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Global Pension Heat Rising
As the
heat wave sizzles
North America and Europe, global pension heat is rising. Maria
Petrakis of Bloomberg reports, Papandreou
Passes Pension Overhaul as Unions Strike in Protest:
Greek
Prime Minister George Papandreou passed an overhaul of the pension
system in a vote that tested the unity of his socialist government and
prompted the second national strike in as many weeks.
The plan, which includes lower pension payments and delayed
retirements, was carried with 159 votes to 137 against in the Athens
parliament. Papandreou, who expelled three members of his Pasok party
for defying him in a May vote on austerity measures, managed to secure
support from deputies even as some indicated they may oppose various
articles that will be voted on individually today. A final vote on the
bill will follow today.
“It is not the
government or Pasok which will be at risk if things remain the same,”
Papandreou told the chamber before the vote. “Those who are at risk are
Greek citizens. We are guaranteeing that the 20-year-olds and
30-year-olds of today will get a pension.”
Papandreou committed to the pension overhaul
to secure 110 billion euros ($135 billion) in emergency loans from the
European Union and the International Monetary Fund that allowed Greece
to avert a default on its debt. The pension vote follows passage in
May of 30 billion euros in austerity measures, including wage cuts and
tax increases, that prompted the defection of the three socialist
lawmakers.
Their expulsions left
Papandreou with 157 seats in the 300- seat legislature, sparking
concern that further defections could threaten his hold on power less
than a year after winning elections.
Political Fatigue
“The dissent
within the ruling party is increasing and political fatigue is starting
to emerge,” Giada Giani, an economist at Citigroup in London, said
before the vote.Government spokesman George
Petalotis yesterday sidestepped a question on whether dissenters would
be expelled, saying “a discussion on party discipline reduces the
significance of the huge reform under way.”
The vote prompted unions representing more
than 2 million Greek workers to strike. The walkout is set to ground
flights, keep ferries docked in port and shut down banks, hospitals and
news media. Parliament workers are also striking, with a skeleton
staff assisting today’s pension debate.
Papandreou, whose union-backed party won elections last October on
pledges of higher wages, has cut state workers’ salaries and raised
sales, fuel and alcohol taxes to combat the country’s financial crisis.
The 58-year-old leader argues the measures, aimed at reducing a budget
deficit of 13.6 percent of economic output, are needed to stave off a
default and restore investor confidence in Greece.
Deficit Target
Greece’s central government cash deficit narrowed
almost 42 percent in the first six months, Bank of Greece data showed
on July 5, prompting Finance Minister George Papaconstantinou to signal
the country may even beat a target of bringing the shortfall to 8.1
percent of gross domestic product. The European Commission said in a
report yesterday that Greece’s deficit- reduction plan “was broadly on
track.”
Overhauling pension rules including
curtailing early retirement and calculating payments over a longer
period of employment will shore up Greece’s public finances, the
European Union has said.
Spending on pensions would reach 24 percent
of GDP if left unchecked, twice the level of 2007. Concerns about
Greece’s future pension financing have played a part in the surge in
the risk premium investors demand to buy Greek 10-year debt over
comparable German bonds, the Organization for Economic Cooperation and
Development said in a July 2009 report. That spread reached a euro-era
record 973 basis points on May 7.
Split Opinions
Greeks are
divided over the changes, an opinion poll showed on July 3. More than
35 percent of 1,002 people surveyed by Kapa Research for To Vima
newspaper said the bill was unfair, yet necessary and another 14.2
percent fully supported the changes as “imperative.” Nineteen percent
called them “catastrophic” and 29.6 percent said the bill should be
withdrawn.
Today’s
walkout is the sixth general strike this year, and the raft of
austerity measures have sparked near-daily protests from groups ranging
from lawyers to dockworkers.
Petros
Christodoulou, head of Greece’s debt agency, said on June 22 that
protests are a good sign because they show people are “feeling the
pinch” from the cutbacks.While attendance at
marches has dwindled from a peak on May 5 when three people died in a
bank fire set by protesters, the strikes are disrupting transport,
commerce and tourism, as visitors try to get to Greek islands for
summer holidays.
