German pensions could rise by up to 4.2% in 2023 – proposal

Link: https://www.reuters.com/markets/europe/german-pensions-could-rise-by-up-42-2023-proposal-2022-11-05/

Excerpt:

BERLIN, Nov 5 (Reuters) – Germany’s more than 20 million pensioners will likely see their state benefit rise by up to 4.2% from July 2023, according to a governemt proposal seen by Reuters, lower than the expected inflation rate of 7.0%.

The state pension in western Germany will rise by 3.5%, while in former East Germany it will increase by 4.2% according to the draft, as the government continues to narrow the gap between the two regions.

Author(s): Holger Hansen, Christoph Steitz

Publication Date: 5 Nov 2022

Publication Site: Reuters

Social Security Needs Saving Again

Link: https://www.wsj.com/articles/social-security-needs-saving-again-retirement-planning-wages-earnings-benefits-eligible-savings-11654631767?mod=opinion_lead_pos5

Excerpt:

— Raise the full retirement age further. Starting in 2028, it would go up by one month every half-year until it reaches 68 1/2 in nine years. That means that in 101 years (1935-2036) the full retirement age would have risen 3 1/2 years — far less than the increase in average life span over the same period.

— Raise the early eligibility age. Since the 1960s, all workers have had the option of retiring at 62 with benefits reduced by around 25%. Most retirees now claim Social Security at 62, and the rising full retirement age strengthens the incentive to do so. Once it’s at 67, holding out for higher payments will mean giving up five years’ worth of benefits — a three-year gap will have widened to five.

If my first reform were enacted, the gap would grow further, to an irresistible 6 1/2 years. So Congress should return to the three-year gap by raising the early eligibility age to 65 1/2 as soon as possible.

— Change the way benefits are calculated for new recipients. At a 1983 White House Rose Garden ceremony, I sat next to a Senate member of the Social Security Reform Commission. I told him, “You can fix Social Security by not indexing the bend points for five years.” His response: “What the hell are bend points?”

Bend points determine how much your initial Social Security check will be. First they take the 35 years of your highest income. Thirty-five years ago, you were a junior employee and the dollar didn’t go as far. So each year’s wages are adjusted for inflation to compute an average monthly wage in today’s dollars.

Using the present rules, assume you’re retiring in 2022 and your average inflation-adjusted monthly wage is $6,572. Your first check would be $2,628.96 — 90% of the first $1,024 (or $921.60), plus 32% from $1,024 to $6,172 (or 1,647.36), plus 15% in excess of $6,172 (or $60).

The bend points are $1,024 and $6,172. They were $230 and $1,388 in 1982, when I wrote my constituent newsletter. The growth in benefits could be constrained by indexing the bend points every other year rather than annually for six to 10 years. In addition, the initial benefit should be based on 38 years of wages rather than 35, since Americans not only live longer but work longer, and the inflation-adjusted average wage should be discounted by 5%.

— Slow the growth of benefits for new and existing beneficiaries alike by changing the basis on which they’re indexed for inflation. All indexing of Social Security now uses the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. Economists agree that the Chained CPI is the most accurate inflation index available. Between 2000 and 2020, the Chained CPI was around 0.3 percentage point lower each year than the CPI-W. The government uses Chained CPI to index income-tax brackets and the higher CPI-W to calculate government outlays, including Social Security cost-of-living adjustments — which leads both taxes and spending to rise more quickly.

— Withhold some Social Security COLAs from higher-income retirees. Those who report income of more than $60,000 (a threshold that itself would rise with inflation) from sources other than Social Security could be denied the COLA every other year for up to six years.

— Give the COLA not annually but every 14 or 15 months using the 12 months of lowest inflation.

— Tax Social Security income for higher-bracket taxpayers, and give them the option to forgo all or part of their monthly payment. The forgone amount could be deducted as a charitable contribution. In high-income-tax states, forgoing Social Security payments would incur little or no cost. Skeptics may be surprised by how many Americans will forgo a part of their monthly checks to assure the system’s solvency for their grandchildren. The election to forgo would be reversible annually.

— Raise the payroll tax by 0.1% of wages every other year — half from withholding, half for the employer’s contribution — for 20 years, a total tax increase of 1%.

