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Pensions - Regulation and Policy
Controlling
the costs of Public Sector Pensions
The introduction of a simplified Pension System would also solve the problem of skyrocketing Public Sector Pension costs.
The abolishment of
pension provision by the employer (and controlled by him) would take the
decision about the pension out of political control. After all, the employer
does not provide us with our groceries or our housing?
If there is a political majority in favour of a certain amount of state
provision the most efficient solution would be a 'Citizen Pension' payable to
everyone who is above a certain age.
Additional provision would be made by each person out of his income. There
could be provision to give every one an earmarked account in which he would
hold his pension pot. Extra relief for hardship could be dealt with by a
carefully controlled scheme that prevents abuse by those who wilfully neglect
to make provision for old age.
15-Jan-07
Stop Meddling by
Politicians!
That would be our main recommendation for the reform of the pension system in
most countries. Most distortions are caused by the arbitrary introduction of
piecemeal legislation and tax rules that were intended to favour one or the
other political constituency close to the party in power at the time.
It seems to be accepted without further questioning that the citizen should
rely on the state for his income in the later part of life. The more the
citizen are believing this doctrine, the more the power of the politicians
increases and they have little real motive to stop this trend.
10-Jan-07
DC Pensions -
will they deliver good value?
Ros Altman recently (Ft, 21
Nov) questioned the ability of defined contribution schemes to deliver
good pensions. We think that one way to make sure that they provide at
least a reasonable return would be to make it impossible for companies
to offer better schemes to senior and/or top management.
26-Nov-05
Reality Check for
Pension Fund Providers
European Pension
Funds need a return of more than 8% a year to meet their obligations over
the coming decade says a Financial News survey. We can only wish them good
luck. Not that we think that this performance target is totally illusionary.
We just think that it is not very prudent to construct the industry on the
basis of these optimistic assumptions.
If the markets provide a positive surprise, fine. But do not promise your
current and future pensioners payments that depend on fancy projections.
Either the pensioners or your shareholders (who may have to make good any
shortfall in the pension fund) will be disappointed.
Long-term equity returns consist of (1) dividend payments and (2) the growth
rate in company earnings (which are closely related to overall economic
growth). Mature Western Economies with stable or even declining populations
will be lucky to produce real growth of 2% per annum. Add to this the paltry
dividend yield and you are far short of the 8% return goal.
Bonds are not much help either with nominal yields hovering around all-time
lows of roughly 4% on average.
Attempts to achieve better returns in alternative assets - especially Hedge
Funds - may be offer some help for those funds skilled (or lucky?) enough to
pick the winning funds but will offer no solution
to this basic lack of
returns that the industry as a whole faces. The only sustainable solution is
to offer lower future pensions, raise contribution levels or a combination
of both. Attempts to squeeze the costs of pension fund management and
administration may also be helpful in a marginal way. |
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