Have you heard of the “Black Swan” event the catastrophe that no-one thinks is ever going to happen? Well the guy who wrote the book Black Swan in 2007 and famously forecast the 2008 financial crash has just written a new book . . .
The book is called Skin in the Game and it came out in February this year. The Author’s name is Nassim Nicholas Taleb. Taleb is positively evangelical in his philosophy that the only people whose opinions matter (and who have been ignored for too long) are those with something to lose. It’s all about having something material to lose if what the proposer is promoting goes wrong. It’s all about sharing risks with others; this is the foundation of risk management.
Thus, he says, artisans, fishermen, entrepreneurs, businessmen, political activists, Lloyd’s underwriters, plumbers, taxi drivers and hedge fund managers, have “skin in the game”.
Policy “wonks”, corporate executives, bankers, politicians, and most journalists don’t. Do not pay attention to what people say – only pay attention to what they do, having ascertained how much of their own necks they are putting on the line. Why is this important I hear you gasp in exasperation? Well this book came out the day that our Treasury Minister was on his feet giving his Isle of Man Budget Speech.
The fact that our Government has followed George Osborne’s lead in bribing pensioners with their own money and taxing the outcome is a clever wheeze to fatten up tax receipts.
I refer of course in particular to the passage regarding “Pension Freedoms”. Our Treasury Minister duly refers to the lobbying by some in the industry concerning these measures claiming that they had been done for self-serving reasons – “the fees that these companies and Directors receive for handling and managing billions of pounds of pension scheme funds”. Setting aside the general fact that managing billions of pounds of pension funds has got to be a good thing for the Isle of Man in employment and tax revenue terms, there is only one winner in pension freedoms - The Isle of Man Treasury -and this is where “Skin In the Game” or a complete absence of any skin in the game makes an unwelcome appearance.
The Treasury minister and all the MHKs and MLCs in Tynwald have absolutely no skin in the private sector pensions’ game! They all have (unfunded) public sector Government Defined benefit final salary pensions.
Pension regimes have been created by Governments around the world with rules with the aim of encouraging their nationals to save for retirement. Government provides tax relief out of earnings thus enabling the build-up of funds in a tax-free environment and then taxes the drawings when the Member retires. These rules have to be strictly enforced and to do so has led to a heavily regulated industry providing and administering these rules. The fact that our Government has followed George Osborne’s lead in bribing pensioners with their own money and taxing the outcome is a clever wheeze to fatten up tax receipts. But please don’t criticise the Industry for following the rules as set down and secondly being wary of a relaxation of these rules without proper research.
Having been allowed to squander their pensions the pauperised and long lived pensioner will have to rely on no more than the c. £170 a week or £8,840 pa State Pension. The actual proposals themselves are not without attraction, in fact they will have the consequence of bringing much needed additional revenue to public finances and provide a counterbalance to the UK’s policy of total pension freedom. They may also suit new schemes being set up for young high earners in certain industries. We hope that the money raised early from these pensions will not be used to prop up the public sector pension deficit without it too receiving reform.
The Treasury Minister goes on to say that the public sector pension reserve will run out in 2022/23. Combining such a tax raid on
private pensions, however enticing it is dressed up, and yet failing to make any real progress in the cost overhang facing public sector pensions is an uncomfortable example of a lack of “skin in the game”.