Author(s): Rudy Boschwitz

Publication Date: 7 June 2022

Publication Site: WSJ

The triple lock will condemn Britain

Link: https://www.spectator.co.uk/article/the-pensions-triple-lock-will-condemn-britain

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Excerpt:

The triple lock says that each year the state pension will increase by inflation, average earnings, or 2.5 per cent, whichever was highest in the year before. It is hugely popular with the Conservative party’s elderly base. It is also a fiscal and economic millstone around the British government’s neck.

The last two years have amply illustrated the basic problems with the design of the scheme. The first is that it was clearly not created with unusual economic circumstances in mind. In 2021, wages dropped in a short but deep recession. The next year, they went back up again. In economic terms, very little had changed. The rule used by the triple lock, however, treated this like a period of strong economic growth. If it had been left untouched, pensions would have increased by 8 per cent. And thanks to the ratcheting effect of the triple lock mechanism, they would have retained that boost against UK GDP into the long term.

In the end, the government ended up suspending the triple lock for a year, only to fall right into another unusual situation: stagflation, where economic activity stagnates but inflation skyrockets. Again, the triple lock recommends a large boost to pensions when government finances are already under strain, and again, this would lift up pensions as a share of GDP long term. And again, the government should suspend the rule to avoid this. But it seems Liz Truss has bottled it. 

You would have thought it tempting for the Conservative party to wave these away as two unusual years; in normal times – when GDP, inflation, and earnings increase together – then everything would be fine, right? Well, no. The way the triple lock is designed means that whenever you have a downturn, pensions will tend to rise as a share of GDP. And whenever you have a boom, they keep pace. The net effect is a constant ratchet where pensions,  in the words of the work and pensions select committee, take up an ‘ever-greater share of national income’.

This is not sustainable. Spending on the state pension is already set to rise significantly as a share of GDP over the coming decades; as the population gets older, there are more people claiming pensions and fewer working to pay for them. Add the triple lock into the mix, and you double the expected increase in demand. Scrapping the arbitrary 2.5 per cent element doesn’t do a lot to help, either; you still have significant growth through the ratcheting effects of the first two elements.

Author(s): Sam Ashworth-Hayes

Publication Date: 19 Oct 2022

Publication Site: The Spectator UK

What Social Security Should Really Be Paying to Survive in This Economy

Link: https://www.nakedcapitalism.com/2022/10/what-social-security-should-really-be-paying-to-survive-in-this-economy.html

Excerpt:

Inflation continues to rise in the United States. Although gas prices have recently fallen since their record high over the summer, the cost of groceries rose by 11.4 percent over the last year, and there is no expectation that they will fall back to reasonable levels. Prices overall have risen by 8.2 percent, according to the U.S. Bureau of Labor Statistics’ Consumer Price Index report covering September 2022 as compared to the same month last year. While most working Americans are not getting hefty wage raises to compensate for inflation, seniors will see their Social Security benefits—which are pegged to inflation—rise next year. Starting in January 2023, beneficiaries will see an 8.7 percent cost-of-living adjustment (COLA) bump in their Social Security checks.

Conservatives are scoffing at this automated increase, as if it were a special treat that the Biden administration has cooked up to bribe older voters. Fox News reported that there was a “social media backlash” against White House Chief of Staff Ron Klain’s tweet lauding the upcoming increased COLA benefits for seniors. The outlet elevated comments by the conservative America First Policy Institute’s Marc Lotter, who retorted to Klain, “Nice try Ron. Raising benefits next year does not help seniors with the higher prices they are paying today or the higher prices they’ve been paying since you took office.”

But Social Security benefits have risen automatically with inflation since 1975 by design, precisely so that the livelihoods of seniors are not beholden to partisanship. This is an imminently sensible way to ensure that retired Americans, who spent their working lives paying Social Security taxes, can have a basic income.

If conservatives are complaining that an 8.7 percent bump is not enough to counter inflation, one might expect them to demand an even greater increase to Social Security benefits.

