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When pension funds are not actuarily balanced, there are 3 options: raise the retirement age, reduce monthly payments, or borrow from future generations. It se
by avip 7y ago
When pension funds are not actuarily balanced, there are 3 options: raise the retirement age, reduce monthly payments, or borrow from future generations.
It seems most countries go with the obviously wrong, yet politically plausible option 3.
- pjc50 7y agoThe other two are also "obviously wrong", since people paid into the retirement scheme on the assumption of receiving particular benefits at particular times.
- Mirioron 7y agoThere's just not much you can do about it. You could argue that these programs shouldn't have been implemented in the first place, because they weren't going to be sustainable, but those decisions were already made. Somebody's going to get the short end of the stick here.
- pjc50 7y agoRemember that "sustainability" unavoidably depends on long term predictions of the future looking somewhat like the past. The value of my pension depends on economic growth between now and 2050. Hopefully we can continue average 7% equities growth as in the past, but everything from climate change to Brexit will have unpredictable effects on how that turns out.
- jgeada 7y agoExcept that is politically expedient to always under represent the costs to properly finance those future benefits (eg by making rosy expectations of growth, or pessimistic assumptions about expected lifetimes). Those invalid assumptions can remain untested long enough for the relevant senior people and politicians to retire and now it is someone else's problem. The someone else is always the following generation, as they are the one voice without a vote when these decisions are made. So yes, it is always option 3.
- growlist 7y agoYou missed one out: redirect money from other welfare schemes towards pensions.
- gboss 7y agoWhat about raising taxes to pay for the pension gap? They always talk about Social Security being in some kind of crisis. Social Security is taxed at 6.2% of income for the first ~$130k of a person's income in a year. While the taxable threshold increases with inflation, we could give it a boost to better balance the books and set it to the first $400k of income.
- roenxi 7y agoWouldn't that be roughly equivalent to borrowing from future generations? Although accounting math says you can borrow from someone who isn't born yet that is impossible in the physical world we live in; it is bound by laws of time and space. It is easy to assign a negative number to an unborn child, but when people consume real goods and services they have to be provided from what currently exists. The person providing the goods is the one who will be on the hook if future generations don't feel like honouring the debt.
- AnimalMuppet 7y ago> Wouldn't that be roughly equivalent to borrowing from future generations? No? It would be roughly equivalent to saying that income greater than $130K also paid Social Security tax.