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Spiffor
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CPA - Evil Clone brigade
Nov 2001
time: 06:34
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quote:
Originally posted by Patroklos
I don't know why you agree with this Kid, it basically states SC is unsolvant no matter what, and is just the current gernation screwing the new ones. I guess you only care about current poor people. |
I am not saying there is no solution to the looming crisis. I am saying that private schemes aren't a solution.
Solutions are pretty simple in principle, but very hard to make, politically speaking.
1. We accept it is the normal fate of a developed country to have many old people, and we accept it is the civilized thing to do, letting them live without working. Thus we raise the part of our economy that is dedicated to paying pensions (public systems raise taxes, private systems demand more and more money from the private assets they draw money from).
2. We accept that, with a longer life expectancy, people must work longer. Many SS schemes were made when the average life expectancy after work was 2 to 5 years. Not the 20 odd years we have today.
3. We consider old people as useless, and screw them, by letting them only a small share of our economy. Or letting them starve, if you prefer.
Those are solutions. They're basically the same whether the system is public or private. They all aim at letting the old leech off the working ones, in a sustainable fashion.
You'll notice privatization is not a solution. Private retirement schemes are only another form of wealth redistribution from the working to the non-working. The problem it posits is the same as public schemes.
Edit: I forgot, there is a fourth solution:
4. We encourage people to keep banknotes under their beds for their old age. This way, they'll indeed live off their actual money. Sure it'd slow down today's economy very significantly (extreme reduction of investment), but at least the young of tomorrow won't have to pay for us.
Last edited by Spiffor on 25-08-2004 at 22:36
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Spiffor
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CPA - Evil Clone brigade
Nov 2001
time: 06:34
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quote:
Originally posted by Dauphin
I thought pensions were often what is called 'unit' based. When you make a contribution you buy a certain number of units. The value of a unit is based pretty much on the value of the shares or investments that make up the fund you are buying into. |
Yep.
quote:
I would think the money goes to buying the investment item that makes up the fund, the liability raised by giving out your money is matched by an asset created by the increased capital portfolio of the fund. |
Yes, and this thing is a piece of paper / a bunch of bytes. It's worth something as long as there is no overload on the economy.
quote:
There is of course an intrinsic risk associated with what you are buying, but when you buy it you are informed of the risks involved, and you choose high risk high return or low risk low return schemes. Effectively you are investing in a kind of stock market, but the point is you are investing in your future with a level of control over what you invest in - you can invest in foreign and growing economies for example. |
I am talking about macroeconomics, not microeconomics. Of course, for the individual, there's a difference between a private and public schemes. The rich and middle class will have more returns, the poor will have much smaller or no returns, given their unability to significantly save.
quote:
A state scheme does not invest, or attempt to grow the money in home or foreign markets, and as a result you get a worse return on investment, especially in countries where the population is aging. |
Think of what "growing the money" means.
Say, the pension fund buys shares of a company. It helps the company invest in something productive. In return, the company owes the Fund a regular return (dividend), like any other shareholder. That's a very important parts of the money the Funds make.
At first, the Fund doesn't have too many old customers. But many working people give the Fund money to invest (expecting to get money when they reach retirement age), and only a few people demand money from the fund. All is good. The fund makes good money and can easily satisfy the demands of their old customers.
Flash forward 20 years. The part of old customers (i.e people who stop contributing to the fund, but who take money from it) has risen dramatically. The Funds need to strongly pressure the companies they have shares in, to be a ble to pay the rents they owe. The companies' part of turnover that is dedicated to paying the shareholders rise more and more... to ridiculous levels, to the point a company can't make money anymore, with so much of its wealth going to the elderly.
What is the difference between an ordinary tax, and the "tax" the Funds will take from the companies? Except probably that the workers getting wage cuts will never even benefit from the system?
Macroeconomically speaking, the "tax" the Funds will draw on companies can be offset by productivity and population growth. These are the exact same parameters that can make a public scheme sustainable on the long term.
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Dauphin
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Caught in a tuna net
Jan 1970
time: 05:34
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Spiffor, I don't think I agree with your overall analysis. I can see the argument of the drain on the economy through consumers who are not adding to the economy, and agree it would be present in both scenarios regardless of method of pension saving. I still believe that there is a differentiation present in the method of preparing for retirement though.
quote:
Originally posted by Spiffor
Think of what "growing the money" means.
Say, the pension fund buys shares of a company. It helps the company invest in something productive. In return, the company owes the Fund a regular return (dividend), like any other shareholder. That's a very important parts of the money the Funds make.
At first, the Fund doesn't have too many old customers. But many working people give the Fund money to invest (expecting to get money when they reach retirement age), and only a few people demand money from the fund. All is good. The fund makes good money and can easily satisfy the demands of their old customers.
Flash forward 20 years. The part of old customers (i.e people who stop contributing to the fund, but who take money from it) has risen dramatically. The Funds need to strongly pressure the companies they have shares in, to be a ble to pay the rents they owe. The companies' part of turnover that is dedicated to paying the shareholders rise more and more... to ridiculous levels, to the point a company can't make money anymore, with so much of its wealth going to the elderly |
I would expect a fund to sell assets and reduce the fund wealth once more people are withdrawing pension. If you had the extreme situation where everyone withdrew and no-one paid in, then you would anticipate the fund being bankrupt eventually. Of course, if the fund was managed properly the point of no net worth should coincide with the last person buying their pension with the last assets remaining in the pension fund. A case of you intend to spend your last penny the day you die.
I also recall that dividends are not necessary to obtain money from any share assets that you own. If a company pays out a dividend it reduces the value of a share, thus reducing the market value of pension funds portfolio. The same position of share portfolio value and cash in hand can be acheived by selling shares equal in value to the dividend that you want paid out. I would expect that as more and more people are buying their annuity pensions the funds would prefer to sell shares - and so decrease the number of shares in their portfolios- rather than demand dividends which would reduce the share values.
I admit I am basing most of this on intuition and basic knowledge of financial markets, so I may be off base with my expectations.
Edit - attempt at clarity.
Last edited by Dauphin on 26-08-2004 at 01:34
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DanS
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Kickball Capital of the World
Jan 1970
time: 00:34
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The US has a good demographic profile, due to high birth and immigration rates. While the number of retirees will go up disproportionally to the working population increase, it will present less of a 401(k)/pensions/social security problem than some fear. The numbers that the government uses are required to be conservative. But each year they revise some of the problem away.
That said, people will have to work longer. Overall, this is a good thing, because it indicates that people are living a lot longer than they once did and are able to work. So we can't retire at age 50 and live a posh work-free lifestyle for 35 years. But that wasn't very realistic thinking anyway.
Last edited by DanS on 26-08-2004 at 04:49
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25-08-2004 22:00
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