The happy Bank of England pensioners

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For pensioners and those approaching retirement in the private sector, the past few years have been worrying in the extreme. The Bank of England’s policy of depressing interest rates and gilt yields has resulted in a sharp drop in the value of annuities while the National Association of Pension Funds believes that QE has cost pension funds £270 billion.

Various officials at the Bank of England have scoffed at the concerns of the pension industry, saying that the assets of pension funds have been doing very nicely, thank you. And in the case of the Bank of England’s own pension fund, that would certainly seem to be true. But then it is a very untypical pension fund.

In 2007, the average pension fund had over half of its portfolio invested in equities. Not so, the Bank’s fund, which sold its entire 21.6% holding of UK equities late that year, coincidentally avoiding a precipitous crash in the stock market as the financial crisis hit. The fund moved heavily into index-linked gilts, which protect against rises in inflation. From a proportion of 25.6% in index-linked securities in Feb 2007, it rose in successive years to 70.7%, 88.2% and 94.7% with a figure of 94.8% in February 2011, the last period for which we have details.

According to a report from NYB Mellon earlier this year, UK pension funds in general have almost tripled holdings of index-linked gilts to 15% over 10 years “reflecting the heightened concern over the future path of inflation”. The Bank of England has never revealed why, instead of the industry average of 15%, their pension fund holds an extraordinary 94.7% in index-linked securities and have no equities whatsoever, when the average holding is 45%.

The mysteriously growing pension pots

Each year in its Annual Report, the Bank of England publishes details of its top executives’ pensions. In February 2005, the then commoner Mervyn King had a pension pot of £2.7 million. It rose to £5.4 million in February 2009 at which point contributions ceased, meaning it is no longer shown in the Report.

Deputy govenor Charlie Bean saw his pension pot rise from £1.3 million in February 2008 to £2.5 million in February 2011, helped by two consecutive rises of half a million pounds. For the year to February 2012, however – figure revealed just last night – it has grown by over a million pounds to stand at £3.6 million.

The other deputy governor, Paul Tucker, saw his pension pot increase from £2.3 million in February 2009 to £5.0 million in February of this year, a rise of £1.3 million in the past year alone.

According to the Daily Telegraph, “Bank sources said the largest part of the increase was due to the sharp fall in gilt yields.” Really?

In three years, Bean’s pension pot has grown by 118% and Tuckers by 148%. Both rises appear to be far in excess of the gains in gilts. Given that they are public servants and that their pension funds are paid by the taxpayer, surely we deserve to be given more details of why the pension pots of the Bank’s senior officials have risen so much in the past few years. It is not good enough merely to show the figures as a footnote in the Annual Report.

The Libor scandal

When Bob Diamond testifies tomorrow to the Treasury Select Committee (before applying for his Jobseeker’s Allowance), everyone will be agog to hear more about his conversation with the Bank of England’s Paul Tucker about the Libor interest rate. In new revelations from the Daily Mail, Baroness Vadera, one of Labour’s chief economic advisers, wrote a paper in 2008 headed “Reducing Libor” which said that reducing the inter-bank lending rate would be “a major contribution to the stability of the banking system and to the health of the economy.” This would presumably have been seen not only in the Treasury, but also at the Financial Services Authority and the Bank of England.

Last week Sir Mervyn King called the Libor revelations a “deceitful manipulation of one of the most important interest rates.” Any inquiry must discover whether the banks alone were involved or whether depressing Libor was done at the behest of the government and the financial authorities. Dan Congahan, author of Inside the Bank of England, has apparently said that it is “not credible that the Bank was not aware of the recalibration of Libor.” The consequences for the reputation of Britain’s financial industry – and indeed the government – could be horrendous.

As more details emerge, Britain’s savers will no doubt be keen to learn if massaging the Libor rate has mean that the rate paying on savings has been lower than it otherwise might been. If so, will savers have any chance of redress?

We’re not all in this together

How can the MPC possibly appreciate the true consequence of depressing interest rates and gilt yields through Quantitative Easing when it is so comfortably insulated from the realities of life by its remarkable and untypical pension scheme? Would it not be much better for the country at large – and the MPC’s own credibility – if its members were required to have private pensions?

And should the same not apply to MPs? No wonder they do not regard fixing the private pension system with any degree of urgency when they have such gold-plated pensions?

We keep being told that we are all in this together. When it comes to pensions, that is very much not the case.

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11 Comments

1. John.

   July 3, 2012 at 4:34 pm

   When you have a dumbed down population whose primary concern seems to be what this months celebrity of the moment is wearing and who they’re shagging, rather than what their elected representatives and cronies are getting up to on the sly, it’s little wonder these crooks, who have all the dials and levers at their finger tips, are on the take and getting away with it.

   The FSA are keeping quiet about their involvement in the latest banking scandal because they are utterly incompetent ( and it begs the question, corrupt? ) despite being made aware of discrepancies in LIBOR since 2007 they have done as good as nothing until the US authorities forced their hand last week.

   http://www.huffingtonpost.com/2012/07/02/bank-of-england-fsa-barclays-libor_n_1643810.html

   Recommend (8)
2. A

   July 5, 2012 at 10:51 am

   This surely must be insider trading..

   Why is FSA not doing anything at all about this?

   This shows a total disregard for prudent savers, for the next generation, for pensioners etc..

   Hate to say it, but does any party have the guts to clean this place?

   Recommend (9)
3. norman sands

   July 5, 2012 at 7:34 pm

   we urgently need a citizens’ revolution, complete with guillotine and concentration camps for the lot of them where indeed will we find honesty and integrity in public life?

   Recommend (6)
4. Edward

   July 6, 2012 at 6:36 pm

   Borrowers that were mis-sold PPI have been able to claim compensation and some morgage holders could claim the a refund from their morgage provider for being over charged. So surely us savers are in line for compensation if the inter-bank lending rate has been rigged to our disadvantage!

   Recommend (4)
5. DL

   July 7, 2012 at 9:26 am

   Well what did anyone really expect? Those “in power” will always want to be so will do anything to enhance their position. It really is time for MPs to get their act together and start to take more active steps to curb the fraudsters and their ilk who appear to be in control of the financial industry. One of the biggest problems is that we, as a nation, do not own our financial destiny any more – it is in the hands of foreign governments and their lackeys. Until we have a government who will take real – and dare I say it “honest” control – like UKIP – we will get nowhere. It is possible this latest LIBOR scandal which must heavily involve the BOE could lead to the straw that broke the camels’s back.
   I recently wrote to my MP about the banking scandal and subjects such as this and will be very interested in his reply.

   Recommend (3)
6. DL

   July 7, 2012 at 9:29 am

   By the way could’nt we persuade Simon Rose to apply for the BOE position – or even Chancellor !

   Recommend (0)
7. frances

   July 7, 2012 at 12:51 pm

   All the protestations that the B of E is Independant are total tosh

   The MPC members are all appointed by the TREASURY

   I have ensured a highly suitable and well qualified candidate has applied for the latest vacancy but i will bet they do not even get an interview because they are on the side of pensioners and savers and we all know that George Osborne and even David Cameron absolutely hate Pensioners and savers.

   Every single Government Policy is out to rob Pensioners and savers of theirmoney and lives

   Very different if your an Illegal Immigrant then they pour money in their hands along with free NHS care and millions in legal aid to fight deportation
   Whose taxes are paying for that ………yours and mine

   Recommend (6)
8. X

   July 13, 2012 at 10:58 pm

   How is it that Mervyn King getting away with insider trading? He should have been jailed by now.

   Recommend (7)
9. frances

   July 14, 2012 at 11:13 am

   Now that emails from USA prove that Mervyn King was well aware of the Libor fixing carry on and has been called to explain to the Treasury Select Commitee someone will see him and his MPC cronies for exactly what they are

   Sadly i expect that the Establishment will mount yet another cover up and continue to sell Savers down the river

   At the very least someone sure needs to find out why when all other Pension Schemes are sinking the BofE one has virtually doubled in value

   Insider trading seems the only logical explanation

   Recommend (5)
10. Luke

    July 26, 2012 at 1:35 pm

    The explanation for the increased pension pots is nothing to do with gilt returns. They have pensions linked to their salary, not what’s in the pot. Their notional fund size is what it would now cost to buy an annuity for the amount they’re entitled to. So if interest rates go up, the notional value of their fund goes down, but they get the same pension.

    Loads of pension funds shifted to bonds. Rightly or wrongly it’s the current fashion.

    Recommend (2)
11. frances

    August 12, 2012 at 3:59 pm

    If the B of E Pension is almost entirely in gilts and doing so incredibly well
    Would someone please tell me why other huge Pension Funds also in same % of Gilts are certainly not doing well at all

    Sorry but the only conclusion i can draw from all thge evidence i have seen so far is theres something very very very fishy indeed about the B of e Pension Fund

    Recommend (4)