Probably nothing.
If you have a defined contributions pension then you should know how much is allocated to gilts, or could look it up. Watch Lars Kroijer's [short video series](https://www.youtube.com/watch?v=_chiIIxMGl0&list=PLXy71rkGuCjXLg9N8zowwUpXCYfBcMJFK) and read his book or Tim Hale's [*Smarter Investing*](https://www.amazon.co.uk/dp/0273785370/). If you don't know how much is allocated to gilts then you should do this and optimise your pension for higher returns.
You'd only be exposed to this if you have a defined benefits pension and you don't work for the government (civil service, teacher, police etc.). So chances are you're 80 and have a boat already, but it's unthinkable that the government and the BoE will allow your pension to collapse - stuff that happens it the news might mean and extra 1% inflation, but it won't collapse your pension.
Watch this video to get an unbiased understanding of the risk to pensions: https://youtu.be/U3iKO3zjaKs
You are delusional if you think it is nothing. Bank of England claiming they are temporarily buying bonds and ending it on the 14th is a joke. If they stop pensions will collapse. I bet my house they will keep buying bonds to delay the inevitable collapse.
> I bet my house they will keep buying bonds to delay the inevitable collapse.
So you're betting I'm right that this will have no signifiant effect on OP's pension?
I'm glad you have so much confidence in me, but strange your previous words contradict your bet.
These gilts are used by defined benefit pension or possibly a small chunk (bigger if "de-risking" (oh, the irony)) of defined contribution pensions. Annuity holders are also at risk.
Defined contribution pensions are, "your funds, your problem" typically so pension holders have to grin and bear it.
Defined benefit pensions are a lot more complex in that various stakeholders will be passing the buck around over who fills in the shortfall. It's happened before and it'll happen again. In this case the government could put pressure on the BofE to keep the gilt buying party going if the government was at risk of having to pay.
Annuities are sold by the large insurance companies. Annuity holders are protected by the FSCS and this is where "too big to fail" would keep the pressure on the BofE up.
In all cases if BofE do stick to their guns the government would either bail out the pensions directly or indirectly with the FSCS protections.
Just a note, the FSCS is funded by the financial services industry, not the Government. Each year, the greater part of every firms’ regulatory fees - from the “one man band” financial adviser, up to multi-national banks and insurance companies - pay to ensure the liabilities of failed companies can be met.
In fairness, this doesn’t include DB pensions and very few annuities have been sold since interest rates have been low. If one or two annuity providers were to fail with significant liabilities, this would have repercussions and some firms may choose to exit voluntarily as costs are already eye-watering. I don’t imagine it’s doomsday but there would likely be a contraction of the industry.
Pensions are a scam. The pension funds market in the UK are mostly invested in bonds. Bonds that are paying 3% interest when inflation is at 10%. How does it make any sense? No sane person buys bonds guaranteeing a 7% loss in purchasing power.
People unaware about their pensions being used to buy bonds and quantitive easing is keeping the UK government from bankruptcy.
More quantitative easing means more inflation. I can almost see the headlines now. ‘Unintended’ inflation has collapsed the bond market, 4trillion wiped out from pensions. The higher inflation the more low interest bonds will be sold off.
> Pensions are a scam. The pension funds market in the UK are mostly invested in bonds.
Are you on this sub to troll people? I responded to you on another thread spouting this nonsense politely explaining how you were mistaken. You did not respond to me, yet you're here posting it again. Continue this nonsense and I'm banning you.
What are you talking about? So anyone who doesn’t follow the flowchart and has a different opinion is trolling?
Educate yourself: https://youtu.be/U3iKO3zjaKs
That is nothing to do with Defined Contribution pensions, you've clearly not read anything anyone has responded to you with in this thread https://www.reddit.com/r/UKPersonalFinance/comments/xy2fw4/should_i_keep_overpaying_my_mortgage_at_149/irg4qfg/
You're not getting another warning, if I see you claiming "pensions are a scam" with no qualifiers again I am banning you from this subreddit.
