Inequality, not gerontocracy — Who killed interest rates?

Link: https://doctorow.medium.com/inequality-not-gerontocracy-fbd7d012ba4a

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Excerpt:

The received wisdom among economists is that the US’s historical low interests rates are driven by high savings by aging boomers who are getting ready for, or in, retirement.

The idea is boomers have salted away so much cash that banks don’t bid for their savings, so interest rates fall.

But at last week’s Jackson Hole conference, a trio of economists presented a very different explanation for low interest, one that better fits the facts.

…..

So we can’t really say that low interest rates are being caused by an aging population with high retirement savings, because while the US population is aging, it does not have high savings. Quite the contrary.

And, as Robert Armstrong points out in his analysis of the paper for the Financial Times, even in places like Japan, with large cohorts of retirees and near-retirees who do have adequate savings, rates are scraping bottom.

…..

So why are rates so low? Well, the paper says it is being caused by high levels of savings — just not aging boomers’ savings. Rather, it’s the savings of the ultra-wealthy, the 1%, who are sitting on mountains of unproductive capital, chasing returns.

Author(s): Cory Doctorow

Publication Date: 1 September 2021

Publication Site: Cory Doctorow at Medium.com

Stark Inequality: Financial Asset Inequality Undermines Retirement Security

Link to full report: https://www.nirsonline.org/wp-content/uploads/2021/08/Stark-Inequality-F2.pdf

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Inequality in the ownership of financial assets both persists and deepens over time. The top five percent of Baby Boomers by net worth owned a greater percentage of that generation’s financial assets in 2019 (58 percent) than in 2004 (52 percent).

Inequality in the ownership of financial assets is consistent across generations. In 2019, the top 25 percent by net worth of Millennials, Generation X, and Baby Boomers owned three-quarters or more of their generation’s financial assets.

Financial asset ownership is highly concentrated among white households. In 2019, white households in all three generations owned three-quarters or more of their generation’s financial assets. Ownership is especially concentrated among white households in the top 25 percent of net worth.

Both mean and median financial assets were significantly higher for white households in 2019 than Black or Hispanic households.

A range of potential solutions exists to address this stark inequality including strengthening and expanding Social Security, protecting pensions, increasing access to savings-based plans for low-income workers, and reforming retirement tax incentives.

Author(s): Tyler Bond

Publication Date: September 2021

Publication Site: National Institute on Retirement Security

ASB Approves Third Exposure Draft of ASOP No. 4

Link: http://www.actuarialstandardsboard.org/email/2021/ActuarialStandardsBoard-aug-9-2021.html

Excerpt:

The Actuarial Standards Board of the American Academy of Actuaries recently approved a third exposure draft of a proposed revision of Actuarial Standard of Practice (ASOP) No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributions. The standard provides guidance to actuaries when performing actuarial services with respect to measuring obligations under a defined benefit pension plan and determining periodic costs or actuarially determined contributions for such plans. The standard addresses broader measurement issues, including cost allocation procedures and contribution allocation procedures. The standard also provides guidance for coordinating and integrating all of the elements of an actuarial valuation of a pension plan.

The comment deadline for the third exposure draft is Oct. 15, 2021. Information on how to submit comments can be found in the exposure draft.

Link to draft: http://www.actuarialstandardsboard.org/asops/measuring-pension-obligations-and-determining-pension-plan-costs-or-contributions-third-exposure-draft/

Publication Date: 9 August 2021

Publication Site: Actuarial Standards Board

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

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.

….

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

Is life insurance a human capital derivatives business?

Link: https://math.illinoisstate.edu/Krzysio/KO-JII-Invited.pdf

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Life and disability insurance, as well as annuities, traditionally have been analyzed as products providing protection against random losses. This article proposed that these products can be viewed as derivative instruments created to address the uncertainties and inadequacies of an individual’s human capital, if human capital is viewed as a financial instrument. In short, life insurance (including disability insurance and annuities) is the business of human capital securitization.

Author(s): Krzysztof M. Ostaszewski, PhD, MAAA, FSA, CFA

Publication Date: 2003 — vol 26, pp. 1-14

Publication Site: Journal of Insurance Issues

Do You Get Your Money’s Worth From Buying An Annuity?

Link: https://www.forbes.com/sites/ebauer/2021/07/08/do-you-get-your-moneys-worth-from-buying-an-annuity/?sh=380f33612082&fbclid=IwAR1dlxEjlWlmPSetMplHWU6BdPjzzo7ju983c73QKr5KKKn29PjurCq_YmA

Excerpt:

But measuring the value of annuities, generally speaking, does tell us whether consumers are getting a fair deal from their purchases, and here, a recent working paper by two economists, James Poterba and Adam Solomon, “Discount Rates, Mortality Projections, and Money’s Worth Calculations for US Individual Annuities,” lends some insight.

Here’s some good news: using the costs of actual annuities available for consumers to purchase in June 2020, and comparing them to bond rates which were similar to the investment portfolios those insurance companies hold, the authors calculated “money’s worth ratios” that show that, for annuities purchased immediately at retirement, the value of the annuities was between 92% – 94% (give-or-take, depending on type) of its cost. That means that the value of the insurance protection is a comparatively modest 6 – 8% of the total investment.

