Britain is threatened with collapse on Friday. British pension funds are threatened with bankruptcy. The new government’s tax program is having devastating consequences. To secure the population’s retirement provision, the central bank is buying government bonds every day – but only through Friday. Blick answers the most important questions.
Is the pension provision at risk?
Everything points to it. According to Gerhard Dannemann, professor of British economics at Humboldt University in Berlin, these are private pension funds. “But they play an important role because of the very modest state pension benefits.” Although Britons receive a state pension, this is usually not enough. They depend on the money from the pension funds. Sandra Holdsworth, UK Fixed Income Product Manager at Aegon Asset Management, told the Financial Times: “The challenges pension funds and annuities face are far greater than anyone could have imagined a short time ago.”
How much money does the central bank buy government bonds for?
The Bank of England spends about £10 billion every day. That is the equivalent of more than eleven billion francs. This keeps the pension funds liquid and prevents a collapse. Because the mini-budget, as the media calls Prime Minister Liz Truss’ (47) new UK budget program, has devastating effects (see below). The central bank started buying at the end of September and doubled the volume this week.
What exactly is the mini budget?
The package includes massive tax cuts, especially for top earners who are financed by debt. It has led to the withdrawal of mainly foreign investors from the UK and is creating a huge hole in the British budget. Panic erupted in the financial markets: the pound briefly fell to its all-time low against the US dollar. The prices of British government bonds also fell and many investors sold them immediately. University professor Dannemann criticizes: “Both the expertise of the ministerial bureaucracy and those responsible for the budget were disseminated.”
Conversely, this means that interest payments will increase. This in turn becomes an existential problem for pension funds. Because they promise their customers a certain annual interest rate. And to earn that, they invest a large portion of their money in interest-bearing government bonds. The pension funds also had to pay extra securities due to market developments.
How bad is the situation?
The “Financial Times” quotes an anonymous pension fund manager. He says one of the pension funds nearly went bankrupt, which would have led to a devastating financial crisis in the UK. Expert Dannemann says: “Britain is being rocked by the same economic crises as Germany, France or the US – especially the succession of the pandemic and the war in Ukraine with the soaring energy prices.” This difficult economic situation would be exacerbated by the consequences of Brexit.
What happens on Friday?
Nobody knows for sure. According to the Financial Times, the British government says that the Bank of England will continue with its measures, but it clearly denies this in a statement. The retirees on the island must continue to tremble for their existence.