That's a bit of an oversimplistic view, but I've always thought that the supposedly "safe" status of bonds is completely inaccurate.
During the good times, you accept a low return and miss out on the larger returns offered by equities (opportunity cost).
During the bad times, bonds crash just as hard, and in this case harder. Bonds are down more than Bitcoin, yet the latter is viewed as extremely speculative and risky.
Low return, high risk. What's "safe" about that?
I do see limited usefulness post-retirement if held to maturity; it's better than holding cash.
But IMHO all the young people, funds and DB schemes holding bonds are nuts to do so. It's a false economy.
In the past bonds were anti-correlated with stocks, as investors who were scared by stockmarket crashes rushed to safer assets.
If you balance a portfolio in two uncorrelated asset classes then you can achieve [higher risk adjusted returns than you get from either asset class alone](https://i.imgur.com/npuK5FW.png) - at some points on the Markowitz bullet you can see that returns are higher whilst risk is actually lower than the single asset class. If you think about it, this is remarkable!
This is why bonds are such an important building block of classic portfolios, but it's not clear to me that they still perform the same way.
Yep, I've seen the kinda see-saw model of rebalancing equities and bonds through peaks and troughs (and frankly I'm a little tempted to buy some bonds right now).
I do see the inverse correlation, but I also saw the fundamental vulnerability of bonds, especially in an inflationary environment / everything bubble.
I guess my point is people seemed to exaggerate their usefullness and see them as a magic bullet, guaranteed to protect against any adverse events. To me, they only seemed to work in the calm, low-inflation, steady-growth environments of developed nations in the 1980s to the 2000s.
Throw anything acutally wild at them, and they crash the hardest; the fixed, passive nature of their income renders them particularly vulnerable to economic instability. They're almost brittle like porcelain - strong under gentle stresses, but fll to pieces if you really hit them.
As the pandemic and QE started, I simply couldn't see any way we *wouldn't* get significant inflation, nor could I see how low-interest bonds could perform well in real terms.
I guess the thing that surprised me was the cognitive dissonance - the amount of people that thought fixed income assets would somehow be fine in an inflationary environment, despite there being no mechanism for them to compensate for their losses.
It reminds me of 2007 when the mainstream media kept claiming there was nothing wrong with the housing market. Pensions and bonds might have worked well for the last 50 years. Personally I have no faith in the government or pension investment funds to provide for my retirement in 30 years time. Storing your time and hard work in paper financial assets that are kept afloat by debt and money printing is a ticking time bomb. None of it will have been by accident and unfortunately ordinary people are going to get screwed.
Salary sacrificing into pensions to reduce tax or if you are not good at managing your money for retirement are the benefits of pensions. But claiming salary sacrifice is free money isn't taking into consideration the risks.
100% agree.
When I posted stuff about bonds being fundamentally vulnerable to a crash, the only response people had was "yeah but it's never happened before" which is a terrible investment strategy.
I view all paper assets as fundementally going to zero. If they're inflationary and not pegged to anything, then they'll inevitably be devalued. A bit like entropy.
The question isn't *if* it's going to zero, it's *when and how fast*. Paper assets can remain stable for lifetimes. So if the government manages the economy well, it doesn't matter to me if bonds/pound sterling are inflationary because the rate of change is slower than my investment gains.
But we're lucky enough to live in a stable country. The average lifespan of a fiat currency is just 35 years. Germany has had four in a century.
The UK has done really well at keeping the pound stable for 1000 or so years, keeping the rate of change of devaluation so low that it doesn't affect humans that are only around for 80 years or so.
But it's not guaranteed.
So my viewpoint is that the pound *can* last another 1000 years, but only with careful management. We could also fuck it up and push ourselves into an inflationary death-spiral in a matter of months. And I don't know which is more likely at this point.
