Why Save?

Last Updated: 22 February 2024

The inequities in the pension system are now so great that they have made saving a dirty word.

Pensions schemes are in a death spiral, writes Leo Kolivakis of Pension Pulse. The impending carmaker bankruptcy in the US means that the Pensions Benefit Guaranty Corporation, which insures the retirement benefits of 44 million Americans, will sink further into insolvency.

In the UK the government hit higher earners in its budget last week, reducing the rate of tax relief given on pension contributions. While the cut was less aggressive than some had feared, the tax grab from pension savers was the latest in a long line of such measures from Gordon Brown’s Labour party, so there may be more to come.

UK defined-benefit company pension schemes are in a combined £240 billion deficit, wrote the Guardian recently, more than ten times the gap when measured a year ago. The UK version of the PBGC, the Pension Protection Fund, is under similar pressure to its US cousin. There’s not enough money in the pot to cover all the troubled company schemes. Another bailout, anyone?

British taxpayers already have to underwrite the pensions of local government employees, whose collective scheme, the LGPS, may have assets equal to only half its liabilities, according to pensions expert John Ralfe, leaving a £100 billion deficit. The LGPS is taking a large punt on equities to try and make up the gap as, incidentally, is the PBGC in the US.

Meanwhile UK members of parliament continue to award themselves handsome benefits, in what Sue Cameron of the Financial Times calls “the real scandal”.

Leaving gold-plated benefits, reckless gambling and large unfunded debts to public sector institutions, more sober heads, such as those in charge of the Shell pension scheme, are hiking contributions dramatically to try and plug their fund’s deficit.

Shell has increased its own contribution to the fund from 5% to 23.6%, reports the Wall Street Journal, with employee contributions rising from 2% to 8%. Shell, prudently, is cutting its fund’s equity weighting from 55% to 30%.

What’s the relevance of this to ETFs? With the final-salary pension scheme model passing into history, exchange-traded funds’ low-cost makes them the natural savings vehicle for the type of pension scheme that most of us now contribute to.

But with the pension system deluged by red ink, discriminatory and fundamentally unfair, is it any surprise that, in a recent survey, three-quarters of Britons say there’s no point in saving at all?

  • Luke Handt

    Luke Handt is a seasoned cryptocurrency investor and advisor with over 7 years of experience in the blockchain and digital asset space. His passion for crypto began while studying computer science and economics at Stanford University in the early 2010s.

    Since 2016, Luke has been an active cryptocurrency trader, strategically investing in major coins as well as up-and-coming altcoins. He is knowledgeable about advanced crypto trading strategies, market analysis, and the nuances of blockchain protocols.

    In addition to managing his own crypto portfolio, Luke shares his expertise with others as a crypto writer and analyst for leading finance publications. He enjoys educating retail traders about digital assets and is a sought-after voice at fintech conferences worldwide.

    When he's not glued to price charts or researching promising new projects, Luke enjoys surfing, travel, and fine wine. He currently resides in Newport Beach, California where he continues to follow crypto markets closely and connect with other industry leaders.

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