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Pension Funds lose $4.8 Trillion

The fall in value of global equity markets over the past three years has reduced the total value of global pension funds by $4.8 trillion according to a report from Watson Wyatt quoted in today's Financial Review. This has reduced the value of global pension funds to $18.3 trillion. This is $24,500 per person in G10 countries, the major source of pension fund savers. In Australia, our $506 billion in pension fund assets represents an almost identical amount of $25,800 per person.

But do paper values of assets really matter? In the same way that assets are only useful if they produce the things people need when they retire, perhaps we should only be interested in income and real products and services produced from the assets.

Accounting worked fine when assets were shown in the accounts at the fixed price paid for them. The main point of accounts then was the change in value from year to year, which solely depended on net income and inventory of unsold goods. Is the price the last fool paid for one share in a company from the previous owner really relevant to putting food on the pension table next week? Perhaps a better guide to the earning ability of companies is the tax they pay - it would be a rare accountant that would fiddle the books to produce more tax than was required to be paid based on genuine income produced.

Posted Wednesday, 15 January 2003

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