Does this chart scare you? It’s supposed to. It shows that UK companies are being eaten by their pension funds, with a deficit that has gone from 118 billion to 196 billion in September alone, as the future liabilities balloon out with falling yields on government stocks. In normal logic, if the price of something you own rises, you are better off, but in the whacky world of pension liabilities, it’s the other way round.

Explaining why making a profit on your holdings of gilts makes you poorer is part of the actuary’s black art.When prices go up, yields fall, and so the actuarial witches and wizards compute that the present value of future liabilities goes up.

So by the same token, falling share prices should be good news, as their yields go up. Er, well, no, according to the actuaries. Shares are risk assets, so you can’t assume anything useful about future dividends. Values are merely marked to market. To work out how much a pension fund will need, the deatheaters start with the “risk-free rate of return”, that on “risk-free” government debt. It’s nothing of the kind, of course. The yield on a 10-year gilt is currently 2.5%, on money that is losing value at 5.2% a year. At that rate money loses 60% of its value in a decade. It’s unlikely that the UK government would actually fail to make the payments when they are due (in devalued currency) but it’s by no means impossible.

Government bonds are liabilities on future taxpayers, while shares are a stake in the economic fortunes of the country. Thanks to the actuaries’ blind mathematics, companies are being forced to set more aside to meet their liabilities, leaving less to invest to improve the prospect of being able to pay them. The actuaries would like this process to continue until corporate pension schemes are all invested in bonds and government stock. They will call this “fully funded”, and we will wonder why we have economic stagnation. At the same time, from a national point of view, corporate schemes invested entirely in government debt will be no more funded than the state-run pay-as-you-go schemes which threaten misery for future taxpayers.

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