UK Work and Pensions Secretary Amber Rudd wants to create a new offence for those that “wilfully or recklessly” mismanage pension funds. 

One recalls the pension debacle at the Horserace Betting Levy Board (HBLB) where the defined pension deficit ballooned to around GB£ 40 million.  Assets had to be sold to meet the liability of the 140 or so pensioners. Then, if that were not enough, the Jockey Club came forward with a similar liability, and guess who helped them out? The Horserace Betting Levy Board.

The HBLB was set up to improve horseracing and was funded by bookmakers and punters. There is a certain irony that when people are given the opportunity to spend other people’s money, they are disposed to directing it toward themselves.

I doubt any of this would qualify as wilful or reckless. A careful choice of words because some liability for the pension deficits shared by many companies is down to government intervention.

I recall John Brown, then Chairman and Chief Executive of William Hill plc, urging the Chairman of the Levy Board to close the current defined benefit scheme to new entrants, without success.  He had done so at William Hill, and it seems other gambling companies have followed suit.

Gambling companies’ liabilities to pensions are low. In some companies they are immaterial.  How come? Well the executives have an instinct for numbers and value. They can quickly assess that a GB£ 100,000 annuity in 2008 yielded £7,900 whereas today you would be struggling to get half that.

In short, the current odds to do not favour the punter.  I have always thought that the actuarial profession would do well to employ bookmakers. While the gambling companies will escape the bubble that will one day burst, the rest of British industry will not.

In January last year The Guardian described IAG, the owner of British Airways, as a pension fund with an airline attached to it!

Drawing attention to the biggest deficits in the FTSE, The Guardian named Royal Dutch Shell (£6.92bn), BP (£6.72bn), BT Group (£6.38bn), and BAE (£6.00bn) (January 2018).

The UK pension industry has only 67.7% funds to meet its liabilities. In March 2017 this was equivalent to a £736 billion deficit.  To put this into context, the UK Government injected £850 billion into a rescue package to save the banks in 2009.

The cause is partly due to low interest rates. In my lifetime US interest rates have always been lower than those in the UK.  Today UK rates are significantly lower than those in the US. Pension funds need interest so their funds can grow to meet future liabilities, which are increasing.  They need higher rates to buy annuities. The low rates have been created by the Bank of England and Treasury, showing how some of the mess is due to government action.

By Warwick Bartlett