But there’s a catch — or, rather, two of them.

In the first place, the authors calculate their ratios based on a standard mortality table for annuity purchasers — which makes sense if the goal is to judge the “fairness” of an annuity for the healthy retirees most likely to purchase one. But this doesn’t tell us whether an annuity is a smart purchase for someone who thinks of themselves as being in comparatively poorer health, or with a spottier family health history, and folks in these categories would benefit considerably from analysis that’s targeted at them, that evaluates, realistically, whether annuities are the right call and whether their prediction of their life expectancy is likely to be right or wrong.

Author(s): Elizabeth Bauer

Publication Date: 9 July 2021

Publication Site: Forbes

The Time Has Come To Talk About Senior Poverty In America

Link: https://www.forbes.com/sites/nextavenue/2021/07/09/the-time-has-come-to-talk-about-senior-poverty-in-america/

Excerpt:

If 40 million Americans were suffering from the same severe problem, you might think it would be the subject of considerable media attention, a host of government programs, infusions of business capital and a hot topic of national conversation.

That is certainly what I thought several years ago when I began researching the reality that nearly half of all people of over 55 — one in seven Americans — had no money saved and risked heading into poverty or certainly into dire conditions that would make their lives desperate for decades to come.

…..

The average Social Security check is a meager $1,543 a month and about 40% of older Americans rely entirely on Social Security for their income.

Author(s): Joe Seldner, Next Avenue

Publication Date: 9 July 2021

Publication Site: Forbes

U.S. Supreme Court to Hear University Pension Case

Link: https://www.insidehighered.com/quicktakes/2021/07/06/us-supreme-court-hear-university-pension-case

Excerpt:

The U.S. Supreme Court on Friday agreed to consider the appeal of Northwestern University employees who say the university mismanaged their 403(b) pension investments. The lawsuit against Northwestern was one of roughly 20 filed in 2016 charging that wealthy and prestigious universities failed to fulfill their fiduciary duty by charging unreasonable fees and offering too many investment options.

Lower federal courts sided with Northwestern in dismissing the employees’ claims, but in their appeal to the Supreme Court, lawyers for the plaintiffs argued that the federal appeals courts had issued divided rulings on key questions in similar lawsuits.

Author(s): Doug Lederman

Publication Date: 6 July 2021

Publication Site: Inside Higher Ed

Nearly a third of Gen Xers have inadequate pension savings

Link: https://www.pensions-expert.com/Investment/Nearly-a-third-of-Gen-Xers-have-inadequate-pension-savings?ct=true

Excerpt:

Almost one in three Generation Xers — individuals aged between 41 and 56 — have inadequate pension savings and face a minimum-at-best standard of living in retirement, according to research by the International Longevity Centre and Standard Life.

The ILC’s ‘Slipping between the cracks’ report found that 60 per cent of Gen Xers in a defined contribution scheme are not contributing enough for financial security or flexibility later in life, while 59 per cent of those with insufficient savings lack any other kind of income, for example property.

More than two-fifths (44 per cent) have gaps of at least 10 years in their contributions, a figure that rises to 48 per cent for women.

Author(s): Benjamin Mercer

Publication Date: 5 July 2021

Publication Site: Pensions Expert

Iran Pensioners Protest Yet Again

Excerpt:

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

Fate of Pension Funds a Mystery in Latin America

Link: https://www.occrp.org/en/daily/14770-fate-of-pension-funds-a-mystery-in-latin-america

Excerpt:

A dónde va mi pensión (Where is my pension going?), an investigation by the Press and Society Institute, IPYS, the Pulitzer Center and 13 news organizations, revealed that workers from nine Latin American countries have saved around US$500 billion for their pensions but that they have no idea how and where their money was invested.

The investigation found that in some cases the money ended up in questionable companies that violated local regulations concerning the environment or worker’s safety.

In Chile, for example, 36 companies financed by pension funds accounted for nearly 3,500 fines issued by the labor regulator over the last five years.

Author(s): JULETT PINEDA SLEINAN

Publication Date: 6 July 2021

Publication Site: Organized Crime and Corruption Reporting Project

What’s the Impact of Early Retirements on Plans?

Link: https://www.ai-cio.com/in-focus/shop-talk/whats-the-impact-of-early-retirements-on-plans/

Excerpt:

Take the California State Teachers’ Retirement System (CalSTRS), which in February reported that it had its second-highest year for retirements in 2020, behind the fallout from the Great Recession. The pension fund reported a steep 26% jump in the second half of 2020 from the same time a year before. 

When the pension fund for educators surveyed roughly 500 of these retirees, about 62% said they retired earlier than they planned. More than half said the challenges of teaching during the pandemic pushed them to seek an early out. Still, a CalSTRS spokesperson said this week that the fund does not expect the retirements to have a “material impact” on the funding levels.  

Broadly speaking, any damage from early retirements is going to be “fairly muted,” according to Kevin McLaughlin, head of liability risk management for North America at Insight Investment. 

Author(s): Sarah Min

Publication Date: 1 July 2021

Publication Site: ai-CIO