Pensions under threat again

I have started reading "The Blunders of our Governments" by Anthony King and Ivor Crewe. It is a dissection of "the numerous blunders that have been committed by British governments of all parties in recent decades". The detailed research, probably backed up by personal contact with many of the players, has already enlightened me as to the roots of the poll tax and why the Thatcher government persisted in spite of growing warnings from within the Conservative party as to its malign effects.

The current Private Eye magazine came through the door mid-way through my reading of Chapter 5, "Pensions mis-sold". That title in itself strikes a prophetic note, given the way that the steel-workers of Port Talbot have been exploited. The blunder in particular though was the way that the 1979 Thatcher government introduced personal pensions, in order to encourage job mobility. Early leavers lost the benefits built up in company schemes; opting for a personal pension whose pot could be topped up from job to job would prove remunerative upon retirement. However, the change would not be risk-free, even though government promotions implied (and less scrupulous pension salesmen asserted) that it was. In spite of warnings from the Labour opposition and some industry insiders that personal pensions would be mis-sold, no investor protection mechanism was written in to the legislation.  As a result, more than a million people:

many of them old, poor and/or ill, had been adversely affected. [Salesmen] lied or failed to divulge relevant information about the size of their own commission fees and their firms' often exorbitant charges. They frequently neglected to point out to customers that their splendid new pensions were no longer effectively guaranteed, as SERPS and most occupational pension schemes were, but instead depended on the value of investments that might, or might not, produce a good return.

Private Eye draws attention to the current popularity of private equity funds.

The private equity sector has more than doubled to an estimated $5m in assets, which include more than 3,000 companies in the UK alone.

Pension funds have been among the biggest investors in private equity funds, along with assurance companies, banks and asset managers. So any problems in this asset cla will mean potential losses to pensions and investors.

The private equity model is based on paying high (often too high) for listed or private companies, then loading the acquisitions with debt to refinance and fund expansion while cutting costs and looking to exit by sellling or listing the companies within five years - in the meantime extracting large sums in management fees, interest and dividends.

Overleveraged private equity-owned companies can quickly be unable to meet interest or debt repayments. 

A global economy brought to ground zero by the Covid-19 pandemic sabotages this model, PE points out. There could be trouble for pension funds.