They cannot be serious. The latest report from the Pension Protection Fund shows an alarming plunge into the red. At the end of last month, the deficit on the 6,533 schemes it covers jumped to £222 billion from £159 billion at the end of October. So what happened to make things £63 billion worse in a single month? More rogue employers? Meltdown in the markets? Shocking new longevity numbers?

None of the above. The deficit widened because the market value of the assets in the funds went up. If you owned something that went up in price, you’d probably decide you were richer. Thanks to the nonsensical way the actuaries do their sums, a rise in bond prices (with the corresponding fall in yield) means the opposite, because their calculation of the present value of future liabilities is greater.

When it comes to shares, the boffins take the opposite, common sense approach, and decide that a share is worth what the market says it is worth. No fancy discounting of future dividends here, thank you. If the price of a share goes down, the yield may go up, but the actuaries argue that the move signals a question-mark over future payments. The baleful result is that today’s actuarially-calculated value of these longest of long-term funds swings about all over the place. On the downswings, companies are obliged to pour cash into their pension funds, rather than investing it in the business to secure a long-term future.

The pressure from the actuaries to invest in bonds, and preferably the “risk-free” bonds issued by the UK government, is impossible to resist, as successive regulations have pushed pension claims further up the creditors’ pecking order. So rather than provide the risk capital on which economic growth (and the ability to pay pensions) depends, funds are steady sellers of equities. Yet consider the postion of a pension fund entirely invested in gilts; its sole asset is a call on future taxpayers, on a par with the unfunded liabilities to, say, civil servants. What’s the difference?

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