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On the Road to Pension Poverty?
Myra Butterworth of the Telegraph reports, Pensions 'decimated' by low interest rates, warns Saga:
Speaking
at the Bank of England today, Ros Altmann, director-general of the
Saga Group, warned that historically low interest rates could lead to
another financial crash that would leave pension pots “decimated”.
She explained poor returns were prompting savers to take greater risks with their pensions as they approached retirement.
Savers have seen their rate of returns hit rock bottom as the Bank of
England has maintained interest rates at just 0.5 per cent since
March 2009.
Dr Altmann said: “Very low interest rates are having a damaging effect on pensions and pensioners.”
She warned of the dangers of rising inflation if interest rates stay too low for too long.
“Pension investors and people buying annuities are being hit by low
long-term rates and pensioners suffer from low short-term rates as
well, as their savings income having fallen and they cannot make that
up.
“In addition, they have been hit by high inflation, so they can no longer protect the value of their capital.
“We already see signs of rising inflation and this has damaged
pensioners significantly already. Their savings income has not kept
up with inflation, most annuities are being purchased without any
inflation protection and a continued increase in inflation will
plunge more pensioners into poverty in future.”
An ageing population, with less money to spend, could depress consumption and economic growth, she added.
She called on the Government to take action, suggesting it issues
special pensioner bonds that help provide additional income to
pensioners caught by the loss of their savings income.
She
said the Government could also consider inflation-protection products
for pensioners, such as reviving the National Savings products that
were recently withdrawn.
Two of the most popular
state-backed investment products were withdrawn from the market
earlier this year amid the Government’s austerity drive.
National Savings & Investment pulled its inflation beating and fixed
interest savings certificates and cut rates on other products.
The
group feared demand from consumers could place too high a burden on the
taxpayer, at a time when the public finances are under unprecedented
strain.
Andrew Hagger, a savings expert at personal
finance website at Moneynet, said:
“There seems to be no light of the
tunnel, with many people having already used up a large proportion
of their savings. They are going to get to a stage where there is no
where else to turn.”
Robert Bullivant, chief executive of
pensions broker Annuity Direct, said: “The only saving grace is the
performance of the stock market and so anyone who has stayed in
equities will see a larger fund than they did a year ago. But if they
have switched to cash, they have not seen much growth. People now
need to switch to cash to lock in the stock market gains. If you lose
those gains and suffer with low interest rates, it’s a double whammy
for pensioners.”
Here in Canada, Ray Turchansky reports, Financial crisis is putting pressure on an aging workforce:
While
the financial crisis has forced Canadians to come to grips with the
idea that a pension may not be a promise, employee benefits are
similarly in peril.
"I find it almost incomprehensible that Nortel
LTD (long-term disability) claimants could lose their benefits, but
this is possible; let alone losing their health care and a portion of
their pensions," said Kevin Dougherty, president of Sun Life Financial
Canada, speaking at the Canadian Pension and Benefits Institute
conference.
"We saw how benefits and pensions can literally disappear in an instant."
Now people nearing retirement face a new twist.
"Millions
of people asked the questions, what if I have to leave the workforce
five or 10 years early, or what if I have to stay in the workforce five
or 10 years more."
The leading edge of baby boomers will hit age 65 next year, when each day a thousand people in Canada will retire.
"Today
with boomers age 50 to 65, with kids grown and many through school,
the question they're asking isn't 'what if I die,' it's 'what if I
live?' That saps my income and retirement savings. What if I have to
live through another financial crisis?"
Dougherty joins federal
Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney
in worrying about the growing debt Canadians are piling up.
"How
can we be the only place in the developed world where real estate
prices continued to increase for the last two-and-a-half years? What
does that mean? - more and more debt for Canadians."
While
Canadians who can't resist a bargain stock up on moulding empty homes
in the United States, there is fear that the Home Equity Line Of Credit
or HELOC could do in Canada what subprime mortgages did in the U.S.
Of course, retirement won't affect all people the same.
