Posts Tagged ‘Pension fund’

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As you know, we are ageing. We are all literally ageing, of course; there are no real life Benjamin Buttons out there. But as a country and as an economy we are ageing too, and that means there could be a pension problem in the future. The solution is obvious. We all have to save more, throw more money at our pensions. Or do we? A new report suggests that this approach may be flawed.

According to EuroFinUse: “Recent OECD statistics have cast a dark shadow over the aspirations of private pension savers. Over the last 5 years, real returns from private pension funds (after inflation) have been negative in many EU Member States. They have failed to hold their purchasing power, setting a gloomy outlook for tomorrow’s pensioners.”

In fact the real return (that’s after inflation) on five years’ pensions across Europe has been just 0.1 per cent over the last ten years and negative and minus 1.6 per cent over the last 5 years – at least that is what the OECD shows on the products and countries it covered.

EuroFinUse stated: “Despite such concerning results, the OECD still strongly recommends that citizens should make a greater contribution to personal pension provision. When advising people to save more, public authorities should bear in mind that pension saving products are in many cases destroying real value of citizens’ savings. This is why providers and public authorities should seek to protect the long-term purchasing power of savings, before advising citizens to increase those.” See: The Real Return of Private Pensions 

Actually, when you think about it, the report should not really come as a surprise. Many pension funds in an attempt to meet solvency laws, have been flocking to bonds, even though such bonds pay out lower percentage yields than inflation.

The truth is that many pension funds have been paralysed by the regulator into becoming so risk adverse that they threaten to bring down the economy. The economy needs risks; there is no such thing as risk free. The obsession with risk free in recent years has ironically created more risk.

That is why investing under your own steam, privately rather than via a pension fund is interesting.

And here is a thought to leave you with. A recent article in ‘Fortune’ magazine quoted London’s Tech City CEO Joanna Shields as saying that not so long ago her employees scoffed at stock options. They wanted pensions. She says that today that they all want to be the next Mark Zuckerberg. See: What London can teach Silicon Valley 

If you want a secure retirement, saving for a pension may be a partial answer, but stock options and investing directly, without the straitjacket of a pension fund and its requirements, may provide a better alternative

© Investment & Business News 2013

Last year I did a list of each country’s national debt divided by population to see what the next generation might either pay interest on or pay back.

Examples in $1000 per head:

UK 26.5

Ireland 35

Germany 28

France 31

Spain 17.5

Italy 38

Japan 83

USA 29

Canada 37

Norway 39

Australia 11.5

So what you might say? As a percentage of GDP it’s not so much … well that’s got naff all to do with it too unless there is a current a/c surplus … if you cut someone’s hair it adds to GDP but it hardly pays the £26,500 you owe on top of the £10,000 on your credit card.

Obviously, in the UK, with the old folks about to fund the out of work young folks as well as the civil servants, NHS etc (biggest GDP earners presumably and therefore the biggest ‘so what’ in this whole sad tale) this black hole is here to stay for a long time.

To get away from the obvious side of the story let’s have a look at the other side of the loans – the £26,500 each and every one of us had borrowed on their behalf… someone is the lender and so they will either ask for it back one day or extend the loan forever and the borrowers (you) will pay the interest. As the banks already went bust then presumably the debt is met by bond issuance from each government … “wow government – must be safe” bonds of course.

So who owns the bonds? i.e who is hoping to get paid back?  As it’s not countries per se nor banks so much, it must be the pension funds and the pension funds have your money in trust for when you retire. So the money they are going to give to you one day is indirectly the money you already owe ? And in order to realise that money, the pension funds have to redeem the bonds so the government has to find the money to give the pension providers to give to you….. enough of that … the real truth is that the government bought votes by indirectly spending your pension fund over the past few decades. The government borrowed from the very people it was robbing at the time. Many pension plans will have to go pear-shaped… whose will be first?  Do you doubt this? In that case just tell me who is going to produce your £26,500?

Any thoughts out there?

Patrick O’Connormist is this week’s guest contributor to The Money Spy blog