Olympic Airlines will scrap
28 flights today, mainly between Athens and the islands, and reschedule
another 23. Aegean Airlines is canceling six. All public transport in
the capital will shut down and no ferries will sail as dockworkers and
seafarers walk out.
Tourism contributes 16
percent to the country’s GDP, according to the World Travel and Tourism
Council, and accounts for one in five Greek jobs. The WTTC expects
growth of 0.9 percent in the industry this year.
I never agreed with strikes during tourism season, but I understand the
frustration of many Greeks who are fed up with the corruption and
cronyism that has plagued Greece's public finances through the years
(both major parties are guilty of this). Unfortunately, the Greek
pension system, like so many others, made unsustainable promises and was
in dire need of reform.
In the UK, the BBC reports that a quarter of a
million workers at 400 universities, higher education colleges and
associated institutions face cuts in
their pensions. In fact, the
financial crisis has sparked an EU-wide
rethink on 'unsustainable' pensions:
Europe's low birth rates and ageing population
make it imperative for EU member states to overhaul their pension
systems, the European Commission says.
A Commission
report advocates automatic adjustments to the retirement age as life
expectancy increases. Some EU states have adopted such a mechanism.
"The current situation is simply
not sustainable," said EU Employment Commissioner Laszlo Andor.
France, Greece, Spain and the UK have plans to raise the
retirement age.
But the changes, brought in as
governments seek to slash chronic budget deficits, have angered many
workers. Thousands have protested in the streets.Pension choice
There are currently four people of working age for each person
over 65 in the EU, but by 2060 the ratio will be just two for each
pensioner unless pension systems are overhauled, the Commission says.
The Commission - responsible for drafting EU laws - accepts
that the governments of the 27 EU member states retain control over
national pension systems.
But the EU "green paper" on
pensions is aimed at launching a debate involving all stakeholders so
that European pension systems are harmonised better. It is inviting
contributions to the debate until 15 November.
"The
choice we face is poorer pensioners, higher pension contributions or
more people working more and longer," Mr Andor said.
The report says "the steep rise in old-age
dependency ratios could be largely avoided if people would work
longer".
Less than 50% of adult Europeans are still in
work by the age of 60, yet member states had pledged in 2002 to push
back the retirement age by five years, it says.
The
Commission also complains that there are "considerable barriers to
cross-border activity" in the area of pensions. Discriminatory tax
rules are among the obstacles that many pensioners face when they move
to another EU country, it says.
In Canada, according to one expert, the federal government could set “an
exceptional” precedent if it offers the Canadian Press a
13-year reprieve to pay off its pension plan shortfall:
CTV
Globemedia, Torstar Corp. and Gesca, the owners of La Presse, are in
negotiations with the newswire’s union and hope to firm up plans this
fall to take over the co-operative and change it into a for-profit
business.
Last year, CP management and its union, the Canadian
Media Guild, agreed to ask the federal government for a special
permission to repay its $34.4 million pension plan shortfall over 13
years.
Carleton University business
professor Ian Lee said he’d “never heard of a 13-year postponement.”
“It seems unusually large,” he said, adding that with so many
pension plans in trouble the feds would face tremendous pressure if it
granted CP’s request and created a precedent.
Cabinet ministers
have only ever approved 10-year extensions, such as Air Canada’s, said
Department of Finance Canada spokesman Jack Aubry.
Federal legislation usually only allows
companies five years to pay back the money they owe.
Pension lawyer Murray Gold said he thinks the
13-year exemption would “raise some pretty serious red flags.”
“Stretching
repayment options is always risky…(the company) would have 13 years
during which they could become insolvent,” he said.
Terry
Pedwell, president of the Guild’s CP unit, said the union isn’t
bargaining to change the 13-year payment schedule, it is more concerned
prospective owners want to close down the pension plans.
“They
think that closing the plan for new members is a way to dealing with
this (shortfall)” he said.
“They are not putting any money at
all into paying down the pension deficit.”