"Women
who are widowed early in retirement actually live three years longer
(than those who aren't), and men widowed early in retirement live three
years less."
While more and more companies with underfunded
pension plans have been reducing benefits and commuted value payouts,
the malaise has spread to employment benefits. Many firms offer minimal
health-care coverage in retirement or have eliminated it, while more
and more current employees find themselves on the hook to find vision
and dental insurance.
Meanwhile, the average number of days lost annually to sickness per worker has risen from eight in 1989 to 13 in 2009.
Dougherty's
conclusion is that neither government nor lawyers will take care of an
aging workforce, "and the next generation of children is not going to
want to take care of us."
He said
there is more onus on people in the pension and benefits and human
resources areas to devise products and provide advice.
"Our
industry needs to be much more than just helping to attract and retain
employees. The financial security of millions of Canadians depends on
the work we do."
One such move is encouraging government to establish a new personal health- savings account.
"We've
been advocating something called the registered health savings plan,
where people can save money on a pre-tax basis to be used for their
health-care costs in retirement. There are other examples like critical
illness insurance. But we've got to step up to this. I think this is
going to be one of the big areas of the future."
Even
with defined contribution pension plans, where investment risk lies
with the individual, the employers can provide advice through plan
sponsors.
"Narrowing the field from 4,000 fund managers to 12 is
providing advice. Overseeing and switching out of managers is providing
advice. Setting a level of contribution and matching is providing
advice. Providing tools that ask questions and lead people to
recommendations is providing advice."
But there is need to help
educate people about financial literacy, abetting the federal
government's task force on the issue that has been touring Canadians forsubmissions and will issue a report in December.
"The most
striking finding is the degree of the challenge that we have, the
surprising lack of financial literacy in the general population is
really, really striking," Dougherty said.
"There's a challenge in
literacy - reading and writing in English, because we have such large
immigration; a challenge in numeracy, lots of people don't like working
with numbers; and you layer on top of that the knowledge and skills of
financial consequences."
All this is set against a backdrop in
which the financial crisis produced severe stock market downturns that
scared individuals from investing personally, while corporations were
similarly spooked and didn't invest in technology to improve
productivity and grow their workforces.
"There
was a two-year period in which we didn't invest, and that's going to
hurt us for two to five years," said Glen Hodgson, chief economist of
the Conference Board of Canada. "Health care will soon emerge as a top
concern for Canadians. Aging is going to suck the life out of our
economy slowly."
But just as baby boomers were told 40 years ago
that the investment of the future would be "plastics," Hodgson has his
own tip: "India will be the next China, it will keep growing at eight
per cent for a number of years."You can bet your hip replacement on it.
Finally, my favorite deflationist, Gary Shilling was interviewed on Yahoo's Teck Ticker on Monday warning us that the age of deleveraging is upon us:
The
key to understanding the difference between today's economic weakness
and normal economic weakness, Gary says, is to look at the past 30
years.Beginning in 1982, Americans spent their way to apparent
prosperity. Savings rates plummeted, as consumers spent almost
everything they earned. Home equity withdrawals soared, as consumers
realized they could use their rapidly appreciating houses as personal
ATM machines. And, across the economy, total debt surged to a
previously unheard-of 375% of GDP.
But now all those forces have
reversed. Savings rates are climbing again, as consumers realize they
have almost nothing left to retire on. Home equity withdrawals have
ceased, because house prices have stopped appreciating and started
falling (Gary thinks they'll fall another 20%). And consumers are looking at ways to reduce their debts, not borrow more money.
These trends will continue for at least another decade, Gary Shilling thinks. He lays out this theory in his new book, "The Age Of Deleveraging."
The
economy will grow in the next decade, Gary says, but it will grow much
more slowly than it has grown in the past. Unemployment will remain
high. Consumers will continue to be forced to embrace a new frugality.
And no matter how cheap the Fed makes money, overall borrowing will
continue to decrease.
In the process of this, stocks will do poorly. House prices will fall another 20%. Only Treasury bonds will do well.
