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Pensions...

  • 25-02-2009 4:02am
    #1
    jimmycrackcorm
    Registered Users, Registered Users 2 Posts: 14,347 ✭✭✭✭


    Something I've been wondering about for some time now and I am at a loss to understand why.

    When I was growing up, pensions seemed to be so much a solid part of working life ending up with defined benefits ( not unlike the job for life concept). Now I'd expect they will eventually all become defined contribution pensions.

    Why is this given that world productivity and wealth has increased so much over the last few decades?


Comments

  • #2
    nesf
    Registered Users, Registered Users 2 Posts: 27,644 ✭✭✭✭nesf


    jimmycrackcorm wrote: »
    Why is this given that world productivity and wealth has increased so much over the last few decades?

    Two main reasons:

    1) Defined benefit pensions generally work from a principle that the market will always go up. It has to or you can't pay for the payout. To afford it you need to make pretty much guaranteed good returns every year. Since the 1980s it's become rapidly apparent that there is no golden goose in this respect and you may get long periods where the pension fund is making a substantial loss even with conservative investment strategies putting a huge strain on the company giving the pension. This can start taking away a lot of money from the company's daily expenses which is fine if the company is making huge profits but if it's in any kind of competitive market then you're talking about potentially servicing the pension bill at the expense of today's workers in terms of wages and/or jobs.

    2) People are living longer, a lot longer. This massively screws up the costing procedure. The average life expectancy is hitting around 80 now, that's 15 years of retirement. Putting aside enough to have a defined benefit pension for that long on average requires people to start putting aside much greater sums of cash than people have been doing up to now. 15 years of pension payments is an awful lot of money.


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