provide a stable environment for private pension investment;
re-establish the link between earnings and the state pension;
enhance the state second pension so that it was a fully funded pension scheme held for the benefit of individuals;

and did at the same time:

* eliminate the need for PFI
* eliminate the need for new government borrowing
* provide the resources we need for new schools, hospitals, transport, energy systems and the like
* do all this without denying any capital to the private sector?

 That is what "People’s Pensions – New Thinking for the 21st Century", a new report from the New Economics Foundation suggests is possible. I am a co-author of that report with Colin Hines and Alan Simpson MP. 

 All this is possible because the report points out some glaringly obvious truths that have been ignored for too long. These are that:

15% at most of all private pension saving is used to fund new investment in the UK economy. The rest is used to fund: 

the City of London through management, broker and pension company charges

speculative gambling on the stock market

The entire value of the London Stock Exchange changed hands every 7.65 months in 2002. It’s clear that share investment is short term, but pensions are long term saving.

99% of all share transactions in 2002 were to buy shares already in issue, which meant that the company whose name they bore got not one penny of benefit from the transaction.

In 2002 the government spent at least £16.5 billion pounds subsidising pension contributions but total share issues on the London Stock Exchange were less than £18 billion in the same period. Total pension fund investment in new shares and buildings did not exceed £7.5 billion in that year.

PFI capital investment in the year to June 2002 was just £2.6 billion

In other words, the government is spending much more on subsidising the stock market based pension system than that system raises for companies and the PFI scheme altogether. Is it surprising that a system that is so inefficient cannot provide the pensions that it promised?

Having appreciated these facts we set about designing an alternative pension system for the UK. People’s Pensions are the result. Contributions to People’s Pensions would be paid to People’s Pension Funds. They would then use that cash, plus the tax credits that would go with it, to build the schools, hospitals, public transport systems, new sustainable energy supplies and other facilities we need. They would get an income by leasing these assets to the state department, council or not for profit organisation that use these facilities. Because the People's Pension Fund would assume some risk, and because they would competitively tender the build process the "golden rules" of government finance would not be breached and the benefits of PFI would be retained, but without the stress that has gone with them because all service provision would remain firmly in the public sector. 

In 1962 over 50% of all pension fund assets were invested in government bonds. Now it is less than 7%. If half of the £50 billion of new pension contributions made each year were to go into People’s Pensions then:

the need for the relatively small amounts of money raised by PFI would be eliminated;

 the controversial fundraising schemes for Foundation Hospitals could be scrapped;

 government borrowing, forecast to be £90 billion over the next five years, would not be needed.

The savings in interest costs, PFI costs and in repaying loans that would result would provide all the funds needed to pay for the rent of the assets built, and so provide for the pensions that would be due. In other words, instead of paying returns to a financial services sector that has proved to be so inefficient, government money would be used to pay pensions to those who had saved for them. 

In addition, because the government would be relieved of the burden of building almost all its capital projects it could afford to restore the value of the state pension. And if the government allowed the SERPs and State Second Pension opt outs to only go into People’s Pensions the cash it would save in not supporting the stock market through these schemes would allow the State Second Pension to become a funded pension scheme.

None of this is "too good to be true". All of it is true. What is also the case is that because we have not realised it is true we have allowed a pensions crisis and a public sector investment crisis, both of immense proportions, to develop. My colleagues and I felt rather like the boy who drew attention to the Emperor’s New Clothes as the reality of the situation we are in, and the way out of it was revealed to us the more research we did.