Elephantstrunk

Andrew Smithers, the voice of reason, and Bernard Dumas of INSEAD want a market in pension obligations. They suggest something similar to the collateralised debt obligations used to trade credit card debt. This would enable the substantial and possibly unhedgeable company risk to be diversified. In effect savers would be able to draw their pension from several companies instead of one.

I’m sure that the world would be a better place if there was one but it will arrive over the dead bodies of accountants, actuaries and their employers. People who found the MFR too onerous will not want their funding gaps on display to the whole world. CDOs and CMOs are usually aggregated by the institution gathering the assets but in this case the lenders are small individuals with complicated contracts and the borrowers are often large companies. I think the following would have to happen:

I don’t think any of these are intrinsically impossible but there may not be any appropriate assets left by the time any of the measures are agreed. Companies would lobby hard to prevent the market valuing their pension obligations. On the other hand unions and professional bodies, even local governments, could provide a very useful service to their members by arranging such a market and it would be a whole new business line for financial advisers. The article is linked from the FT (subscription only unfortunately) so it might be worth following the letters page.