Author(s): Sonali Kolhatkar

Publication Date: 15 Oct 2022

Publication Site: naked capitalism

The History of the Social Security COLA: A Timeline

Link: https://www.thinkadvisor.com/2022/10/11/the-history-of-the-social-security-cola-a-timeline/

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Excerpt:

The first Social Security COLA — an 8% benefit increase — happened in 1975. The COLAs were effective in June of the applicable year. Since 1982, adjustments have taken effect in December, with benefit increases reflected in January payments.

Over the years, adjustments have ranged from no adjustment — in both 2009 and 2010 — to a high of 14.3% in 1980. The COLA was 5.9% in 2022.

The 2023 COLA will be 8.7%, the biggest increase since 1981. Here are some thoughts on a few notable past COLAs. Tap or hover your mouse over the graph to see the COLAs for each year.

Author(s): Roger Wohlner

Publication Date: 11 Oct 2022

Publication Site: Think Advisor

Solvency And Sustainability Of Social Security

Link:https://www.lifehealth.com/solvency-and-sustainability-of-social-security/

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Excerpt:

2021 Costs Exceed Income

As seen from subtracting the total cost shown in Table 2 from the total income shown in Table 1, Social Security paid out $56.3 billion more in benefits and expenses than it collected in income.

Because Social Security has trust funds, the total costs of 2021 were still met. However, the trust funds declined in 2021 by the $56.3 billion that costs exceeded income. At the end of 2020, the trust funds totaled $2,908.3 billion, and at the end of 2021, the trust funds totaled $2,852.0 billion.

Solvency

As highlighted in the Academy’s issue brief An Actuarial Perspective on the 2022 Social Security Trustees Report, the 2022 Trustees Report contains key solvency facts about the system:

  • Social Security costs continue to be projected to exceed the income of the program, until the trust funds are projected to become depleted during 2035.
  • If changes to the program are not implemented before 2035, 80% of scheduled benefits would be payable after depletion of the trust funds in 2035, declining to 74% by 2096.

Author(s): Amy Kemp, MAAA, ASA, EA

Publication Date: October 2022

Publication Site: Advisor Magazine

Macron buckles on raising France’s retirement age in budget bill

Link: https://www.ft.com/content/cf3eff53-2dfb-4530-a756-1e1361990d7d

Excerpt:

French president Emmanuel Macron has decided against pushing through a rise in the retirement age to 65 in a budget bill, backing off an idea that had angered labour unions and divided his centrist alliance.

The move signals how Macron has been forced to contend with a stronger opposition in his second term after his party lost its majority in parliament in June.

….

Prime Minister Élisabeth Borne told Agence France-Presse on Thursday that the government would start negotiations with labour unions, employers and other political parties with a view to passing a law over the coming months.

The government still wants to raise the retirement age from 62 at present to 65, one of Macron’s campaign promises that he sees as key to fixing France’s public finances.

Author(s): Leila Abboud

Publication Date: 29 Sept 2022

Publication Site: Financial Times

Social Security COLA for 2023 Estimated at 8.7%

Link: https://www.thinkadvisor.com/2022/09/13/social-security-cola-for-2023-estimated-at-8-7/

Excerpt:

The consumer price index data for August, released Tuesday, shows 8.3% inflation over the past 12 months before a seasonal adjustment and was 0.1% from July to August on a seasonally adjusted basis. In July, prices rose by 8.5% over 12 months and were unchanged from June.

Based on the new data through August, The Senior Citizens League estimates the Social Security cost-of-living adjustment, or COLA, for 2023 could be 8.7%, lower than the 9.6% it predicted last month.

An 8.7% COLA would be the biggest increase since 1981. The adjustment would increase the average retiree benefit of $1,656 by $144.10, according to the league.

Author(s): Dinah Wisenberg Brin

Publication Date: 13 Sept 2022

Publication Site: Think Advisor

Social Security Reform: Taxation Options

Link: https://www.actuary.org/sites/default/files/2022-08/SocSecReformTaxation0822.pdf

Graphic:

Excerpt:

Social Security was originally
funded by a tax on the wages of
covered workers plus interest on
accumulated taxes not yet paid
out as benefits. Later, a tax on the
benefits of some beneficiaries
was added.
• Both the tax rate and the limit
on wages subject to taxation
have been raised periodically to
fund increases in the scope and
amount of benefits.
• According to the 2021 Social
Security Trustees Report,
accumulated assets will be
depleted by 2034 and income
to the system thereafter will be
insufficient to pay all scheduled
benefits when due.
• Some or all of this shortfall can
be averted by raising the tax rate
on wages, increasing the limit
on wages subject to taxation,
broadening coverage to include
all state and local government
employees, increasing taxes on
benefits, and/or creating new
taxes dedicated to funding Social
Security benefits.
• This issue brief explores a
wide variety of proposals for
increasing system revenue
that have been made over the
years by members of Congress,
government-appointed panels
and commissions, and outside
experts.

