Pension Reforms: The Balancing Act Between Risk and Return

In the current debate on the reform of the British pension system, crucial factors are often overlooked. A major focus is on the conditions imposed on defined benefit pension plans. These plans are increasingly under pressure to minimize risk and to align long-term liabilities with current assets. This approach inevitably leads to declining returns, although pension funds are, by definition, geared towards the long term. A striking example of the resulting challenges is the Universities Superannuation Scheme (USS), the largest of its kind in the United Kingdom. The fund's latest annual report revealed an annual return of only 1.6 percent over a five-year period on assets of £75 billion. This disappointing result neither brings about significant improvement nor risk reduction and has ultimately led to benefit reductions and strikes in the academic sector. Another fundamental issue is the financing of public sector pension plans, including the USS. A large portion of these funds ultimately comes from the taxpayer, who covers salaries and pension contributions. All pension funds also benefit from significant tax advantages, leading to the reality that the taxpayer is ultimately behind these financial obligations. The state thus has a legitimate interest in investing these funds for the general well-being of Great Britain. Therefore, it is only logical that the government considers comprehensive reform measures for this sector.