The
reality is companies everywhere are shutting down
private pension plans. This is why many concerned groups have been
sounding the alarm on pensions.
Finally, a four-month pension
padding investigation by Attorney General Andrew Cuomo's office found
that New York State had the highest
pension costs in the United States:
Taxpayers
pay $10 billion a year for state pensions -- nearly double in the last
decade.
One reason costing millions:
In their last year of work, many state employees compile hundreds of
hours of overtime in order to increase their salary. Lifelong state
pensions are based on the last few years of salary.
"Our ongoing
investigation into pension padding has so far identified problems that
transcend occupation, region, or job title," Cuomo said. "More
critically, we have developed solutions and tactics that, if
implemented, can reduce the abuses of the pension system. While we
expand the scope of our probe, I urge all public employers to closely
examine how they can improve the way they do business for the sake of
the state and taxpayers."
Cuomo said
that widespread abuse of labor agreements is occurring.
His
reported cited an example a firefighter who worked 2,004 hours of
overtime, a police officer with 823 hours, and a highway maintenance
worker who compiled 539 hours near the end of their respective careers.
Cuomo, who is running for governor, said
that most counties allow this padding practice.
His running
mate, Robert Duffy, collects a pension as a former police chief and
earns a salary as mayor of Rochester. But Cuomo said that case is
different because Duffy retired as a chief and did not make overtime.
The pension-padding investigation did not include New York City
employees, but may in the future. Cuomo said that criminal charges may
be filed in the most egregious cases.
Watch the clip below.
Pension heat is rising everywhere, and when I see outrageous pension
spiking taking place in the public sector, my blood boils. Private
sector workers are getting poorer and are asked to subsidize balooning
public pension costs. Let's hope stock markets keep sizzling instead of
fizzling because at this rate, it won't take long before we reach the
pensions boiling point.
»
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Adjust it using the old CPI model and you've got something. This is nominal, no? What good is a 100 year chart nominally?
The International Monetary Fund is calling for the United States to make a stronger effort to curb its budget deficits. The IMF said Thursday that in addition to cutting government spending, the Obama administration will have to consider raising taxes to get the U.S. deficit down to a manageable level.
http://www.nola.com/business/index.ssf/2010/07/international_monetary_fund_ca.html
Our debt crisis, in sum, has everything to do with the transformation of morality and government effected by the late-19th- and early-20th-century Progressive movement. Far from being largely ineffectual reformers, the Progressive academics who articulated the new conception of Freedom and the “positive” State, outlined above, were also the initiators of the entitlement programs that lie at the core of our crisis today.
http://article.nationalreview.com/print/?q=MzM0YWZjMTIxZWNmYjJmMDk0OWYyM...
George Papandreou
Bilderberger
http://www.bilderberg.org/g/Bilderberg.html
CBs are obligated to inflate the stock market to support pension funds amongst other entitlements and corporate largess. Unfortunately, it appears that the ordinary citizen who has worked all their lives in the hopes of a comfortable retirement will no longer have this "luxury". Entitlements such as Social Security and Medicare will be trimmed, if not eliminated completely, and taxes will increase so as to support the bloated public sector and corporate fat cats. This will be couched in terms of "saving" the economy. Sheesh, what a 3rd-world shitpile the US is becoming.
I always wondered what asset class they were supposed to buy that would allow a pension plan participant to input perhaps $200K over his working lifetime and withdraw $3m in benefits.
Taxes are the new "asset class"...
That $3 million is only so high because of government-induced inflation.
Here's how I look at it. State employees in Pennsylvania contribute 7% of salary to their pension (this is in addition to 7% for Social Security mind you). If their salary stays a constant $40 thousand for 40 years, that's about $118 thousand.
I don't know about you, but I don't expect to see 70. If I retire at 65 (SS eligibility for me is 67), I get 5 years of pension payments. Having 40 years in, I think I'd qualify for either 80% or 100% of final salary. So, under the best terms, it's $200 thousand for $118 thousand paid in.