Author(s): American Academy of Actuaries Social Security Committee

Publication Date: August 2022

Publication Site: American Academy of Actuaries

Social Security Reform: Benefit Formula Options

Link: https://www.actuary.org/sites/default/files/2022-08/SocSecReformBenefits0822.pdf

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Excerpt:

From its inception, the formulas
for determining benefits payable
under the Social Security System
have included elements of
individual equity and social
adequacy, so that benefits vary
in proportion to differences
in worker contributions, yet
benefits are sufficient to meet
the deemed financial needs
of most workers and covered
dependents.
• According to the 2021 Social
Security Trustees Report,
accumulated assets will be
depleted by 2034 and income
to the system thereafter will be
insufficient to pay all scheduled
benefits when due.
• Some or all of this shortfall
can be averted by changing
the primary formula for retired
worker benefits, changing the
formulas for determining the
benefits of eligible spouses and
other dependents of workers,
and/or changing the formula for
computing annual cost-of-living
increases.
• This issue brief explores a
wide variety of proposals for
changing the formulas for
determining benefits that
have been made over the
years by members of Congress,
government-appointed panels
and commissions, and outside
experts, with an eye toward how
the proposed changes would
affect the balance between
individual equity and social
adequacy.

Author(s): American Academy of Actuaries Social Security Committee

Publication Date: August 2022

Publication Site: American Academy of Actuaries

Congressional Bill Could End Windfall Elimination

Link: https://www.yahoo.com/video/congressional-bill-may-soon-end-194009302.html

Excerpt:

The wind fall elimination provision (WEP) reduces the amount of Social Security benefits people can collect if they receive a government retirement plan in addition to Social Security. It applies only to workers who did not pay Social Security taxes, and so did not earn credits toward Social Security income during their working years.

According to the Congressional Research Service, roughly 6% of workers don’t receive Social Security credits in a given year. Most are local, state and federal employees who don’t pay Social Security taxes because they qualify for government pensions instead. For example, these are federal civilian employees who receive their retirement through the Civil Service Retirement System. The rest are workers covered by alternative retirement schemes, such as Railroad Retirement, or poverty-level workers who earn too little to qualify.

…..

Government Pension Offset (GPO)

The GPO cuts the benefits issued to retirees who receive both their own Social Security payments and a spouse’s government pension payments. The GPO aims to prevent double earning by someone who begins collecting their spouse’s retirement benefits. In the case of the GPO, it reduces a recipient’s Social Security payments by two-thirds of the pension payments that they receive. For example, say that a government worker received a monthly pension of $750. After their death, their spouse is eligible to continue collecting that pension. The pension offset, however, would reduce the surviving spouse’s Social Security payments by $500 per month.

The GPO only applies when someone directly collects their spouse’s pension benefits in addition to their own Social Security benefits, such as when that spouse dies. It does not apply to a household where both people are alive and collecting their own retirement benefits. It also only applies when the government worker did not pay Social Security taxes during their working years.

…..

Almost 340 members of Congress agree that it’s time to eliminate the windfall elimination, and retired public workers could benefit by more than $6,000 per year. In 2021 Rep. Rodney Davis, R-Ill., introduced the Social Security Fairness Act. This bill would repeal the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) from Social Security payments. If it passes public employees could see a significant bump in their retirement incomes, and it may pass soon.

At time of writing the Social Security Fairness Act had 294 sponsors in the House of Representatives. Its companion bill in the Senate had 41 sponsors. The measure has been placed on a legislative fast-track. By removing the Windfall Elimination Provision and the Government Pension Offset, this law targets two issues that public unions have long criticized.

Author(s): Erid Reed

Publication Date: 7 Aug 2022

Publication Site: Yahoo News