What could happen to pensions?

[basilio]

As the stock markets and general economies go into free fall I pose the question about the fate of the many pension schemes currently supporting retired people.(And often supported by the share market)

• I'm thinking of the private pensions from big companies.
• The various private pension schemes from super funds.
• The pension schemes for local government employees, teachers, police and fire officers, health workers, so on and so forth.

And on top of that of course the National Pension schemes of Governments around the world.
How "secure" would these pensions be in a extended financial meltdown ? Should they be secure ? What would the economic impact be if these schemes became unable to meet their obligations ? How could that happen ?
Thoughts ?

 

[Dona Ferentes]

The issue is : when many of these schemes (defined benefit especially) or promises become unable to meet obligations (not if).

Then it becomes political; does a government rescind on an obligation, or continue to screw down others to pay for it. And the current situation will turn the screw one more time.

 

[Bill M]

The issue is : when many of these schemes (defined benefit especially) or promises become unable to meet obligations (not if).

I had a partly defined benefit Govt. Super when I retired. I withdrew the whole lot at full value and transferred it to another account based super scheme because I feared what you said "or promises become unable to meet obligations".

Now drawing on this pension but at least it is account based and I can track every dollar. In answer to the question, if the cash component dwindles out then they will force sales of shares that I own to keep paying my pension. When that all ends up disappearing then I will go and join the Centerlink queue with all the other seniors and get a Govt. pension.

 

[sptrawler]

The issue is : when many of these schemes (defined benefit especially) or promises become unable to meet obligations (not if).

Then it becomes political; does a government rescind on an obligation, or continue to screw down others to pay for it. And the current situation will turn the screw one more time.

Defined benefit pension schemes are always problematic and the very reason the future fund was started.
The State Governments also have a lot of exposure, I'm pretty sure all have been shut down, the remaining exposure will probably vary a lot State to State.
Self funded retirees will be lining up at centrelink at opening time I would guess.

 

[basilio]

The issue is : when many of these schemes (defined benefit especially) or promises become unable to meet obligations (not if).

Then it becomes political; does a government rescind on an obligation, or continue to screw down others to pay for it. And the current situation will turn the screw one more time.

Point taken.
I suppose it will depend on the political priorities. Should the Government continue to pay the pensions of parliamentarians or police officers? What about ex judges vs ex nurses?

The other question is the private pension schemes funded by large companies. The GMH's IBMs. Lots pf history here.

It is not as if this question hasn't been posed. It is on the table.

Huge pension fund deficits are a global crisis in waiting
February 16, 2018 11.53pm AED

https://theconversation.com/huge-pension-fund-deficits-are-a-global-crisis-in-waiting-88420
https://www.theguardian.com/business/2009/jul/08/ibm-shuts-final-salary-scheme

 

[CBerg]

Free fall general economy is a very dramatic phrase.
Not down playing sentiment which is very negative & so is the stock market, I'll wait to see actual end of quarter figures before drawing such conclusions on the general economy.

 

[sptrawler]

Point taken.
I suppose it will depend on the political priorities. Should the Government continue to pay the pensions of parliamentarians or police officers? What about ex judges vs ex nurses?

The other question is the private pension schemes funded by large companies. The GMH's IBMs. Lots pf history here.

It is not as if this question hasn't been posed. It is on the table.

Huge pension fund deficits are a global crisis in waiting
February 16, 2018 11.53pm AED

https://theconversation.com/huge-pension-fund-deficits-are-a-global-crisis-in-waiting-88420
https://www.theguardian.com/business/2009/jul/08/ibm-shuts-final-salary-scheme

From memory, I could be wrong, but I thought a lot of U.S companies bailed out of their defined benefit schemes after the GFC and bankruptcy proceedings.
It looks like G.M is still funding its obligations, but it sounds like they have a new plan running alongside their pension plan.
https://www.pionline.com/article/20...ion-in-contributions-to-pension-plans-in-2019
Also.
https://www.pionline.com/article/20...-will-retain-most-pension-fund-responsibility
I guess if they can't fund it, they wont, as they say you can't get blood out of a stone.

 

[Dona Ferentes]

Unfunded liabilities become a huge problem. That and other debt piling up .... this is why they want inflation, to manage the outcome rather than default. But it ain't happening!!

 

[basilio]

From memory, I could be wrong, but I thought a lot of U.S companies bailed out of their defined benefit schemes after the GFC and bankruptcy proceedings.
It looks like G.M is still funding its obligations, but it sounds like they have a new plan running alongside their pension plan.
https://www.pionline.com/article/20...ion-in-contributions-to-pension-plans-in-2019
Also.
https://www.pionline.com/article/20...-will-retain-most-pension-fund-responsibility
I guess if they can't fund it, they wont, as they say you can't get blood out of a stone.

