A comment posted by, I think, Bayard in response to an earlier post by Mark got me thinking. Basically we were discussing pensions and funding and Bayard (I think) made the point that to have 100% money purchase schemes was impractical because there were not enough suitable investments to go round.
This doesn't seem right to me on the basis that 'supply creates its own demand'. Now it could be that a huge demand for paper securities of all sorts pushes up their price level, but surely this will simply make it more likely that more people will wish to list their businesses as the 'price' to them is lower. Or more bonds will be issued, say. Furthermore Governments will be able to fund more of their borrowing from real savings.
Of course I am assuming that we have a such a thing as 'sound money' and that all other things are equal and not wildly distorted by political meddling and mis-regulation.
Anyway, what do you think?
UPDATE: Spot the error? I didn't include land rents in the available investments!
Tuesday, 19 June 2012
Are there enough 'Investments'?
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8 comments:
It's even easier if you forget about "investments" and think about the income. What is the total of all dividends paid by all UK companies? What is the total interest paid out on all UK government bonds and all bonds issued by UK companies?
Tot those up = A, knock off a figure for "shares and bonds held by non-UK people and non-pension funds to give a net figure = B, and then compare it with the amount of pensions in payment (state, public sector, private, whatever) = C.
You'll find that C is about two or three times as much as B.
Well yes but who says pension funds have to be invested in shares or bonds? Ultimately they could be invested in cash.
AC, ignore cash because it doesn't generate much income. Or include it, if you want.
Either way, the total pot of possible sources of investment income, as things stand, divided by the number of over-65s gives an average annual income of somewhere between £5,000 and £10,000 a year each. Encouraging everybody to try and save up a pot big enough to pay out more than that just means share price inflation/falling yields.
MW. Hmmm. Many over 65's use annuities (and AOTBE annuities ought to be a reasonable purchase) and as annuities are a return of capital with interest does the 'total income' argument hold?
MW. Also what about economic growth?
L, that's where the maths gets tricky, but let's start in the middle and work outwards and look at things as they stand - what is the figure "B"? Feel free to include rental income from commercial land and buildings if you will.
If I were in charge, land rents would be pooled and a fair chunk used to pay Citizen's Pension, obviously, but that is a separate issue.
If you include land rents, there should be enough investments to go round. There's no reason why not. My house used to be owned by the CEGB pension fund. Mind you, the more people rent and the fewer buy, the less money the banks make and where would thouse huge bonuses be then?
When we talk about investment money is really a big factor. The higher investment you can find the bigger the chances you get higher profit.
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