Public Pension Funds Reduced in the UK

Public sector pensions 'will be reduced

by a third' under reforms

The UK government reduced public pension funds. Last time, we mentioned that the U.S. Treasury was "borrowing" funds from its government pension funds. Is there a connection here? Yes and no.

In the UK, the reduction being imposed is on future pension payouts. It is not (as far as I have been able to ascertain) on current payouts to retirees. In Greece, for instance, people who are retired now have had payments reduced. That's not what's this announcement means in the UK.

In the U.S., the government is borrowing money from existing pension funds, and that borrowing will not affect the payouts due to current retirees, or to those retiring in the future.

Now, with that said, what irks me about all this is that governments are monkeying around with their public pension funds because the government needs money. My "irkiness" is based on the fact that promises were made and now they're being broken. It can never be a good thing when someone promises something to someone else and then reneges on their promise. The "someones" who made the promise here were government officials who in the past made promises that - we might suspect - were unrealistic to begin with. They made those promises in order remain in power. That's how government promises typically work. Since they promise to do something for utilitarian purposes - in this case, for them to stay in power - the actual promise will be changed when the purpose for which the promise was made no longer matters. Specifically, while government officials may not like to cut pensions due in the future, they probably figure that because their actions don't affect people directly today, most people will get over it. And they're probably right. On other hand, if the government isn't getting enough money - the reason they're cutting the promise of future payments - then today's government officials might have to cut spending somewhere else, perhaps cutting programs that give money to people today. And that would impact political careers more immediately and severely.

But beyond the broken promise, we're seeing precedents being set where governments feel free to not only break promises made, but also to just take money that has been set aside and use it for their own benefit now. This is something that any fiduciary of pension funds could never do without being subject to sanction and possibly civil or criminal penalties. For example, I sit on the board of a college. We oversee money in the college's endowment. If the college needed funds because of a current shortfall, we could, as fiduciaries, make a special distribution to the college from the Endowment, or even let the college borrow money temporarily. However, we could not, as fiduciaries, take money from the teachers' pension plans (as opposed to the Endowment) in order to fund a shortfall.

Why aren't government officials who oversee public pension funds held to this same standard? Perhaps they are, in which case, they've broken their promise to act as a fiduciary of the funds. If they're not held to such a fiduciary standard, then the question is "Why not?".

I don't know the answer here. If you do, please let me know.

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