The other day, I took a deep breath and sat down with a financial adviser to talk pensions.
It was painful, of course. I’m not paying in nearly as much as I should. My rosy future of leisurely lunches interspersed with the odd round of golf looks very far off indeed. But on a second look, it gets worse.
My pension projections are based on assumptions about growth in financial markets. And that’s the problem, for me. Assumptions about growth. My pension pot, I’m told, should grow between 2% and 8% a year.
I just don’t believe that. When you do the job I do, you can’t help being pessimistic about future markets. Have a look at Carbon Tracker’s analysis of a potential ‘carbon bubble’. They measured the carbon contained in world’s known oil reserves, and worked out that nearly all of it – 80% – would need to stay in the ground, if we are to meet global carbon targets and avoid severe climate change. They argue that the companies owning these reserves are overvalued, and that the bubble could burst.
Financial models (like climate models) are based on past trends. So they tend to be conservative, and are not good at predicting shocks, bubbles or tipping points, as the Guardian’s Larry Elliott recently warned us in an equally sober article.
My pension is invested in ethical funds, not oil and gas. But I wouldn’t be immune. Any investment in stocks and shares will be dragged down if the market falls.
Of course, even though the International Energy Agency has joined the voices saying this oil needs to be left in the ground, we may burn it after all. That would protect the assets of these companies in the short term, but would massively increase the economic impacts of climate change – like the havoc wreaked by hurricane Sandy, and the predictions about global food scarcity.
Either way, it looks like we’ll be heading for a future of constrained growth. And it’s not just a bunch of miserable greenies thinking this way. US investment guru Jeremy Grantham, famous for predicting bubbles, recently warned that US economic growth could be less than 1% for the next forty years. Among his reasons? Resource scarcity and the impact of climate change.
So far, so miserable. But where does that leave me and my pension? It actually makes me want to take more risks. Stop throwing money at conventional (even if ethical) pension funds and try to find some different ways of making my money grow. As a small step in the right direction, I’m investing in one of Energy4All’s co-operatively owned wind farms.
But I’ll have to do this all by myself. The FSA only allows financial advisers to advise on ‘regulated products’ – in other words, conventional stock market stuff. There may be good reasons for this caution, but I can’t help thinking that it unintentionally supports the status quo – and we know the status quo is unsustainable.
The FSA’s caution, and continued reliance on the performance of mainstream stock markets, may be doing us no favours at all. It might be better to admit that the financial world, and indeed the world itself, is becoming a riskier place, rather than lulling us into believing standard growth forecasts.
But what do I know about this? I’m just a punter with a puny pension. I’d be interested to hear from any experts out there about how we could change the rules of the pension game, so that we can invest our money in a sustainable future, and maybe even enjoy a year or two of leisurely retirement. No golf though, that would be a step too far.