Funding our old age.
A workmate put me on to this based on a reference in a newsletter he receives (Thanks Mark).
People the world over are living longer (places like Zimbabwe and Nth Korea excepted). Supporting those people in their old age is a different matter. In olden times, not many lived to be 'old', and in the third world, large families were/are common in part as a support mechanism for the older generation. But as mentioned here, things are changing. The world generally is tending to smaller families, and people are living far longer.
It seems there are 3 options to support the old; 1) expect the next generations to support you, 2) expect government to support you, or 3) put enough aside to support yourself. Option 3 seems to be the most 'moral' course to me, if you can.
Which is where this study becomes of interest; ['Global Aging and the Sustainability of Public Pension Systems', Capretta, 'Center for Strategic & International Studies']. Subtitled 'An Assessment of Reform Efforts in Twelve Developed Countries'.
Like most Aussies, I (and wife and daughter have their own 'super' accounts - it's an individual thing), have a 'Superannuation' account/portfolio (which has taken a battering due to stock market fluctuations of late), the idea being to provide for ourselves when we retire from the workforce. Australia gets good marks in the report. Of interest, Switzerland wasn't studied, though I would be surprised if the Swiss don't have it well worked out - it'd be out of character if they didn't. In the introduction it says;
[Update 9Aug08] Thought it might be worth adding some extracts and comments on the various economies referenced. (Quotes from here).
USA: "...despite its many advantages, a deeply polarized political environment and widely divergent visions for reform have made achieving consensus difficult—and left the United States facing a major long-term cost crisis...".
UK: "...the interaction of public pensions with the voluntary “contracted out” employer and personal pensions is complex and has come under heavy criticism for leaving a growing number of British workers with uncertain retirement income prospects...".
Sweden: "...a new system of “notional defined contribution” accounts supplemented by mandatory funded individual retirement accounts, leaves Sweden better positioned to confront the age wave than most European countries...".
Spain: "...When it comes to reform of its public pension system, Spain seems to be in a state of collective denial. With a fertility rate of just 1.2, among the lowest in Europe, it faces a future of extreme demographic aging and soaring retirement costs. Yet Spain continues to defer reform...".
Netherlands: "...the Dutch pension system remains unsustainable. With over two-thirds of men (and over four-fifths of women) exiting the workforce by age 60, early retirement is still the norm. The basic AOW public pension system, moreover, remains entirely unreformed...".
Japan: "...Japan is now the world’s oldest society— [old as in average age of the population] and a window into the near future for the rest of the developed world...".
Italy: "...Italy not only has one of Europe’s fastest aging populations, but one of its most expensive public pension systems as well. The combination of generous benefits, powerful trade unions, and unstable governing coalitions has made reform perilous for Italian political leaders..".
Germany: "...Germany’s public pension system is Europe’s oldest and one of its most generous..., ...there is growing resentment among younger Germans, who feel that they are being asked to pay for generous benefits for their elders that they themselves cannot hope to receive..., ...To avoid a future crisis, Germany must somehow jump start its new funded pension system...".
France: "...The French have long supported an expansive public sector, and France’s public pension system is indeed generous and costly..., ...the French are perhaps most attached to generous pay-as-you-go pensions, which they view as the cornerstone of solidarite sociale—and the most hostile to funded alternatives, which they associate with “Anglo-Saxon” capitalism..., ...Whether France can make sufficiently bold reforms, however, is open to question. At some point, the reality of scaled-back pension promises will collide with the French expectation of an expansive welfare state, with unknown political consequences...".
Canada: "...Canada’s public pension system is relatively modest by international standards, its cost is projected to rise rapidly over the next few decades as Canada’s unusually large postwar Baby Boom generation retires..., An interesting illustration - with probably global significance is a "...televised Parliament Hill steps confrontation between Mulroney and Solange Denis, an outraged near-retiree". (Lesson; politicians hurt the electorate's 'hip-pocket nerve' on such issues at their severe peril - best example I've seen).