Only
Treasury bonds will do well? I'm not as sure as Mr. Shilling about
bonds, but you can listen to the interview below and make up your own
mind.
One thing I'm sure of is we're well on our way towards
widespread pension poverty. These markets are brutal even for the best
money managers. And we expect individuals to take care of their
investments and save enough to enjoy a decent retirement? Good luck, this
mess is going to end up costing taxpayers billions in healthcare and
social costs. Unfortunately, policymakers have yet to grasp the
long-term implications of pension poverty. When they do wake up, it's
going to be too late.
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Those idyllic photos of retirement you post always crack me up. It shouldn't come as a shock to anyone that when you buy into a Ponzi that is embedded within a larger Ponzi it isn't going to end well. It's time to grow up. It's an unfeeling Universe. It's no one's else's responsibility to take care of you when you get old. It's not fun coming to the realization you are not as smart as you think you are. That your trust was taken advantage of. That you got conned. But it's unfair to forcibly place the burden of cleaning up after your mistakes to me or my children so that you can walk the shoreline for another decade or two in luxury. You want justice, go after the crooks. This is going to difficult for a lot of folks to stomach. Either figure out a way to keep a roof over your head, food in your belly and a means to stay warm or accept you are a helpless babe in the woods requiring charity.
Race to the bottom bitchez!
Have gold dude just dont think it is the jesus you think it is, you can be a bankster elite like the very ones you despise and have all the minions washing your car, or maybe those %99 of idiots will be farming and you will be busy trying to sell your gold to them as they laugh at you and offer you beans for your car, and if they really feel like it since you are very much in all ways a minority maybe they will surround you and force you to cough up the gold and the car, and make you cut their grass. Just because someone doesnt like gold doesnt mean they bought into the ponzi, every day you buy any item with cash or on credit you have bought into the ponzi and support it, unless of course you are like the other %0 of the population that can go anywhere and buy anything with gold without first exchanging it for dollars or earning dollars (ponzi) to buy in the first place.
Ignorance is bliss i guess, when gold is $1000000 or whatever you think it will be that is quite the expensive car wash dont you think?
...and this is why we have QE2
...and this is why I say Bernanke needs to stay the hell away from long bonds and focus on the ultra-left side of the yield curve.
Today while withdrawing cash at our bank, we were given a brochure with great new accounts at fantastic interest rates.
I eyeballed the manager who was probably half my age and said two things.
Interest for CD's held in the 80's paid at least 10% and perhaps close to 14% even. People were glad to buy cars at 15% interest or whatever.
The other thing I told him is that the United States does not give out enough interest at .025% to be saving worth a damn.
He did counter by saying I can keep 10K in the account and earn one percent. What is one percent? Oh ya... 100 dollars. Then I asked him what does his insitution EARN with the money? Hmm? 11% home improvement loans off my cash on deposit? I dont think so.
In effect, everything you have been taught since middle school about working hard, staying loyal to your company and saving money in the nice HR plans etc is all exposed as useless and irrevelant now.
I recall last year we canceled our employer's short term and long term disability. It cost about 60.00 each paycheck and resulted in a increase of 120.00 to the household net pay.
The Administrator happened to be there and asked us why we did it. We told him the employer will fire you if you are too sick to work and fire you if you take too much time off work. Besides the money goes straight to the employer and never to anywhere that we can see and feel like the 401k plan.
We just did not feel like enriching our employer anymore.
He did not like it at all. In fact visions of hundreds of employees cutting off the gravy train to his Ivory Tower must have danced in his head.
Even now, we are part time and engaging in other work that will be needed by alot of people when the Society collapses under the weight of the finanical strain.
Why? because one morning our employer might just be closed down unable to do anything or any work at all. Bankrupt, kaput. Dead. We are not stupid and would like to think we are trying our best to stay ahead of the tusnami we hear coming. But we can only run so fast and only so far on what little food we are able to buy LOL.
Increasing numbers of older people, coupled with low interest rates, cannot spell prosperity. When people have no choice but to live off their nest egg, stock markets are not going to go up, and corporate profits are not going to go up unless a company is lucky enough to be able to export to a market with better demographics.