Arranged differently, I'd be paid $42 thousand annually instead of $40 thousand. Now does it really seem that unreasonable?
Where the numbers get crazy is entirely due to massive inflation. That $3 million, assuming your methodology is even sound, is not $3 million in 2005 money but $3 million in 2045 money (the 7% contribution goes up too). It's no different than your grandfather's stories about how many bushels of apples he could buy for a quarter when it won't even buy you a lousy telephone call.
But, you know, they don't teach financial math or economics in American schools (I should know, I was in one 10 years ago), so people don't really get this. They instead see a millionaire pensioner at which they proceed to howl for "something to be done." That something will inevitably be default or austerity, both of which are little more than theft and have the same ultimate results.
Actually, that's a quote from NJ governor Christie in February:
http://www.nj.com/politics/index.ssf/2010/02/chris_christies_speech_on_budg.html
Thanks for the followup.
But the number 49 throws up a red flag for me. For this guy to have a shot at putting in 30 years before turning 50, he'd have to have been hired right out of highschool. The college mandate was in full force as far back as 1987, so plenty of folks don't get started with a career until 22-23, later still if they were unlucky enough to graduate in a recession.
But, you know, I'm willing to concede that NJ and CA are more towards the crazy end of public sector size and/or benefits. The problem is that it pulls states like PA, with the 2nd LOWEST ratio of public/private employees, down with it. Ridge wasn't a saint but he left office with a $1 billion emergency fund in spite of a 10% (8000) larger payroll.
Yet, here we are with a budget shortfall year after year. Why? Because politicians everywhere overspend on massive giveaways to thieves. Welfare lifers, crony contractors, legislative perks, etc. The fools elected to office in this country would have Microsoft a trillion dollars in debt if only given the chance.
Oh but now they want the public at large to blame those evil public sector employees, half of whom aren't even unionized, for everything. You know, your neighbors who had no say in how any of this money was wasted. How dare they go to work and expect their contracts to be honored!
Many of the numbskulls screaming for layoffs actually believe it'll result in lower taxes. All it'll do is remove the middlemen (workers) from the elites' looting operation. Then you'll be paying through the nose for NO services whatsoever.
"But the number 49 throws up a red flag for me"
I think that is actually right. My aunt works for the State Patrol and started as dispatch at 19yrs. old. She is 48 and I know she is retiring in like 1 1/2 years. She has been unhappy at work for about 10 years I think, but stayed because she's been working toward retirement. She plans to be a security guard after next year and collect her retirement. I just shake my head and tell her its unsustainable.
And I want to make this clear, that is 14% of salary that is taken right off the top and by force. It is capital that cannot be invested in my own startup or another's. It's not even an old-age savings, as with each passing day it becomes more apparent that it's immediately wasted and will be nothing but worthless IOUs when I need to collect.
Precisely. Although I am not a wage slave, I still have to contribute to SS/MC which I know will not be there when I retire. It is already gone. I would be able to invest much more wisely myself, in my biz, in another biz or whatever I choose. This is a grand theft Ponzi, whose effects will be felt by people my age and younger. Stop the farce! Reimburse all SS contributions now, for people collecting now reimburse less benefits paid and for people who haven't paid anything at all and collect SS benefits, roll them into some type of "welfare" program. I don't want Government or Wall Street paws on my money, I can handle better myself.
Ooops...maybe he means "negative" 7500-8500?
Wow!
Significantly different than your July 4th update calling for 8,300 on the DOW...now you calling 1300 on the S&P after a 1 day no news rally?
http://stockmarket618.wordpress.com/
DOW weekly chart Fri July 2 inclusive showing the head and
shoulders forming within the megaphone wedge pattern mentioned many times now.
It’s just started to break out of the megaphone wedge and target
for this leg down remains in the 8,300 area. Target will be updated
as this very bearish pattern progresses.
As mentioned since last year, the March 2009 lows will not hold as long term trends remain bearish. Other global equity indexes are similar.
EURUSD: the buying support detected for some time has resulted in a bullish and choppy daily chart – for now. The weekly chart is neutral and monthly chart remains bearish.
