Comments: A Fool and His Money ...

To answer your last question, yes, there's been a lot of talk. There already exists a product known as a 'stakeholder pension', which I believe is similar to the 401(k). Those who hold such a pension pay in a monthly amount from their gross salary, which they can indeed invest in the market. The problem is that the management charges are capped at 1% a year, which gives the financial services industry little incentive to market them. The uptake has been very disappointing to those who introduced them. (Though I have one.)

Most companies also offer pensions for their employees, who contribute their monthly payments (gross of tax) to a fund run by the company. These schemes come in two forms: defined benefit, and defined contribution. Under the first, employees pay a set proportion of their salary and at the end of their working life receive a pension whose size depends on their final salary and length of employment. Under the second, the size of the pension is determined by the current value of all the monthly contributions made to the company scheme.

As I understand it, the UK's pension system is in better shape than many in the developed world (though of course that's not saying much). It was doing a lot better a few years ago, before: the dotcom/telecoms bubble and crash, a new tax on pension funds' dividend income, and new capital requirements for insurance companies that forced them to sell a lot of their riskier assets, like shares. Some pension funds have fallen sharply in value over the last four years.

I think the main problem with pensions is that those who do not wish to reduce their present consumption to provide for their old age assume that they can count on the frugal and the young to pay for them when they retire. Given that the retired population is only going to get more politically powerful as time goes on (as the population as a whole ages), I'm not sure they're wrong, unfortunately.

I can't say I was too offended by your jingoistic sniping. I know that you have your fair share of antisemites and moonbats on the other side of the pond.

Posted by Jon Barnard at October 25, 2004 12:19 PM

Hi Jon,

Thanks for your informative and helpful reply; it sheds a lot of light on this topic for me.

Posted by Benjamin Kepple at October 25, 2004 05:30 PM

No problem; I was quite surprised by how much I could find to say about this subject off the top of my head. Thanks for your blog, which has been much more informative and entertaining to me than my reply could ever be to you!

Posted by Jon Barnard at October 25, 2004 08:56 PM


Good Lord, that's a fine compliment. Thank you for reading! I just wish my schedule allowed me to post more often.

Posted by Benjamin Kepple at October 25, 2004 10:39 PM