Belgium: "...Belgium has been more reluctant than most European countries to pursue reform of its public pension system—and indeed, of its welfare state in general. With a large pay-as-you-go public pension system, the lowest effective retirement ages in Western Europe, and virtually no funded private pension savings, there is much reform that could occur..., ...Sooner or later, Belgium’s political leaders will be forced to face what nearly every other
European country is facing: significant reform of unsustainable public pension promises...".
Australia: "...Australian political leaders have demonstrated far-sighted initiative in preparing for population aging. With the superannuation guarantee, Australia has a near universal, fully funded, privately administered, and, as of 2005, individually controlled and portable, retirement savings program.
Today, over 90 percent of workers have superannuation coverage, and superannuation assets are growing rapidly...".
According to the Introduction; "...Australia, [is] the world reform leader...", "...no country, with the possible exception of Australia, can legitimately claim to have solved its old-age support problem...".
So there you have it. I'm now over 50. I could retire - early - at 55, which would mean a frugal retirement. Or, there is more to draw from each year that I leave my 'super' to grow. I'm not sure I want to drop out of the workforce early anyway. Work is about more than just the money. For many of us - it's doing something you feel is worthwhile. It's a social and friendship network, an external discipline to structure life around.
One thing I will agree with though, the thoughts of those German youths. I've paid a lot of tax for ~35 years, ~25% of which went to social security. If your taxes have paid for the pensions of others preceeding you, then ergo, you have some claim on some sort of quid pro quo in return.
People the world over are living longer (places like Zimbabwe and Nth Korea excepted). Supporting those people in their old age is a different matter. In olden times, not many lived to be 'old', and in the third world, large families were/are common in part as a support mechanism for the older generation. But as mentioned here, things are changing. The world generally is tending to smaller families, and people are living far longer.
It seems there are 3 options to support the old; 1) expect the next generations to support you, 2) expect government to support you, or 3) put enough aside to support yourself. Option 3 seems to be the most 'moral' course to me, if you can.
Which is where this study becomes of interest; ['Global Aging and the Sustainability of Public Pension Systems', Capretta, 'Center for Strategic & International Studies']. Subtitled 'An Assessment of Reform Efforts in Twelve Developed Countries'.
Like most Aussies, I (and wife and daughter have their own 'super' accounts - it's an individual thing), have a 'Superannuation' account/portfolio (which has taken a battering due to stock market fluctuations of late), the idea being to provide for ourselves when we retire from the workforce. Australia gets good marks in the report. Of interest, Switzerland wasn't studied, though I would be surprised if the Swiss don't have it well worked out - it'd be out of character if they didn't. In the introduction it says;
"...Despite recent reforms, public benefit systems in most developed countries remain fiscally unsustainable—and even where long-term costs have been controlled, serious concerns remain. The United Kingdom, having stabilized future pension spending as a share of GDP, is now worried that it has done so at the risk of impoverishing the future elderly. As for the United States, reform appears to be on indefinite hold. America enjoys many advantages in confronting the age wave, from its relatively youthful demographics to its large funded private pension system. Yet its failure to engage entitlement reform could in the end leave it no betterDry reading, some may say, but it'll be interesting for those who like to think forward to the future. The CSIS site itself is interesting as a think-tank on it's own.
off than many European countries facing far larger demographic challenges...".
[Update 9Aug08] Thought it might be worth adding some extracts and comments on the various economies referenced. (Quotes from here).
USA: "...despite its many advantages, a deeply polarized political environment and widely divergent visions for reform have made achieving consensus difficult—and left the United States facing a major long-term cost crisis...".
UK: "...the interaction of public pensions with the voluntary “contracted out” employer and personal pensions is complex and has come under heavy criticism for leaving a growing number of British workers with uncertain retirement income prospects...".
Sweden: "...a new system of “notional defined contribution” accounts supplemented by mandatory funded individual retirement accounts, leaves Sweden better positioned to confront the age wave than most European countries...".
