Sir Nicholas Lyons is the Chair of Phoenix Group and a former Lord Mayor of the City of London. The following is an extract from his keynote speech, which was delivered the afternoon after the general election was called.
“We need to look at our state pension system. We pay £125bn a year in taxpayer income to meet state pension payments, yet we have no state pension fund.
“If you talk to the Treasury, they will often say the reason that we don’t want to do anything with a state pension fund is because as soon as we do, we’ll have to move it on the balance sheet. Then bond investors will realise we’ve got this massive liability.
“Well let me tell you about international bond investors, they did that maths a long time ago.
“But let’s think about it. Let’s try and have a funded state pension system by 2075, let’s give ourselves 50 years to do it.
“If you put £100bn to work, £10bn a year for 10 years, we all know that if you can deliver a return of 7% per annum, you will double the value of a fund every 10 years.
“If you have five doubling periods then £200bn becomes £400bn, then £800bn, then £1.6tn until you have £3.2tn.
“Nobody is going to ask you what you are going to do with this money, because you know what you are going to do with this money. You are going to pay people’s state pensions from 2075 onwards.
“You’re going to be able to address this issue, which is a big societal issue, about the intergenerational inequality and the fact that young people are going to have to pay high levels of tax to pay these ever-increasing state pensions.
“But you are also going to have the ability to invest that money as it grows, and you could absolutely stipulate that half of that money should be invested in the UK and half of it invested internationally.
“That would mean that we would be able to get a substantial amount of money flowing through every different asset class in the UK.
“It would be a signal that would then get a lot of international capital coming into the UK as well.
“This is something in which many politicians including the Shadow Chancellor are interested – how we address the issue of an unfunded state pension system.
“There are so many vulnerable people in our community who are hopelessly ill-equipped. There is a demographic that is going to have to spend longer periods of time in retirement and we have to find solutions.
“Equity release mortgages are incredibly important. Personal pensions are incredibly important.
“Anchoring a state pension fund, I think, is vital and in so doing it can provide the liquidity into our capital markets that can give us real growth in our productive economy.”
