Embracing equity risk
UK pensions minister Steve Webb has floated the idea that personal pension savers need protecting from equity risky by guarantees. In a letter to the FT, the eminent finance professor Dr Robert Merton and Dr Jan Snippe of US investment manager Dimensional argued that, as long as the income stream was secure, volatility in the capital value did not matter. In reply, Stuart pointed out that only long-dated index linked gilts can secure a guaranteed real income stream and such a risk-free plan is simply unaffordable. Equity risk is therefore unavoidable. Stuart’s point is that public policy and regulation needs to accept this and concentrate on how to help people live with economic uncertainty.