Spain: "...When it comes to reform of its public pension system, Spain seems to be in a state of collective denial. With a fertility rate of just 1.2, among the lowest in Europe, it faces a future of extreme demographic aging and soaring retirement costs. Yet Spain continues to defer reform...".
Netherlands: "...the Dutch pension system remains unsustainable. With over two-thirds of men (and over four-fifths of women) exiting the workforce by age 60, early retirement is still the norm. The basic AOW public pension system, moreover, remains entirely unreformed...".
Japan: "...Japan is now the world’s oldest society— [old as in average age of the population] and a window into the near future for the rest of the developed world...".
Italy: "...Italy not only has one of Europe’s fastest aging populations, but one of its most expensive public pension systems as well. The combination of generous benefits, powerful trade unions, and unstable governing coalitions has made reform perilous for Italian political leaders..".
Germany: "...Germany’s public pension system is Europe’s oldest and one of its most generous..., ...there is growing resentment among younger Germans, who feel that they are being asked to pay for generous benefits for their elders that they themselves cannot hope to receive..., ...To avoid a future crisis, Germany must somehow jump start its new funded pension system...".
France: "...The French have long supported an expansive public sector, and France’s public pension system is indeed generous and costly..., ...the French are perhaps most attached to generous pay-as-you-go pensions, which they view as the cornerstone of solidarite sociale—and the most hostile to funded alternatives, which they associate with “Anglo-Saxon” capitalism..., ...Whether France can make sufficiently bold reforms, however, is open to question. At some point, the reality of scaled-back pension promises will collide with the French expectation of an expansive welfare state, with unknown political consequences...".
Canada: "...Canada’s public pension system is relatively modest by international standards, its cost is projected to rise rapidly over the next few decades as Canada’s unusually large postwar Baby Boom generation retires..., An interesting illustration - with probably global significance is a "...televised Parliament Hill steps confrontation between Mulroney and Solange Denis, an outraged near-retiree". (Lesson; politicians hurt the electorate's 'hip-pocket nerve' on such issues at their severe peril - best example I've seen).
Belgium: "...Belgium has been more reluctant than most European countries to pursue reform of its public pension system—and indeed, of its welfare state in general. With a large pay-as-you-go public pension system, the lowest effective retirement ages in Western Europe, and virtually no funded private pension savings, there is much reform that could occur..., ...Sooner or later, Belgium’s political leaders will be forced to face what nearly every other
European country is facing: significant reform of unsustainable public pension promises...".
Australia: "...Australian political leaders have demonstrated far-sighted initiative in preparing for population aging. With the superannuation guarantee, Australia has a near universal, fully funded, privately administered, and, as of 2005, individually controlled and portable, retirement savings program.
Today, over 90 percent of workers have superannuation coverage, and superannuation assets are growing rapidly...".
According to the Introduction; "...Australia, [is] the world reform leader...", "...no country, with the possible exception of Australia, can legitimately claim to have solved its old-age support problem...".
So there you have it. I'm now over 50. I could retire - early - at 55, which would mean a frugal retirement. Or, there is more to draw from each year that I leave my 'super' to grow. I'm not sure I want to drop out of the workforce early anyway. Work is about more than just the money. For many of us - it's doing something you feel is worthwhile. It's a social and friendship network, an external discipline to structure life around.
One thing I will agree with though, the thoughts of those German youths. I've paid a lot of tax for ~35 years, ~25% of which went to social security. If your taxes have paid for the pensions of others preceeding you, then ergo, you have some claim on some sort of quid pro quo in return.
posted by Phil at 8:44 pm
1 Comments:
I have, of course, made my little schemes to have funds for many years to come, as I expect (and hope) to live for many years to come. The sums are not important, but they will take me through.
And then, I will rely on your option 1. My son has now settled in Dubai and will be well to do (if he stays with Emirates). And my daughter is going to visit him in the next few days. I told her to look for a rich oil sheikh to marry.
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