The bankruptcy of Britian’s largest construction company this week shines more light on the plague of underfunding that has compromised pension promises worldwide. Even after the enormous central bank funded rebound in asset prices to record highs today, Carillion has a 587 million pound pension shortfall for its 20,000 employees. FTSE 350 companies broadly have an estimated 85 billion pounds in unfunded pension commitments. Meanwhile, payouts to executives and shareholders have continued to escalate exponentially. See Carillion’s demise shines light on UK pension demise:
Carillion’s policy of increasing shareholders’ dividend payouts as its pension deficit widened. In its 2016 annual report, the company said it had increased its dividend in each of the 16 years since it was formed.
Separately, Carillion was criticized Monday by the Institute of Directors, which said there were signs that management relaxed clawback conditions for executive bonuses as the company ran into trouble.
Think about this: the second longest recovery cycle ever, with 9 years of asset price appreciation to record valuation peaks, has not been enough to catch up pension shortfalls. Just imagine what these gaps will measure when the next bear market wipes trillions in levered value off financial assets once more. Think it won’t happen?
Which brings us to the obvious question for trend following retail investors, who left in losses the last two cycles, and are once panic buying assets at record highs once more:
“If everyone know that pensions are screwed, why are they investing in the exact same fashion?” –Jesse Felder, Jan 4, 2018
