The Big Short

[stongle]

Mr Whippy said:

You're gambling with it if you remain exposed to high risk near to your chosen retirement date.

I spent a decade in pension comms. Maybe it's been drilled into my head by re-writing the same stuff a thousand different ways... and I'm certain it's not changed.

The defaults exist to protect people from market crashes just before they retire.

IF you choose to remain in full equities up until you retire, and the markets crash, that is your choice, and it would be seen as a high risk, or a gamble.


This isn't some matter of arbitrary perspective, it's been standard pension policy for as long as a I can remember. Take risks when you have a lot of time to play with, don't when you don't.

In a prior post, you were implying that switching to cash or govts is riskless. It's not. Every asset class carries risk, if you work in pensions you should be aware of this - or do you have an issue with equities? Given the rate of return on those Govt securities, I'd suggest they are miss-priced. There are some idiosyncratic risks baked into holding Govts and their liquidity is underpinned by Central Bank action and "special regulatory treatment". If either of those evaporate, you are screwed. That "crash" risk you mention rather depends on whether you think its market based or sovereign.... and 2008 DID tell us equities hold up better in stress than corporate bond markets......

Yes, a sovereign collapse / crash is a low probabilty event; but its exceptionally high impact. The demand for govt securities is in part based on their regulatory treatment and that is constantly under threat. As the EU reminds us.

There is nothing wrong with a pension fund in equities IF you have it as part of a wider diversified pot. So you are MAKING arbitrary claims. You are making a sweeping generalisation, that maynot be appropriate for people with smaller (or small as a % of total NAV) pots in an ultra low rate environment. For those with pots that are their entire pension income, of course derisking is sensible, but diversification is appropriate. What is missing is fundamental knowledge and education for most of our population on money management. There is no free lunch any longer people ARE going to have to get comfortable with more risk.

Of course, if they don't want to manage their own risks, then they will default to your position - but its not dissimilar to the Big Short scenario. Nearly everyone thought the ABS, CDO market was safe as houses, until it wasn't.......

Yes, I sound pedantic but I'm trying to illustrate your point is entirely how most firms on Wall Street viewed ABS etc prior to the crash (and why it can happen). Of course nothing might happen, and in the main what you say is appropriate for many!!!!

[Mr Whippy]

5pen said:

The reasoning for this has been somewhat overtaken by changes to legislation in the name of 'pension freedoms' though.

Sure, if you were close to a point in time where you about to purchase an annuity it was a sensible approach, but a drawdown arrangement over many years means that the value of the pot on a notional 'retirement' day is less important. Indeed, if you wish to protect your pot from inflation, exposure to equities and the associated risk of that leaves few alternatives.

But in 2007/2008 it was a non-excuse for bailing out to ‘protect pensions’ because by and large anyone that close to retirement wasn’t in equities.

Yes it’s changed today.

Annuity rates are on their arse. That doesn’t mean the concept has changed.
The safe return, the safe pension value, is on its arse.
Investing with risk beyond retirement date is discretionary.
Annuity providers obviously can’t match that.


If you’re willing to gamble your pension pot post retirement date, making the future an unknown variable rather than a certainty, that’s your choice... thankfully you’re free to make it, and free to make money or lose it.


But the point is, no one should lose their pension value at/near retirement unless they’re trying to game things.

If you don’t like that, then stop voting for political parties that shaft you again and again and again in the interests of the status quo.

[stongle]

Northernboy said:

The bonus cap has been a good thing for me. My bank added a “role based allowance” to my basic salary, intending to not pay it in the bad years, but they were then told that that wasn’t acceptable, as it was a bonus under another name, so those of us who’d received it got to keep it. The idea was that I could still be paid at the level that I had always been if I had a good year.

It’s still there in my pay packet each month, and will likely be there until and unless the bonus cap is removed.

It was pretty tough on those who missed out, there was a two-tier system created that is also still there.

You did well, one of the reasons I left. Wasn't worth the risk / aggro. It changed the way we traded. If you'd done budget by half year, you could do almost FA for the rest if the year because there was no "upside". And then you'd get some MAC clause inserted (Material Adverse Change clawback).

The other thing that done for me was the insane risks people were taking on Dividend / tax arbitrage. I knew the doors were going to start getting kicked in. Even though I wasn't directly involved.

The next lot of "financial" movies will probably be about "cum/cum or cum/ex". Or how the banks and asset managers* fked the taxpayer for 100's of billions, and then asked for a bailout. It's st you can't make up....





*OK, if you had a pension arguable you benefited; but not to the levels of Sanjay 700m Shah.

Edited by stongle on Monday 28th June 15:11

[Northernboy]

stongle said:

You did well, one of the reasons I left. Wasn't worth the risk / aggro. It changed the way we traded. If you'd done budget by half year, you could do almost FA for the rest if the year because there was no "upside". And then you'd get some MAC clause inserted (Material Adverse Change clawback).

The other thing that done for me was the insane risks people were taking on Dividend / tax arbitrage. I knew the doors were going to start getting kicked in. Even though I wasn't directly involved.

The next lot of "financial" movies will probably be about "cum/cum or cum/ex". Or how the banks and asset managers* fked the taxpayer for 100's of billions, and then asked for a bailout. It's st you can't make up....

*OK, if you had a pension arguable you benefited; but not to the levels of Sanjay 700m Shah.

Edited by stongle on Monday 28th June 15:11

I briefly looked after our equity division, so had to deal with some of the legal side of the German cum/ex trading.

It’s a fair while since I’ve traded myself, quite a lot of the job now is making sure I’m incentivizing the right behaviour and then evidencing and enforcing it.