed as “absolutely not risky”. 

Kay mentions the possibility that one has to use “Bayesian subjective probabilities… because if they did not, people would devise schemes that made money at their expense”. That might or might not be true, but, at least, when it comes to bank regulators, the best is for them not even to engage in any sort of risk arbitration. One single capital requirement for any bank asset is the only rational response to any “radical uncertainty”.