As John Cleese conceded in Monty Python’s “Life of Brian”, they did provide sanitation, medicine, education, public order, irrigation, roads, a fresh water and a public health system – oh and wine! However, they also came up with – pensions.
What did the Romans ever do for us?
By Tim Yates
This article is published on: 17th February 2025
In 13BC Emperor Augustus had Roman soldiers stationed across the empire, including some poor souls stuck in Britain disillusioned with the weather and living conditions. To keep morale up, Augustus introduced the first Defined Benefit “Final Salary”, pension scheme. After 20 years’ service soldiers could retire with a lump sum equal to 13 years’ salary. It was initially funded by regular taxes but later by a 5% inheritance tax. Perhaps the UK Chancellor has been studying the Romans recently!
Not much then happened on the pension front until the 17th century when the Germans started the first pension fund in 1645. It was set up to provide benefits for widows of the clergy followed in 1662 by a similar fund for widows of teachers. It took another 200 years for civilian pensions to become widespread, with Germany leading the charge again under Chancellor Otto von Bismarck.
Fast forward to today and global pension funds hold over $55 trillion in assets. The largest 300 account for $22 trillion, with the top 10 holding $7 trillion. Japan and Norway’s government pension funds top the list at around $1.5 trillion each. The problem is that many of these funds (Norway being the exception) are struggling and are unsustainable in their current form.
Back in the 17th century, pensions weren’t costly. People worked until they dropped – literally. The pension age was 60, but the average life expectancy was only 45. Today, life expectancy in the Western world is over 80, and many retire in their mid 60’s, meaning pension funds have to support retirees for 15 years or more. That’s problem number one.
Problem number two is “lifestyle investing”. This affects Defined Contribution (DC) “Money Purchase” schemes. As retirement nears, fund managers gradually move investments from the stock market into government bonds, historically seen as the safest asset.
Bonds are basically IOUs and if issued by the UK government are called gilts (because the original certificates had gold leaf embossed edges). These bonds promise to return the initial investment after 10, 20 or 30 years, paying annual interest in the meantime. Investors typically don’t hold them until maturity but trade them in the open market instead.
Imagine in 2020, I borrowed £10,000 from you on a 10 year, interest only basis at 1% a year. At the time, it seemed a good deal – your bank was paying next to nothing. Now, in 2025, you realise you could lend that money elsewhere and get nearly 5%. But I’m not keen to repay early. Your only option, if you want the higher rate of interest, is to negotiate a lower payout, meaning you get back less than £10,000. That’s how bond markets work.
Before the UK’s 2015 pension freedom reforms, most people took 25% of their pension pot as a tax-free lump sum (tax free in the UK not France) and used the rest to buy an annuity which gave them a guaranteed lifetime income. Since 2015 when everyone was given the flexibility to do basically whatever they liked with their pension, most people have taken their tax-free lump sum and then left the remaining funds in “drawdown” – staying invested and taking an income every year – rather than buying an annuity. This seemed safe after decades of low interest rates. But rising rates in 2022-23, driven by inflation, caused bond yields to soar and bond prices to plummet, hammering lifestyle funds.
Charles Stanley, a leading UK wealth management firm, recently analysed the impact of over- reliance on bonds. If you had invested £150,000 five years ago in a portfolio with 80% shares and 20% bonds, it would now be worth £210,000. But if you had gone all in on bonds, your portfolio would have shrunk by 20% to £120,000. This illustrates the divergence between shares and bonds in recent years.
So, what’s the takeaway? First don’t panic. If you have a final salary (DB) scheme, you are protected – provided your scheme is well funded. If you have a DC pension but don’t monitor it , or don’t have someone reviewing it regularly on your behalf, then you should.
We get regular health checks. Our cars get checked once they reach a certain age. Pensions and other investments are no different. Regular reviews ensure you maximise returns, minimise tax exposure, provide financial security for yourself and your family, and avoid unwelcome surprises. After all, the Romans may have invented pensions, but it is up to you to make sure yours actually works for you.