Japan is a perfect example of what the unintended consequence of ZIRP is.
Cindit13
Like your thoughts .
75% of comments on this topic are a waste of time . By their maturity level I can tell they still have mummys spoon in thier mouths . Breaking even is better than a loss. So what if I sell at a higher price to pay for things at a higher price . At least I can still eat . Most people I know take no control of their finances ( 401k's prime example). If they spent 1/10 the time on a good markets site that they do watching Football , 'Dancing' or 'Idle' , the'd have a huge leg up on 95% of the population . Businesses younger hires going all 401 ith match , no pensions !!!! This should stoke the markets some . Gov't to force savings (GRA) in the works . Confiscate and redistribute - This should stoke the markets . And those sooo safe in their TIPS . How much principal have they lost in the last 3 days . Inflation protetion my arse . Take control of your own life , or lose your own life . Babies wake up ! Oh and that would include the first poster too!
pensions are a ponzi scam that are nothing but worthless IOUs mainly given for a vote yesterday
that pretty much sums it up!
Got oil/gold anything? what does this get you, it goes up, you make what you think is a profit then convert it into dollars and buy things you need that have gone up nearly the same if not more? Tell me the "protection" or "hedge" this provides for anyone besides leverage boys which is like 0.000001% of population. Or wait i get it when the whole thing collapses and %1 of the population has gold and %80 of that is owned by the elite all will run smoothe? or wait you want to be that elite? or if it is so valuable then you will have the necessary protection against the other %99 of population on the prowl for gold? or wait in a gold backed/based economy the banksters would just magically hand over control of all gold and all markets to the commoners? or wait you will find a way to eat the gold? or wait since 6 300 000 people dont have gold they will all die?
Now that sounds like a plan i know the bankers have wanted for along time but hey if you have gold you can live in a world full of bankers and banker wannabes !!!
have fun dude !!!!
I plan to have loads of fun!
It will be fun to watch people like you wash my car, cut my grass, etc!
And if it all goes to hell, there's always south america, byoch! Because I never bought into the ponzi! Ha ha ha ha ha! Kneel before Zod!
too funny!
People aren't saving as much as they are trying to survive; pay health insurance bills, help take care of kids/grandkids.
This is part of the asset confiscation scheme; first to milk the "buy and hold" middle class, their savings, IRA's, Pensions and Pension funds, mutual funds, all the savings and responsibility of generations that was gambled with on CDO's, CDS's, and other leveraged gambling which the banks and hedge funds raked in before the crash.
The next phase is bleeding out remaining assets; balances left, home equity, and the pensions, IRA's, and 401's remaining to go to the Elites and Entitlement crowd.
Go Ahead, Make my day...default on the 10% you siphoned off my paycheque for the past 25 years. I promise I will take it from your rotten hides...
I feel exactly the same way.
Really? Got oil? Got silver? Got gold? Obey the Mogambo Guru!
No, and we didn't expect people to take care of their health or government either. Whoops! Turns out nobody cares as much about your health, government or money as you do, OR SHOULD...And if you expect them to, any semi-aware person should realize THEY DON'T GIVE A FUCK.
No. Defaulting and returning to an all cash basis won't cost taxpayers a dime! Gee, that was easy!
...Only for them...And anybody who put their faith in them. DUMBASSES (Low laughs as he fondles his bullion and frozen mignons!)
Save yourself, Leo! We like you despite your long awaking process!
carrot on stick become no carrots and all stick. gullible socialists? meet your lying politicians. and remember, any nazi's come banging around my property will get what they've got coming.
It couldn't have happened to a more deserving generation.
Yeah, like you would have done any different.
I am doing it different. I'm not relying on the ponzi for my retirement. LOL.
Don't worry, Walmart is always on the lookout for some new greeters. And I hear the supermarket has a 50¢ off coupon for some cat food.
these first two comments made me laugh out loud. the banter is hilarious!!!