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The perils of letting the Government invest your pension

The Oireachtas has had yet another one of its periodic bright ideas, which should send any reasonably sensible person running for cover: A new proposal would see about 750,000 Irish workers automatically enrolled in a state pension scheme where they and their employers invest money into a state-controlled fund which would then invest the money, and generate profits which would be paid back to the workers as a pension after they retire.

On the face of it, not a bad idea. In practice, though, it is a good example of why, if you want to maximise your pension pot, you should steer away from any fund that is controlled by the Government.

A private pension fund will seek to maximise its profits by maximizing the return it gets for you on your pension. The state, it turns out, will seek to use the money as a political slush fund for pet projects:

Among the committee’s 21 recommendations for the government are that investment funds in the scheme should not be allowed to invest in fossil fuels and that a minimum percentage of the funds should be invested in renewable energy development.

“The committee recommends that the investment funds be prohibited from investing in fossil fuels or the arms industry,” the report states.

“The committee recommends that a minimum percentage of the funds should be invested in Irish renewable energy developments in order to ensure our Climate Action obligations. As with without achieving these, the future of all pension funds will be at risk from climate change.”

The committee also advised “that investment ‘good practice’ should include consideration of sustainability and environmental, social and governance factors and this should be explicitly stated in the Bill”.

It should be stated plainly that this is an overt desire by an Oireachtas committee to mismanage the state’s finances, and the pensions of Irish people, deliberately. In the global context, the fate of fossil fuels will not be determined by the relatively small amounts of money that the Irish state will or will not invest in fossil fuel companies – there are legions of private funds that are more than willing to make up the difference and take advantage of any opportunities for a return on their investment that Irish TDs are too po-faced or self-righteous to sanction.

Second, investing in renewable energy is not and never has been an especially good idea: Consider the fact that Ireland’s wind energy sector, to this day, is profitable only and entirely because the Irish state is subsidising it to the tune of billions. Wind energy simply isn’t profitable – as no less an organ than Bloomberg reported just last year:

Optimism abounds about the future of wind power, with a clean-energy boom powering robust growth in an industry that businesses and governments agree is key to slowing climate change. But a nagging problem could keep the sector from fulfilling that promise: Turbine makers are still struggling to translate soaring demand into profit.

And here’s the New York Times:

But Europe’s wind turbine makers, the crown jewels of the region’s green energy industry and a source of manufacturing expertise, are reporting losses and laying off workers. Their problems stem partly from lingering supply chain issues and competition from Chinese manufacturers, and the issues could ultimately hinder Europe’s, and even the world’s, ambitions to quickly develop emission-free energy sources.

This month, Siemens Gamesa Renewable Energy, a Madrid-based company that is the premier maker of offshore wind turbines, reported an annual loss of 940 million euros ($965 million). The company has announced a cost-cutting program that is likely to lead to 2,900 job losses, or nearly 11 percent of its work force.

This is, in other words, a loss making industry. Even with unprecedented public subsidies from Climate-obsessed Governments across the western world. And it is the industry into which the Oireachtas wishes to invest your pension.

It should be stated plainly here that the politicians making these decisions are not making them in order to secure for you the best possible pension: They are, instead, taking your money and using it to subsidise their friends and co-believers in a loss-making industry. If they fail, you will pay for it, not them. And, I promise you, if the pension fund happens to lose money the politicians will blame the investment managers whose hands they currently wish to tie.

Very few people would manage their own money like this. Politicians have the luxury of managing the public’s money like this because, naturally, their own pensions are entirely insulated from it: The pensions guaranteed to TDs and Senators on foot of their service are not going to be invested in renewable energy – they’ll be paid out of an entirely separate pot. These people are not risking their own money, but yours.

The good news, for what it is worth, is that there will be an opt-out to this particular pension scheme. My advice would be to take it, and invest in a pension scheme that’s devoted to getting the best possible return for you, rather than in boosting the pet projects favoured by Green TDs.

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