Social Security-like plans – Page 2

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Canada’s government acknowledges that the significant investments they seek in Canadian businesses and infrastructure must come mostly from the private sector. But in fact for decades, the country’s pension funds have been considerably reducing their domestic investments, a trend the feds and regulation are being taken to task for.
Tony Loffreda, independent senator from Quebec and former vice chairman of RBC Wealth Management, on May 12 asked the government’s representative in the Senate, Marc Gold, what the feds could do to incentivize Canada’s pension funds to invest more in Canada “without necessarily regulating free enterprise.”
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The CPPIB’s 2021 annual report showed that in 2006, 64 percent of its assets were invested in Canada and the remaining 36 percent invested globally. But by 2021, the mix had changed to 15.7 percent in Canada and 84.3 percent globally.
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The report outlined some of the reasons for the trend, singling out regulation.
“Plan sponsors are reacting in very predictable ways to their regulatory environment and the only way to change this behaviour is to change the environment,” LetkoBrosseau said.
It said regulation has over-emphasized short-term fluctuations in asset values, resulting in a shorter investment time horizon for pension fund assets. In contrast, pension savings, which represent 30 percent of Canadian savings, are typically invested for the long term and are meant to be managed such that they can take more risk to earn greater rewards.

Author(s): Rahul Vaidyanath

Publication Date: 18 May 2022

Publication Site: The Epoch Times

The state pension – a creaking centenarian

June 10, 2022June 10, 2022 Mary Pat Campbell

Link: https://cpd180322.pensions-expert.com/

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Separate SPAs for men and women were introduced in 1940 — age 65 for men and 60 for women, with a decision to equalise the SPA for men and women trailed in the 1993 white paper ‘Equality in state pension age’. Now that the same age applies for both men and women, at 66, there is still huge controversy over the notice period and quality of information given to women over the age of 50 on the exact timetables for this change.
Demography has increasingly put the whole system under strain. Andrew Tully, technical director at Canada Life, warns: “By 2045, the number of people of pensionable age will grow to 15.2mn, an increase of 28 per cent on the level in 2020. The ‘oldest old’ cohort is also increasing, with the number of people aged 85 and over projected to almost double to 3.1mn by 2045.
“At the same time, the working age population will increase by much less — around 4.5 per cent up by the mid-2030s, but then remaining around that level by 2045. Meanwhile, we are seeing a decrease in the number of children, with those aged 0 to 15 projected to fall by nearly 9 per cent by mid-2030.”

Author(s): Stephanie Hawthorne

Publication Date: 18 March 2022

Publication Site: Pensions Expert

Pension Withdrawals Drain Savings in Chile and Peru

June 5, 2022June 5, 2022 Mary Pat Campbell

Link: https://www.fitchratings.com/research/sovereigns/pension-withdrawals-drain-savings-in-chile-peru-01-06-2022

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Peru, Chile and Bolivia have allowed early withdrawals from their funds as a source of relief for households and to support recoveries during the pandemic and the global price shock. But these have had negative financial and confidence ramifications, contributing to downgrades of Peru in 2021 and Chile in 2020. Longstanding private pension funds have been important supports for sovereign creditworthiness where they exist in Latin America.
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Peru’s Congress approved a sixth withdrawal from private pension funds in May. Prior rounds due to the pandemic led to withdrawals of USD17.8 billion or 8% of 2021 GDP. In Chile, a fourth withdrawal proposal failed in April 2022, but Chileans have already withdrawn about USD50 billion (16% of 2021 GDP) in 2020-2021. Bolivia allowed early withdrawals once in 2021 for more limited amounts (0.4% of 2021 GDP).

Publication Date: 1 June 2022

Publication Site: Fitch Ratings

Increase in UK state pension age to 68 could come eight years early

February 9, 2022February 9, 2022 Mary Pat Campbell

Link:https://www.theguardian.com/money/2021/dec/15/increase-uk-state-pension-age-68-could-come-eight-years-early-review

Excerpt:

Millions of people born in the 1970s may have to wait longer to collect their UK state pensions if a government review, which was announced this week, recommends bringing forward plans for a retirement age of 68.
The state pension age rose to 66 last year, with two further rises planned, meaning that by 2046 those born on or after April 1977 would need to wait until 68 before they can draw the benefit.
However, the review will look at bringing forward that change by eight years, so that the increase is phased in between 2037 and 2039.

Author(s): Hilary Osborne

Publication Date: 15 Dec 2021

Publication Site: The Guardian

Vietnam adds private pension as silver tide rises

January 17, 2022January 17, 2022 Mary Pat Campbell

Link:https://asia.nikkei.com/Economy/Vietnam-adds-private-pension-as-silver-tide-rises

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When communist Vietnam recently introduced private retirement funds, it was taking a step not only closer to capitalism, but also toward changing a young pension system that some worry may buckle if citizens get old before getting rich.
Last year marked the first time workers could put part of their paychecks into private retirement accounts, on top of the share contributed to the state pension. But analysts say bigger, systemic change is needed to enable retirement for all, even as the International Labor Organization says the state fund is robust.
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Retirees would seem to be the envy of the neighborhood, receiving payouts worth 75% of their prior wages — the fifth-highest among 70 countries in the Allianz Global Pension Report 2020.
But Vietnam’s system covers just 40% of the elderly, which explains why women keep working longer there than in all but five other countries, the report shows.

Author(s): LIEN HOANG

Publication Date: 17 Jan 2022

Publication Site: Nikkei Asia

Pensions: What is the triple lock and how does it work?

