Problems Ramping Up with Pensions?
Longer lives will hit corporate bottom lines. That's because they will need to plow more money into their pension plans to be sure money is available for the life expectancy of their retirees.
There's also good news for public employee pension plans.
Governments continue to make promises of benefits to their employees that they may or may not be able to keep. The rubber hits the road as employees retire, and governments must find funds to pay pension benefits. Unless a government has socked away funds on an ongoing basis to meet their obligations to retirees, they need to rely on tax revenues or borrowing to meet those obligations - and few governments have socked away sufficient funds.
If it's any consolation, these problems extend to most if not all countries with "developed" economies, the so-called "First World." Greece, a member of the EU, and therefore considered to have a (ahem) "developed" economy, has been facing financial Armageddon these past few years in no small part because of benefits promised to employees that the government cannot meet. Combine this with profligate borrowing of money to shore up their financial shortfalls, and you've now got a toxic mix that will not be ultimately solved in a satisfactory way to either creditors or ordinary citizens. Creditors will be forced to take a bath of some sort, and citizens have been living under foreign-imposed "austerity" measures. The recent kicking-the-can-down-the-road "solutions" can't last forever (although it really is being dragged out beyond the expectations of many).
Greece is one thing, but the UK is quite another. Here's an example now of a problem bubbling up in the UK with their police officers. It seems the police pension plan has been "revised" in the past and a new revision is being jammed down the throats of the police. They don't like it and are petitioning the government as we speak.
(You can read the whole petition HERE.)
Question: Is it any consolation that all us "developed" country citizens appear to be in the same boat on this issue? Or put another way, is it at all comforting if the leaking boat goes down with all of us on board together?
Of course, you may want to balance this with the alternately comforting (?) thought that can-kicking has worked over and over again, even after the 2007-2008 crisis. It appears to keep working. And it also appears that most of our fellow citizens believe there's no reason to believe it won't keep working. At least that's what buoyant markets are telling us. Why worry? Better to click on our ubiquitous electronic devices and flip to some sports and entertainment - especially those "reality" shows which give us concocted "reality" so we can not have to face reality. Hey, it seems to work for a heck of lot of us.
In its first revision of mortality assumptions since 2000, the Society of Actuaries estimated the average 65-year-old man today will live 86.6 years, up from the 84.6 it estimated a decade and a half ago. The average 65-year-old woman will live 88.8 years, up from 86.4.There's good news for some companies, though. The revisions in formula's used to determine company contributions to retirement plans under federal regulations only applies to defined benefit plans, and many companies have switched to defined contribution plans, so those companies will not be negatively impacted.
There's also good news for public employee pension plans.
Government-sponsored pension plans generally won’t feel the same kind of effect from last fall’s revisions to mortality assumptions as big companies like AT&T Inc., Verizon Communications Inc. and General Motors Co. – all of which have recorded big charges to earnings and/or increases to their pension obligations as a result, as The Wall Street Journal reported Tuesday.So on balance, it seems the impact of the new actuarial formulas will not be anything approaching a disaster. However, the fundamental problem of government's over-promising future benefits remains, especially for government-sponsored plans.
That’s because the process by which public pension plans take retirees’ mortality into account is different from that of corporate-sponsored plans. The public plans aren’t as closely tied into using the specific, newly revised mortality data that companies use, and they’ve effectively already taken into account some of the improvements in retirees’ lifespans in recent years.
Governments continue to make promises of benefits to their employees that they may or may not be able to keep. The rubber hits the road as employees retire, and governments must find funds to pay pension benefits. Unless a government has socked away funds on an ongoing basis to meet their obligations to retirees, they need to rely on tax revenues or borrowing to meet those obligations - and few governments have socked away sufficient funds.
If it's any consolation, these problems extend to most if not all countries with "developed" economies, the so-called "First World." Greece, a member of the EU, and therefore considered to have a (ahem) "developed" economy, has been facing financial Armageddon these past few years in no small part because of benefits promised to employees that the government cannot meet. Combine this with profligate borrowing of money to shore up their financial shortfalls, and you've now got a toxic mix that will not be ultimately solved in a satisfactory way to either creditors or ordinary citizens. Creditors will be forced to take a bath of some sort, and citizens have been living under foreign-imposed "austerity" measures. The recent kicking-the-can-down-the-road "solutions" can't last forever (although it really is being dragged out beyond the expectations of many).
Greece is one thing, but the UK is quite another. Here's an example now of a problem bubbling up in the UK with their police officers. It seems the police pension plan has been "revised" in the past and a new revision is being jammed down the throats of the police. They don't like it and are petitioning the government as we speak.
Officers feel they were blindly led into the existing pension schemes on the promise and belief that the sacrifices they make everyday would be rewarded in the way of a financially secure retirement.We don't know, but could this be a sign of further unraveling of the pensions systems in developed countries? Again, knowing the promises made and the lack of reasonable planning to meet those problems, this could blossom into a rather messy situation for the British government. Policemen not being paid their pensions, or thinking their futures are being unfairly toyed with can't be something the government wants. Will they respond to the police concerns here? We suspect some form of can-kicking will be devised that will mollify the cops for the time being. But, again, how long can that go on?
(You can read the whole petition HERE.)
Question: Is it any consolation that all us "developed" country citizens appear to be in the same boat on this issue? Or put another way, is it at all comforting if the leaking boat goes down with all of us on board together?
Of course, you may want to balance this with the alternately comforting (?) thought that can-kicking has worked over and over again, even after the 2007-2008 crisis. It appears to keep working. And it also appears that most of our fellow citizens believe there's no reason to believe it won't keep working. At least that's what buoyant markets are telling us. Why worry? Better to click on our ubiquitous electronic devices and flip to some sports and entertainment - especially those "reality" shows which give us concocted "reality" so we can not have to face reality. Hey, it seems to work for a heck of lot of us.
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