Last month, I had lunch with a former City trader who is a trustee of a big investment bank’s pension fund. Trader was gloomy. "Returns are abysmal," he wailed. "Pension funds can’t function when the risk-free rate on 10-year UK gilts is 2.2%, equity markets have gone nowhere for a decade and inflation is running at 3.5%." Trader confessed that in his bleakest moments he could see a situation where funds were not able to honour their obligations to those who enjoy favourable defined-benefit schemes."And governments will have to find billions in the next decades to make good the holes in the western civil service pension schemes," he said glumly as he speared a lettuce leaf.
It’s always difficult to step back from the noise of everyday life. But for a while now I have been deeply sceptical about quantitative easing, which instead of being used as a weapon in central banks’ emergency armoury has become a staple of their policy. Since September 2008, short-term interest rates in many western countries have shrivelled to 1% or less. "The authorities have effectively taken cash off the table as an investment option," a hedge fund manager told me.