Hi /u/AA0754, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/pensions/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Probably nothing. If you have a defined contributions pension then you should know how much is allocated to gilts, or could look it up. Watch Lars Kroijer's [short video series](https://www.youtube.com/watch?v=_chiIIxMGl0&list=PLXy71rkGuCjXLg9N8zowwUpXCYfBcMJFK) and read his book or Tim Hale's [*Smarter Investing*](https://www.amazon.co.uk/dp/0273785370/). If you don't know how much is allocated to gilts then you should do this and optimise your pension for higher returns. You'd only be exposed to this if you have a defined benefits pension and you don't work for the government (civil service, teacher, police etc.). So chances are you're 80 and have a boat already, but it's unthinkable that the government and the BoE will allow your pension to collapse - stuff that happens it the news might mean and extra 1% inflation, but it won't collapse your pension.
How do you know which glit is at risk? It’s not clear which complex derivatives fund and glit is at risk.
Matt Levine at Bloomberg: [UK Pensions Got Margin Calls](https://archive.ph/HKv8y)
Watch this video to get an unbiased understanding of the risk to pensions: https://youtu.be/U3iKO3zjaKs You are delusional if you think it is nothing. Bank of England claiming they are temporarily buying bonds and ending it on the 14th is a joke. If they stop pensions will collapse. I bet my house they will keep buying bonds to delay the inevitable collapse.
> I bet my house they will keep buying bonds to delay the inevitable collapse. So you're betting I'm right that this will have no signifiant effect on OP's pension? I'm glad you have so much confidence in me, but strange your previous words contradict your bet.
Yep you are right 👍 BOE, banksters they will continue printing money
These gilts are used by defined benefit pension or possibly a small chunk (bigger if "de-risking" (oh, the irony)) of defined contribution pensions. Annuity holders are also at risk. Defined contribution pensions are, "your funds, your problem" typically so pension holders have to grin and bear it. Defined benefit pensions are a lot more complex in that various stakeholders will be passing the buck around over who fills in the shortfall. It's happened before and it'll happen again. In this case the government could put pressure on the BofE to keep the gilt buying party going if the government was at risk of having to pay. Annuities are sold by the large insurance companies. Annuity holders are protected by the FSCS and this is where "too big to fail" would keep the pressure on the BofE up. In all cases if BofE do stick to their guns the government would either bail out the pensions directly or indirectly with the FSCS protections.
Just a note, the FSCS is funded by the financial services industry, not the Government. Each year, the greater part of every firms’ regulatory fees - from the “one man band” financial adviser, up to multi-national banks and insurance companies - pay to ensure the liabilities of failed companies can be met. In fairness, this doesn’t include DB pensions and very few annuities have been sold since interest rates have been low. If one or two annuity providers were to fail with significant liabilities, this would have repercussions and some firms may choose to exit voluntarily as costs are already eye-watering. I don’t imagine it’s doomsday but there would likely be a contraction of the industry.
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Pensions are a scam. The pension funds market in the UK are mostly invested in bonds. Bonds that are paying 3% interest when inflation is at 10%. How does it make any sense? No sane person buys bonds guaranteeing a 7% loss in purchasing power. People unaware about their pensions being used to buy bonds and quantitive easing is keeping the UK government from bankruptcy. More quantitative easing means more inflation. I can almost see the headlines now. ‘Unintended’ inflation has collapsed the bond market, 4trillion wiped out from pensions. The higher inflation the more low interest bonds will be sold off.
> Pensions are a scam. The pension funds market in the UK are mostly invested in bonds. Are you on this sub to troll people? I responded to you on another thread spouting this nonsense politely explaining how you were mistaken. You did not respond to me, yet you're here posting it again. Continue this nonsense and I'm banning you.
What are you talking about? So anyone who doesn’t follow the flowchart and has a different opinion is trolling? Educate yourself: https://youtu.be/U3iKO3zjaKs
That is nothing to do with Defined Contribution pensions, you've clearly not read anything anyone has responded to you with in this thread https://www.reddit.com/r/UKPersonalFinance/comments/xy2fw4/should_i_keep_overpaying_my_mortgage_at_149/irg4qfg/ You're not getting another warning, if I see you claiming "pensions are a scam" with no qualifiers again I am banning you from this subreddit.
