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Why are people obsessed with getting a pension

Midlife crisis man

What's the point having one.

About myself: I don't have a pension. I came from a poor background and was never thought about the importance of financial awareness.

I struggled throughout the recession eventually going back to college. I'm in my mid 30s now recently started working in the public sector. I'm only on 25k per year. I'm not entitled to the public sector pension because I'm on a fixed term "trainee" contract in my field.

Also if I happen to stay in the public sector for the rest of my career I won't be long enough to get the cushty 40 year pension anyway.

So, in the next 30 years the retirement age will probably be closer to 70. Why save the bollox off myself just so I have a bit of cash when I'm an auld fella with (best case scenario) 10 years of life left. Who needs that much money at that age. