Arborbridge wrote:For instance, as an investor I want the best out turn for myself, but I also have to agree that if a pension promise is made as part of a salary package, ethically it is bound to be honoured if possible without destroying the company.
It used to be easy enough. You set up a scheme where employees paid 5% and the employer 10%. Provided the shareholders thought this affordable, this capped the outgo. Calculations were performed to establish what level of benefits this could promise. To keep it simple, benefits were based on salary, usually an average in the three years before retirement and on years of service. Investments were made in the likely best performing sectors, such as equities and property, to maximise returns rather than minimise risk.
The model was suspect because it relied on short changing those who left the company's employment before retirement and a failure to index benefits for inflation. It also didn't help when Companies realised the joys of pension holidays utilising favourable investment returns. It all started to turn sour when the promises or expectations had to become guarantees, when short changing leavers and ignoring inflation was outlawed, when longevity increased the cost of pensions in payment, when pension costs and deficits had to be disclosed on Balance Sheets, when there were moves to classify equities as "too risky" and then finally when QE reduced the returns on government bonds and similar investments to derisory levels.