All entries for Tuesday 19 May 2015

May 19, 2015

Ros Altmann the new pensions minister and USS deficits

Just before the election David Cameron announced that the well known independent pensions expert, who was previously the government's Older Worker's Champion, was to be made a Conservative peer. Now she has been appointed pensions minister in succession to the LibDem Steve Webb who had done the job for the whole of the last parliament. Both are experts in their field but they have very different perspectives.

As far as the main question facing the USS, the measurement and management of DB pension fund deficits, is concerned there is a big difference between them. Steve Webb - as was to be expected from one of the Orange Book Liberals for whom free markets are fundamental - was a consistent believer that the deficits computed using market-based ideas are real, and frequently said so. Ros Altmann on the other hand, has been more pragmatic and much less of an economic ideologue. She has, for example, explicitly criticised the USS deficit in an article in the Financial Times, "Scare stories about USS liabilities are overblown".

The article make a number of important points that economic neoliberals like Webb assume away in their belief that the world consists of perfect markets everywhere. For example she says "A fund the size of USS cannot fully de-risk", "Pension funding has become more challenging in a post-quantitative-easing world, where investment risk and mark-to-market pension liabilities have been distorted by Bank of England gilt purchases. This requires a measured, long-term response to pension funding, which can look through shorter-term distortions and readjust over time where necessary. Indeed, switching to bonds at current rates may itself be a `massive bet'.", "Further changes may be required to ensure intergenerational fairness to cohorts of sponsors and members with such a large, open scheme, but this should be negotiated on the basis of long-term forecasts rather than knee-jerk reactions to short-term market factors."

Her appointment probably has little direct relevance to the USS crisis. But it is possible it might lead to a change in thinking about the pensions regulatory system more widely.


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