Those in power determine what counts as knowledge

The title is a summary of one of the ideas of Michel Foucault and has particular application to accounting. No better illustration of this is to be found than in the pensions debate and the current hoo-ha over the Post Office Pension Fund. We are told that the fund is in deficit, that this is a bad thing, the pensions of current pensioners and employees are at risk and urgent action must be taken. The solution is to sell off the Post Office to provide private capital, (at the same time as banks are being nationalised because of the failure of private capital).

My point, however, is that the idea of a 'deficit' is highly contestable. The deficit is the difference between the market value of the fund's assets compared with a discounted cash flow value of the fund's liabilities. Matching these two quantities is not what matters. The important thing is that the future cash flows of the fund are adequate to support the future cash outflows into the far distant future. Getting the funding of the pensions right is a serious matter, but it is not urgent.

We all know stock markets are down at present but we also know that dividend streams are far less volatile than stock prices. Pension funds used to be valued on the basis of projected future dividends interest flows and that is far more relevant to the long term solvency of the fund than temporary stock market fluctuations. We can only know the extent to which the Post Office pension fund needs long term support when someone gives us some sensible projections about future cash flows.

To the extent that there is a pensions crisis at all (I'm not convinced there is one) it has largely been caused by two things: firms taking contribution holidays when stock markets were high, because funds seemed overvalued; and, the effective removal of tax relief on dividends received by pension funds. Now, let me see, who was responsible for that? Ah yes, Gordon Brown.

For the time being, it is politically expedient to talk up pension deficits, so don't expect any sense on the matter any time soon.