UK - With the Treasury putting UK unfunded public sector occupational pension liabilities at £800bn in 2007, calls have been renewed for the government to implement a proposal that could simultaneously plug the deficit and reduce spiralling costs of private sector defined benefit (DB) pension provision.
At the same time, the release of new long-dated inflation-linked gilts would ease the distortion in the UK bond market - acknowledged by the government to be caused in part by the "cumulative effect of regulation" of UK DB schemes - and therefore reduce the sponsorship costs of private DB schemes.
Speaking at an institutional conference this week, Toby Nangle, investment manager at Barings, outlined the plan and said he had had limited conversations so far with the UK Treasury, which had focused on the potential investment risk faced by the five new pension funds.
However, Nangle argued the Treasury already had experience of dealing with exposure to investment risk through their guarantee of the Pension Protection Fund and the Parliamentary Pension Fund.
Also at the conference was former head of the Government Actuaries' Department (GAD), Chris Daykin, who commented: "It would be nice to see the government increasing the stock of long-dated gilts, but whether [the problem] can be solved overnight by this sleight of hand, I am less convinced."
On the creation of five huge CalPERS-style funds, Daykin added: "The official government line is that it doesn't make sense to invest all long term liabilities in the markets."
Daykin explained the five public sector pension funds, which exist unfunded for administrative purposes, were notionally invested in "paper" portfolios of UK gilts.
He added there had been an experiment to "invest" the paper assets of the Teachers' fund in equities some time ago, but this had been curtailed when the resultant theoretical outperformance had led unions to demand higher pension benefits.
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