Interesting articles. I gathered from some of the headings that the current corona crisis is creating concern amongst pension fund managers

 

[basilio]

Free fall general economy is a very dramatic phrase.
Not down playing sentiment which is very negative & so is the stock market, I'll wait to see actual end of quarter figures before drawing such conclusions on the general economy.

I can see you point. I think however this is a world wide medical emergency which will have inevitable economic consequences. IMV there will be at least a few months of just trying to not have overwhelming public illness and keep society and business structures intact as far as possible until the crises abates.

Ironically ....if the virus does get out of hand amongst senior citizens it may well provide a neat solution for the pension problem...

 

[sptrawler]

Interesting articles. I gathered from some of the headings that the current corona crisis is creating concern amongst pension fund managers

In reality the superannuation system hasn't been tested in Australia, it has only been running for a relatively short period of time, therefore not many have retired with big sums.
Now as the 'baby boomers come through, the drawdown will increase and the amount of money going in will in theory decrease, so the funds will have to generate 'real' income to add to working members accounts and to pay retired members pensions.
I think we are in for some interesting times, no doubt there will be a lot of mergers as some funds struggle to fulfill both requirements.
We will get to see how good these fund managers really are, when the ability to move money and smooth the blips becomes increasingly more difficult.
Just my opinion.

 

[Dona Ferentes]

Other than as a Roman soldier, the idea of receiving a pension, especially from the state, is not that old. The Prussian von Bismarck first introduced the concept (and mainly as a tactic to outflank emergent socialists) into the German Chancellory in 1881, for those over the age of 70, reduced to 65 in 1916. The average age for males in Germany was then 63.

And 65 seems to be the age still, sometimes higher and sometimes lower. But as any actuary will tell you, life expectancy has increased dramatically and continues to do so. So, Houston, we have a problem.



https://www.aihw.gov.au/reports/life-expectancy-death/deaths-in-australia/contents/life-expectancy

 

[sptrawler]

Other than as a Roman soldier, the idea of receiving a pension, especially from the state, is not that old. The Prussian von Bismarck first introduced the concept (and mainly as a tactic to outflank emergent socialists) into the German Chancellory in 1881, for those over the age of 70, reduced to 65 in 1916. The average age for males in Germany was then 63.

And 65 seems to be the age still, sometimes higher and sometimes lower. But as any actuary will tell you, life expectancy has increased dramatically and continues to do so. So, Houston, we have a problem.

View attachment 101136

https://www.aihw.gov.au/reports/life-expectancy-death/deaths-in-australia/contents/life-expectancy

As equality kicks in, I think we will find those two lines getting closer together.

 

[explod]

A mate of mine over the last month has sold down all of the share holdings in his super which he controls himself. I think a few would be doing this and gain by returning near the bottom. But very many innocents are going to be badly burnt. It is bad and tough times.

 

[sptrawler]

These are times where the cash buffer lets you sleep at night, well it does for me, the dividends will still come and if they are reduced you nibble the buffer.

 

[SirRumpole]

Depends if the fund managers saw the fall coming and got out at the peak. In which case they (and we) will be laughing when they buy back in on the lows.

Considering that we have been saying for some time that the market is over valued you would expect fund managers to pick up on that too.

 

[basilio]

Depends if the fund managers saw the fall coming and got out at the peak. In which case they (and we) will be laughing when they buy back in on the lows.

Considering that we have been saying for some time that the market is over valued you would expect fund managers to pick up on that too.

Really ? I would be so surprised to hear of many fund mangers who had significant cash from Mid January. We'll find out of course but every comment I have heard has said that fund mangers stay in the market until it falls over.

Individuals can please themselves. Fund mangers are beholden to the industry.

 

[macca]

Really ? I would be so surprised to hear of many fund mangers who had significant cash from Mid January. We'll find out of course but every comment I have heard has said that fund mangers stay in the market until it falls over.

Individuals can please themselves. Fund mangers are beholden to the industry.

Not many funds would allow a cash balance of more than 20%, even that would be high

If the PDS says we will invest in the XAO then that is what they Must do.

They can rebalance but they are still fully invested as per the terms of the fund

 

[sptrawler]

Not many funds would allow a cash balance of more than 20%, even that would be high

If the PDS says we will invest in the XAO then that is what they Must do.

They can rebalance but they are still fully invested as per the terms of the fund

On a personal note I hope in June, the market is still in turmoil, then some of the term deposit buffer will be deployed into LIC's and ETF's