Pensions the next credit crunch?

When I first started writing these blogs I mainly wrote about property related topics but did write on other topics, such as credit rating agencies.

A few months ago I decided that I would limit all my blogs to property. However, this blog is going to break that rule because I feel there is a lot of comment about pensions at the moment and wanted to add my bit.

The government last week were commenting on pensions – to be more specific private pensions. Many people were up in arms about this, they were saying that the government should not meddle and they have enough of their own problems with public sector and state pensions.

However, many future pensioners who are today paying into their private/company pension schemes are planning on the basis that they will be ok when they retire as they are contributing regularly. However, when you look at private pension funds the picture is not so rosy. Look at British Airways with a large pension deficit – many billions of pounds, and the recent events at BP – a company they seemed so solid is having major difficulties – how will this effect their employees pensions?

Yes there are actuaries who carry out complicated calculations which assist with valuations, and there are accounting standards (FRSs) which give guidance – in the same way as there are credit rating agencies that were meant to give confidence on investments pre credit crunch?

So I think it is good that the government are looking at this. I am not saying whether their current thinking is right or wrong, but it is an area that needs controls.

Years ago when Equitable policyholders found our their retirement income was reduced who did they expect to fill the hole – the government via the taxpayer – as happened recently with the banks . . .see the similarities?

Credit Rating Agencies – no change at the top

We keep being told how the authorities are learning the lessons of the past. How excessive debt will be brought under control. How there will be a new financial world order.

But when you look at it what has changed? Yes, the UK government has continued its ‘bash a banker’ approach, recently with its one off tax which works very well politically as it ‘covers’ the general election period. Mervyn King talks about splitting up banks, so they are not too big to fail. Prime Ministers and Presidents across the world insist on a global approach. This does feel like words without actions.

It does seem that we are reverting to relying on the same institutions of the past. The one area I find the most surprising is credit rating agencies. The likes of Standard & Poor’s, Moody’s and Fitch are holding the key to nations’ credit ratings, from the UK’s AAA to the recent downgrade of Greece. Are these not the companies who were rating all the various funds that were holding sub prime loans and the Ponzi schemes, etc?

It feels like it is convenient for the institutions that work with these agencies to support them and restore the pre credit crunch structures. However, one change is that the rating agencies’ focus seems to have changed to the rating of national governments rather than private funds.; a mirror to the shift in the media’s attention to debt in the public sector rather than the private sector.

Have they changed their approach in how they evaluate what rating to apply? Should the rating agencies be public bodies? Why should we have confidence in them in this supposed new era…?

Who has spotted the changes in the new financial world order?