British government DEFAULT

It is distressing to witness yet another piece of financial chicanery by the British government, which now proposes to substitute the Consumer Prices Index for the Retail Prices Index as the “index-linking” mechanism for a number of private occupational pension schemes. 

The effect, according to experts, will be to reduce the real value of such pensions by about ten per cent over a member’s lifetime in retirement. What a sorry swindle.

It is one thing when the government breaches contracts to which it is itself a party, but to interfere in other people’s voluntary contracts seems to be carrying things a bit far. One might also ask: whatever happened to the Rule of Law?

In the course of my career as a Professor of Finance and Accounting, I came to the conclusion that the two most important qualities in finance were competence and honesty. 

I recently wrote about British government project disasters in an IEA book entitled They Meant Well. I remarked that in England we have always been suspicious of grandiose state projects, and rather surprised if they don’t end in abject failure. So much for competence.

Nobody who has observed the post-war financial scene would dare suggest that British governments have been honest. For example, according to the Retail Prices Index, the pound has lost more than 96 per cent of its purchasing power since June 1947, when it started. Over the period, this represents a rate of currency debasement of about 5 per cent a year. 

The good news is: I don’t propose to reduce my own personal estimate of the British government’s credit rating. It was already standing at the lowest possible level.

4 thoughts on “British government DEFAULT”

  1. Posted 09/07/2010 at 11:45 | Permalink

    I disagree with David here. Since 1921 the general approach to private pension provision has been to use trust funds. Trustees use the money in the fund to meet the objectives of the scheme – there might or might not have been provisions for index linking in scheme rules. The government then comes along and makes index linking compulsory so that the use of the funds is no longer determined by the trustees and private contract. The result of this has been to substantially increase the risk and expected cost of private pension provision and this has led to its extinguishing. The government is now relaxing that regulation – in my view it should abolish it and not require index linking at all.

  2. Posted 09/07/2010 at 20:57 | Permalink

    Maybe we (partially) agree. I say that the government has no business interfering in private voluntary agreements between employers and employees. It shouldn’t be for the government to ‘require’ index-linking (especially to mitigate the effects of its own debasement of the currency!); nor to specify which index to use; nor to ‘require’ (for no obvious reason) a change in the index being used.

    Perhaps this is just one of many areas of our national life where the over-worked and over-spent government, needing to cut back on its bloated activities, should simply (and preferably quietly) withdraw?

  3. Posted 10/07/2010 at 13:00 | Permalink

    I agree and since writing my comment I have discovered that it is possible that the government may pass legislation to over-ride scheme rules that require rpi linking. Now, it is possible that those scheme rules have only been brought in order to comply with regulation (or to simplify requirement) but there is no justification for that. It was the government passing legislation to over-ride contracts of employment allowing employers to require employees to join occupational schemes that led to pension mis-selling.

  4. Posted 10/07/2010 at 22:58 | Permalink

    […] under: Double standards,Economia,Internacional,Política — André Azevedo Alves @ 23:56 British government DEFAULT. Por D. R. Myddelton. Deixe um […]

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