Comment: Martin Brampton wonders whether there should be another way of preparing for life after work...
The IT business has always seemed youthful. But it is not as youthful as it was. Some companies may insist on hiring youngsters but the people who created much of the IT structure we see today have been steadily ageing. They were the 'baby boomers' who were born soon after the Second World War and before long they will be thinking about drawing pensions.
Pensions are a problem area. Nobody seems quite sure what the problem is but most people are worried. This week, I want to consider the issues around the question of funding. It is often assumed that funded pensions are greatly superior to unfunded. That is, people say it is better to have a pension scheme based on investments than to depend on the government to pay out pensions from current taxation.
This is an odd sort of argument. We need to look at the economic reality. Pensions are about those of working age producing goods and services, some of which are consumed by those too young or too old to work. There are different ways in which this can come about, although none of them look at all reliable.
I have some pensions held in managed funds. I suppose that means that when I sit on the train between York and London, I can look around and think of myself as a part owner of the great British railway system. The funny thing is that I get no feeling of ownership. The railway companies never consult me about how the railways should be run. I have no special rights to train travel.
The trouble is, the pension funds invest the money on my behalf, giving me no actual ownership of anything other than the pieces of paper that the pension company provides to me. And those pieces of paper do not guarantee me very much at all. When I decide to retire, I cannot demand to take ownership of my slice of the railways. All that I will be offered is another piece of paper that entitles me to draw an income for the rest of my life, provided the pension company stays in business.
That sounds good, until we consider that prior to drawing the pension, I cannot get any idea of what my entitlement will be. In fact, my fund may decline sharply before I am ready to draw a pension. That has been happening recently as stock markets have moved up and down -- but mainly down. Optimists believe that shares must now be cheap but there are good reasons why that view may well be mistaken.
When I do know my entitlement, the income will be more or less fixed in money terms, and not in terms of the goods and services I may hope to consume in my old age. At present annuity rates are low, meaning that any given fund will provide only a small retirement income. Guarding against even a low rate of inflation during retirement reduces the income still further and there is no guarantee that, whatever rate is selected, it will be sufficient to cover actual inflation.
If we think about the fundamental problem of conserving value, we again need to remind ourselves of the economic reality. Ownership of a fund does not directly give the right to current consumption of goods and services. And that is precisely why, when we decide we are too old to build computer systems, we need to have an income in the form of a pension. Whatever we may own in the way of assets, nothing is guaranteed to give us a future entitlement to goods and services.
As if that were not bad enough, a further problem with funded pensions is that occasionally people steal the funds. Even when that does not happen, the financial services industry is largely based around extracting fees from people who deposit money in things such as pension funds. The amounts transferred can be very large. Which all means my funded pension is not bringing me a great of comfort. Maybe an unfunded pension would be better for IT people? I'll consider that next week.
Martin Brampton is a director and founder of Black Sheep Research (www.black-sheep-research.co.uk), an independent consultancy providing research, writing and speaking services on a wide range of business and technology subjects. Martin was previously a director at Bloor Research, and has worked with IT as a user and analyst for over 20 years. He has been a frequent contributor to silicon.com's Behind the Headlines TV programme and can be contacted at firstname.lastname@example.org .
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