Category: Retirement

Spain inches ahead with pension reform

Mary Pat Campbell

Link: https://www.thelocal.com/20210718/spain-inches-ahead-with-pension-reform/

Excerpt:

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Spain will pay workers to postpone retirement as part of a pensions reform strategy that analysts warn does not go far enough to cut a huge deficit in the system.

With nearly 30 billion euros ($36 billion) of annual losses in 2020 and rising, Spain’s social security budget is one of the biggest contributors to the country’s ballooning public deficit.

The European Commission has long demanded that Spain reform its pension system and has made it a condition for accessing European Union economic recovery funds.

Under a planned reform unveiled earlier this month that aims to get more people to work longer, Spain will give cheques worth up to 12,000 euros ($14,000) per year to retirement-age workers who postpone their retirement.

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The 2013 reform also gradually increased the legal retirement age to reach 67 in 2027 from around 65 years currently.

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Jordi Fabregat of the Esade business school said part of the problem is that Spain offers generous public pensions, with monthly payments amounting to 80 percent of a worker’s final salary compared with an average of 55 percent for all of Europe.

Publication Date: 18 July 2021

Publication Site: The Local

Vote to increase Swiss retirement age clears signature hurdle

Mary Pat Campbell
Vote to increase Swiss retirement age clears signature hurdle

Excerpt:

The youth chapter of the PLR (FDP) has successfully collected enough signatures for an initiative to raise the official retirement age in Switzerland to 66 years old, reported RTS.

On 16 July 2021, initiative organisers submitted 145,000 voter signatures as part of the formal process of launching a referendum in Switzerland. Under referendum rules a minimum of 100,000 valid signatures must be collected within 18 months.

The official retirement age in Switzerland is currently 65 for men and 64 for women, although the government recently passed laws to create a universal retirement age of 65 for both men and women. The federal government also agreed to increase VAT up to 8% to help improve pension system finances.

The perilous state of Switzerland’s state pension system is well known. People are living longer and the nation’s population is ageing, leaving fewer working-age tax payers to fund the pensions of a rising number of retirees. Without reform a funding shortfall of CHF 200 billion is forecast over the next 25 years.

Publication Date: 23 July 2021

Publication Site: Le News

Unions contest pension reform plans with Bern demonstration

Mary Pat Campbell

Link: https://www.swissinfo.ch/eng/unions-contest-pension-reform-plans-with-bern-demonstration/46959184

Excerpt:

Thousands marched in Bern on Saturday against a proposed reforms of the Swiss old-age pension scheme, notably the plan to raise the retirement age for women from 64 to 65.

The demonstration, which was authorised by Bern authorities, was attended by some 15,000 people, according to the trade unions who organised it; the police have not (yet) released estimates.

The protest took place under the slogan “hands off our pensions”, and was clearly aimed at parliamentarians currently discussing an overhaul of the country’s three-pillar system.

A press release by the Trade Union Federation said that the current pension system is “no longer enough to live on” and that politicians should be raising payments rather than trying to cut them; as for making women work a year longer, this is a non-runner, it says, given the years of part-time and unpaid work they do during their active lives.

Publication Date: 18 Sept 2021

Publication Site: Swiss Info

Inequality, not gerontocracy — Who killed interest rates?

Mary Pat Campbell

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.

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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.

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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

Mary Pat Campbell
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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Excerpt:

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

Mary Pat Campbell

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?

Mary Pat Campbell

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

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Excerpt:

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

Is life insurance a human capital derivatives business?

Mary Pat Campbell

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

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Abstract:

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?

Mary Pat Campbell

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

Mary Pat Campbell

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.

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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

Mary Pat Campbell

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

Mary Pat Campbell

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