Worried about your pension? Worried about the nation's poor savings habits or failing pension funds? Professor Avinash Persaud considers pensions and propose 'Redesigning Financial Regulation' to better suit pensioners, savers and investors.
One of the reasons why people feel more insecure today, despite generally rising incomes and near full employment, is that the idea of long employment with a single employer, followed by a decent pension, has been lost to the past. Employment and pensions have become portable and disconnected. Picking the right retirement, pension and savings arrangements have become critical decisions.
In this new world the appropriate regulation of pensions is important. However, it is Persaud's contention that the regulation has been misguided and has led to individuals bearing more risks in mechanisms that encourage the wrong management of risks.
Today, regulation is leading companies to push employees off old-fashioned defined benefit pension plans that clearly defined the retirement benefit they would receive, on to defined contribution plans which merely define how much money they put in every year.
In a defined contribution pension scheme, a 60 year old teacher looking to his or her 'low risk, tracker fund' could end up with an income for the rest of their life that is 20% higher or lower than expected just a year previously. Today a young pension scheme investing in a host of investments that give a superior return if held for a long time can be forced out early, with return penalties, by rules on how pension funds value their assets on a daily basis.
In this Gresham Lecture, Persaud considers where we have reached in pension fund arrangements and regulation today, and proposes where we should be instead.
The transcript and downloadable versions of the lecture are available from the Gresham College website:
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