O TEMPORA, O MORES! A ROMAN TAKE ON PENSIONS

Decadent people dressed in linen who have been dead for two millennia may not look like an obvious source of pensions advice. But the fall of the Roman Republic holds one very important lesson for pension funds today.
 
By the latter half of the second century BC, the Roman Republic had become the dominant power in the Mediterranean. Its arch enemy Carthage had been vanquished – the city razed to the ground and its population sold into slavery in 146 BC. The Greeks had been brought to heel by comparable demonstrations of Roman ruthlessness. None of its remaining competitors could hope to challenge the Republic’s power.
 
The Republic grew rich on its conquests – booty and slaves flooded into Rome after successful campaigns. The rich families that dominated political life naturally took the lion’s share. They put many of the slaves to work on their extensive landholdings (“latifundia”), using the booty to buy more land. This had a disastrous impact on the citizen farmers who were the backbone of the Roman state. Unable to compete with the latifundia, many citizen farmers lost their lands.
 
Impoverished, they went to Rome, forming an ever growing restless underclass. It was clear to many that this would destabilise the Republic. Tiberius Sempronius Gracchus, scion of a prominent political dynasty, aimed to deal with the problem by radical reform, promising to distribute land to needy citizens.
 
The elite families, represented in the Senate, regarded such novel nonsense as a direct attack. Evidently not much concerned with the gravitas expected of Roman politicians, the Senators proceeded in 133BC to smash the benches in the Senate House and club Tiberius Gracchus to death with the pieces just as his reforms neared completion. His brother tried again ten years later and met a similarly violent end. Whenever someone attempted to imitate the Gracchi, the Senate employed all the constitutional gimmicks at the disposal of a nation obsessed with legal arguments to make sure they were stopped dead (sometimes quite literally) in their tracks.
 
The failure to reform destroyed the Republic. Drafted into the army, impoverished Romans felt greater allegiance to the general who would bring them booty than to a political system incapable of reform. Knowing they could count on the loyalty of their soldiers, Roman generals began to use their armies to impose their will on the Senate by force.

After several close calls, the Republic eventually expired with the ascendancy of Julius Caesar, who used his military muscle to make himself Dictator in Perpetuity – an appointment that despite the grandiose title lasted a mere couple of months for a rather well known reason.
 
When his heir Augustus gained supreme power after yet another round of civil wars that followed Caesar’s assassination, the Republican elite had lost its political clout. Emperors would rule Rome now.
 
The Republic’s inability to deal with the consequences of its own success had brought about its end.
 
But what, if anything, can this tell us about the current situation of pension schemes?
 
The lesson, I think, is simple: When the world changes, it is necessary to change how we deal with it. For the Senators this would have meant accepting radical reform – for pension funds it means to think again about old investment and risk management beliefs.
 
Financial markets have changed dramatically over the last few years. Yields are refusing to end their journey southwards and risky assets no longer provide the returns investors have grown used to over the last 20 years. As a result, pension liabilities and deficits have skyrocketed.
 
If pension schemes do not want to be caught in an accelerating descent into the abyss like the Roman Republic, they need to adapt to the new brave world we’re in. Whilst failing to do so should hopefully have less bloody consequences than the fall of the Republic, the consequences would still be dire for pensioners and society alike.

[Please note that all opinions expressed in this blog are the author’s own and do not constitute investment advice.  Click here for full disclaimer]

Author: Sebastian Schulze

Focussing on the big picture whilst being obsessed with (relevant) details, Sebastian is a Director in Redington’s Investment Consultancy team. He joined straight from university in 2010 as a graduate and supports several senior consultants in delivering Redington’s services to clients. Before joining Redington, Sebastian spent most of his time reading Politics, Philosophy and Economic at a university in the north of England (one of the “three great English universities” according to Captain Edmund Blackadder) and European Political Economy at the London School of Economics. However, he hails from a rather large country on the Continent and continues to work on improving his English accent. With a strong interest in most things historical, Sebastian is often pleasantly surprised how useful a background in history and philosophy can be for understanding financial markets and the world of pensions.