Pensions 'Timebomb' - 85% of Pension Funds Will Go Bust

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Today’s AM fix was USD 1,311.50, EUR 950.43 & GBP 784.06 per ounce.               

Yesterday’s AM fix was USD 1,324.50, EUR 958.05 & GBP 792.21 per ounce.  


Gold rose $8.90 or 0.68% yesterday, closing at $1,326.70/oz. Silver rose $0.04 or 0.2% yesterday to $19.99/oz.

Gold fell from a three week high today on speculation that very tentative signs of an improving U.S. economy will curb demand for the safe haven. A report yesterday showed U.S. retail sales increased more in March than economists forecast.


Gold in U.S. Dollars - Jan, 2009 to April 15, 2014 - (Thomson Reuters)

Palladium fell nearly  2% today, declining from the highest price since August 2011, after climbing the previous five sessions. Increasing tensions in Ukraine sparked concern that more sanctions will curb raw material supplies from Russia, the largest palladium producer and one of the largest gas exporters.

The worsening geopolitical tensions between Putin’s Kremlin and many governments in the West should support gold bullion and could lead to gold challenging the important psychological level of resistance at $1,400/oz. Gold has rebounded 9.1% this year after the sharp falls of last year.



Gold in U.S. Dollars - 20 Years - Jan, 1994 to April 15, 2014 - (Thomson Reuters)

Pensions 'Timebomb' - 85% of Pension Funds Will Go Bust
The “pensions timebomb” keeps on ticking and as societies we become less prepared by the day.

Yet another report shows that the public pension system is in dire straits. This one comes from renowned investment manager Bridgewater Associates.


The study estimates that public pension funds will earn an annual return of 4% or less in the coming years due to near zero percent interest rates and financial repression. That, in turn, would cause bankruptcy for 85% of the pension funds within 30 years, the study warns.

Public pension plans now have only $3 trillion in assets to invest so that they can pay out $10 trillion of retirement benefits in coming decades, according to Bridgewater. The funds would need an annual investment return of about 9% to meet those obligations, the report says.

Many pension plans assume they will earn 7% to 8% annual returns, an assumption which is far too high. But even in the best case scenario of the pension plans achieving those returns, they will face a 20% shortfall, Bridgewater notes.

Bridewater looked at a range of different market conditions, and in 80% of the scenarios, the pension funds become insolvent within 50 years.


A little notice report issued earlier this year by the Rockefeller Institute of Government says state and local government pension systems have very significant problems.

"Bad incentives and inadequate rules allowed public sector pension underfunding to develop," the study says. "They mask the true costs of pension benefits and encourage underfunding, under-contributing, and excessive risk- taking, trapping pension administrators and government funders in potentially destructive myths and misunderstanding."

It is likely that many pension funds will go bust in the medium term and this may be a crisis that looms large sooner than the Bridgewater research suggests.


Pension funds traditional mix of equities and bonds may under perform in the coming years. Many stock markets appear overvalued after liquidity driven surges in recent years. Bonds offer all time record low yields and are at all time record highs in price. They will fall in value in the coming years.

Pensions allocations to gold are exceptionally low internationally and yet gold has an important role to play in preserving and growing pension wealth over the long term.

Pension funds over exposure solely to paper assets and lack of diversification has cost pension holders dearly in recent years. This will almost certainly continue in the coming years.

Residents in the UK and Ireland, the US, the EU and most countries internationally can invest in gold in a pension - through self administered pension funds. Self administered schemes continue to offer the widest investment choice to company directors and other eligible participants. UK citizens can invest in gold bullion through their Self-Invested Personal Pensions (SIPPs), Irish citizens through their Small Self Administered Schemes (SSAS) and US citizens in their Individual Retirement Accounts (IRAs). If interested, our bullion services team who will take you through the steps required to add the ultimate form of financial insurance to protect your retirement nest egg from the coming pensions timebomb.

To conclude, respected academic and one of the leading researchers on gold in the world, Dr Constantin Gurdgiev, has this to say about the value of gold in pensions:

Gold is a long-term risk management asset, not a speculative one. As such it should be analysed and treated predominantly in the context of its role as a part of a properly structured, risk-balanced and diversified portfolio spanning the full life-cycle of the investment and pension horizon for individual investors and those with pensions – whether they be SIPPs in the UK or IRAs in the USA.”