Published by Kauders Portfolio Management, Authorised and regulated by the Financial Services Authority
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Pensions need Gilts. Only direct investment in Government bonds can provide the certainty that must underpin all pension provision. People will not risk saving in the stock market when they see it going down.
Some pension funds are making unrealistic assumptions about future growth rates in equities and alternative investments. The longer pension fund trustees take to face up to the need for certainty, the more the cost of switching to investment on a Gilt only basis will grow.
There are no easy answers. If people save more, then they will spend less. In our consumer society, less spending means sluggish economies, which in turn damages equities and reinforces the case for Gilts.
There is a direct linkage between long term pensions reform and the 'A day' changes in April 2006. 'A day' will discourage the future accruals of large pension pots by slowly increasing the effective tax take on such pension savings.
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© Kauders Portfolio Management 2005