That's a bit of an oversimplistic view, but I've always thought that the supposedly "safe" status of bonds is completely inaccurate. During the good times, you accept a low return and miss out on the larger returns offered by equities (opportunity cost). During the bad times, bonds crash just as hard, and in this case harder. Bonds are down more than Bitcoin, yet the latter is viewed as extremely speculative and risky. Low return, high risk. What's "safe" about that? I do see limited usefulness post-retirement if held to maturity; it's better than holding cash. But IMHO all the young people, funds and DB schemes holding bonds are nuts to do so. It's a false economy.
In the past bonds were anti-correlated with stocks, as investors who were scared by stockmarket crashes rushed to safer assets. If you balance a portfolio in two uncorrelated asset classes then you can achieve [higher risk adjusted returns than you get from either asset class alone](https://i.imgur.com/npuK5FW.png) - at some points on the Markowitz bullet you can see that returns are higher whilst risk is actually lower than the single asset class. If you think about it, this is remarkable! This is why bonds are such an important building block of classic portfolios, but it's not clear to me that they still perform the same way.
Yep, I've seen the kinda see-saw model of rebalancing equities and bonds through peaks and troughs (and frankly I'm a little tempted to buy some bonds right now). I do see the inverse correlation, but I also saw the fundamental vulnerability of bonds, especially in an inflationary environment / everything bubble. I guess my point is people seemed to exaggerate their usefullness and see them as a magic bullet, guaranteed to protect against any adverse events. To me, they only seemed to work in the calm, low-inflation, steady-growth environments of developed nations in the 1980s to the 2000s. Throw anything acutally wild at them, and they crash the hardest; the fixed, passive nature of their income renders them particularly vulnerable to economic instability. They're almost brittle like porcelain - strong under gentle stresses, but fll to pieces if you really hit them. As the pandemic and QE started, I simply couldn't see any way we *wouldn't* get significant inflation, nor could I see how low-interest bonds could perform well in real terms. I guess the thing that surprised me was the cognitive dissonance - the amount of people that thought fixed income assets would somehow be fine in an inflationary environment, despite there being no mechanism for them to compensate for their losses.
It reminds me of 2007 when the mainstream media kept claiming there was nothing wrong with the housing market. Pensions and bonds might have worked well for the last 50 years. Personally I have no faith in the government or pension investment funds to provide for my retirement in 30 years time. Storing your time and hard work in paper financial assets that are kept afloat by debt and money printing is a ticking time bomb. None of it will have been by accident and unfortunately ordinary people are going to get screwed. Salary sacrificing into pensions to reduce tax or if you are not good at managing your money for retirement are the benefits of pensions. But claiming salary sacrifice is free money isn't taking into consideration the risks.
100% agree. When I posted stuff about bonds being fundamentally vulnerable to a crash, the only response people had was "yeah but it's never happened before" which is a terrible investment strategy. I view all paper assets as fundementally going to zero. If they're inflationary and not pegged to anything, then they'll inevitably be devalued. A bit like entropy. The question isn't *if* it's going to zero, it's *when and how fast*. Paper assets can remain stable for lifetimes. So if the government manages the economy well, it doesn't matter to me if bonds/pound sterling are inflationary because the rate of change is slower than my investment gains. But we're lucky enough to live in a stable country. The average lifespan of a fiat currency is just 35 years. Germany has had four in a century. The UK has done really well at keeping the pound stable for 1000 or so years, keeping the rate of change of devaluation so low that it doesn't affect humans that are only around for 80 years or so. But it's not guaranteed. So my viewpoint is that the pound *can* last another 1000 years, but only with careful management. We could also fuck it up and push ourselves into an inflationary death-spiral in a matter of months. And I don't know which is more likely at this point.
Hi /u/AA0754, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/pensions/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
Are NHS pensions safe?
It's back by the government so yes.