July 18, 2021July 18, 2021 Mary Pat Campbell

Link: https://www.bbc.com/news/business-53082530?fbclid=IwAR2kjEGvPL1TdWhbi0CbXzr5_-RwdpLIgpnkwdAF9xgEJ92FhQUPB5KRUZo

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At present, the state pension increases each year in line with the rising cost of living seen in the Consumer Prices Index (CPI) measure of inflation, increasing average wages, or 2.5%, whichever is highest.
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As people come off furlough and return to full pay, this is recorded as a large rise in average earnings. Job losses have also affected those in low-paid work too.
This leads to a unique situation, and one which economists describe as an anomaly.
Predictions by the Bank of England suggest that average earnings could go up by 8%, hence the equivalent rise in the state pension.

Author(s): Kevin Peachey

Publication Date: 13 July 2021

Publication Site: BBC

Iran Pensioners Protest Yet Again

July 6, 2021July 6, 2021 Mary Pat Campbell

Iran Pensioners Protest Yet Again

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The 2020 census reported that there are some 18 million pensioners in Iran, who form part of the 96% of the population who live under the poverty line. Even the regime’s own statistics advise that over 75% of pensioners cannot afford the most basic goods, like food and shelter. This is because the average pension is 25 million rials per month even though some parts of the country have a poverty rate of 100 million rials after the economic crisis caused by the pandemic.

Author(s): Mostafa Aslani

Publication Date: 6 July 2021

Publication Site: Iran News Update

Means testing is a dog of a tax and it will destroy the welfare state

June 7, 2021June 7, 2021 Mary Pat Campbell

Means testing is a dog of a tax and it will destroy the welfare state

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Means tests must always turn regressive at some point in the income or wealth distribution. Because the means test withdrawal cannot exceed the benefit amount, the implicit tax can only rise with income or wealth so far. From there, it turns into a fixed sum tax, like the notorious Thatcher poll tax albeit phased-in at the lower end.
Consider the Australian Government’s Age Pension assets test, which functions as an implicit wealth tax targeted at the middle class. The single Age Pension benefit is approximately $953 a fortnight. The maximum implicit tax amount can then only be $953 per fortnight – whether you’re worth $600,000 or $600 million. The implicit tax amount payable by wealth (excluding the family home) for a single person is shown below.

Author(s): David Sligar

Publication Date: 5 June 2021

Publication Site: Western Sydney Wonk

Populists May Kill Chile’s Pension Success

June 3, 2021June 3, 2021 Mary Pat Campbell

Link: https://www.wsj.com/articles/populists-may-kill-chiles-pension-success-11622670275

Excerpt:

Populist politicians are destroying Chile’s revolutionary pension system. In 1981 Chile became the first country to privatize social security, ending the pay-as-you-go system that had been in place since 1924 and had collapsed. Now Chile’s left wants to resurrect it.
The state-run pension system was plagued by corruption and rent-seeking since its earliest days. Among the 11,395 laws passed by the Chilean Congress between 1926 and 1963, 10,532 granted pension privileges to special-interest groups, many of them politically connected. In 1968, Chilean President Eduardo Frei, a center-left Christian Democrat, described the cronyism that plagued social security as an “absurd monstrosity” that the government couldn’t afford.
Pension privatization reversed this perverse dynamic. Instead of taxing active workers to pay pensioners through the bureaucracy, the new system, created by former Labor Minister Jose Pinera, established that 10% of the employee’s salary is transferred automatically to an account under his name at one of the Administradoras de Fondos de Pensiones, or AFP. These private pension funds compete to attract workers and invest their pensions for a fee.
This has restored the link between contributions and pension benefits by making workers responsible for saving the funds that will support them once they retire. This novel system also limited corruption and rent-seeking, and Chilean taxpayers are no longer on the hook for pension deficits, which in 1981 represented 3% of gross domestic product.
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Longer life expectancy is also a problem. When the AFP system was created, men retired at 65 with an average life expectancy around 67. Women retired at the age of 60 with a life expectancy around 74. Today, the retirement ages are unchanged but life expectancy has increased to 77 for men and 83 for women. This means more years of retirement have to be funded by the same years of saving.

Author(s): Axel Kaiser

Publication Date: 2 June 2021

Publication Site: WSJ

Chicago Boys’ Free-Market Pension Model Is Unraveling in Chile

May 24, 2021May 24, 2021 Mary Pat Campbell

Link: https://www.bloomberg.com/news/articles/2021-05-10/chicago-boys-free-market-pension-model-is-unraveling-in-chile?sref=htOHjx5Y

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Chile’s privately run pension funds are in a battle for survival, reeling under the impact of billions of dollars of withdrawals as politicians and social movements attack a system once viewed as a model for the world.
Chileans have taken out more than $30 billion from their retirement savings in the past year and congress has authorized a third wave of withdrawals that could drive the figure to more than $50 billion. That would leave the pension funds with about $180 billion of equities and fixed-income assets. Many lawmakers are now calling for the whole system to be dismantled.
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Created during the dictatorship of August Pinochet on the advice of free-market economists known as the Chicago Boys, the private pensions Chileans are required to fund are a bedrock of the country’s system. The savings they have generated over the past four decades have given local credit markets and the peso a stability that is the envy of serial defaulters such as Argentina or Ecuador, and prompted countries including Peru and Colombia to adopt similar structures. Yet, many complain that the funds have failed to provide decent pensions.
Distrust in the system, and a need for cash, meant Chileans rushed to pull money out of their savings accounts as the pandemic forced the government to shutter much of the economy.

Author(s): Eduardo Thomson

Publication Date: 10 May 2021

Publication Site: Bloomberg