CRUDE OIL: daily charts neutral / weekly charts neutral / monthly charts neutral.
COPPER: daily charts neutral / weekly charts neutral / monthly charts neutral.
I think its 1300 on the DOW.
Ok, i've decided i can't put it off any longer - here it is ...
Scary DOW monthly chart.
http://stockmarket618.wordpress.com
Seems more like 7000 on the DOW based on the long-term trend line.
But. . . doesn't that show the DOW wants to be about 7500-8500?
yes, provided it holds the uptrend line. it certainly could. but if it doesn't then the drop that would be expected is the distance from the "neckline" to the top of the "head". it seems a little early to be calling it a head and shoulders pattern.
Tyler, a nice side note:
In 2060 it will be 2 workers for every retired person.
But out of these 2 workers are already included the immigrants that got their passports. This happend already 3 to 4 years ago, and now they already noticed that these persons will not be able to contribute to this system as they lack the schooling and integration. Instead of contributing to the system as supposed to be, these people actually cost the EU a lot of money.
I mean, the system will collapse long before 2060. The date the pessimists in my country shout is 2015.
Let them eat donuts.
Look, the problem is a shortfall in policy return. A thought experiment if all pensions are analysed under one roof, the 'poverty line' in disbursement can be found. And since we expect that Sovereigns are at least somewhat likely to default, thereby pushing interest rates higher and thus causing investment to slow.. a something that is perhaps acknowledged as retarding full employment.. one way or another, disbursements are going to get cut, just as long as there is corresponding decline in the basic basket of goods.. as in Deflation may as well be a known entity. I'd like to see the basket calculated state-by-state, and Paris Hilton to do the Ads.
What do you think they really were talking about at the G20?
How to co-ordinate, and manipulate the plan to reduce benefits. Which has to come. You cannot tax your way out of this mess, you cannot inflate your way out. Benefit cuts is the answer.
Let them eat cake.
It's odd to be hearing about this heat wave business when I needed to use my wipers quite a bit while driving this morning to job sites. Not something I'm accustommed to during July here in SoCal. I even turned on the heater for a bit.
I never agreed with strikes during tourism season, but I understand the frustration of many Greeks who are fed up with the corruption and cronyism that has plagued Greece's public finances through the years (both major parties are guilty of this).
Note that there would not be the corruption and cronyism without the selling of the initial lie that a government can guarantee an outcome 40 years in the future. The nonsense is unfolding and you are trying to blame some financial people that the pols hired to be the rain makers. It was impossible nonsense from the first day.
Agreed, I edited my comment:
I never agreed with strikes during tourism season, but I understand the frustration of many Greeks who are fed up with the corruption and cronyism that has plagued Greece's public finances through the years (both major parties are guilty of this). Unfortunately, the Greek pension system, like so many others, made unsustainable promises and was in dire need of reform.
Leo, unless you have lived in Greece and are dependent on the pension system there, I don't really believe you can understand how these people feel. The actual experience is what counts.
did cuomo actually say that cops pensions are different because "they do a very dangerous job"?
i guess the new boss is gonna be a lot like the old boss.
So police and firefighters don't do dangerous work?
By the way, your name is very appropriate.
Chunk - you actually pose a valid question and one that has often puzzled me since more minimum wage clerks at convenience stores are killed than police or firefighters.
Twenty five years ago, or so, I was going through Atlanta late at night on the way to Florida for spring break. I had the Atlanta radio station playing. Eastern Airlines was shut down because of strike. A lady called in to explain why her husband had to strike. He was a baggage handler that had to take the bags out to the plane and load them on to the plane. Her story was that he should make more than $18 an hour because of the extreme danger of the job. The hazards of baggage handlers, who knew?
The ploice force does have a dangerous job, no doubt. And it has become more dangerous in the last 20 years with the drug nutters. They are reasonably well paid in most districts and hae pretty good injury protection insurance. If the deal was retire at 60 vs. 64 I'd not be complaining. Retire at 50, after playing the system to get the pay level up from policing basketball games? It does rankle.
So true.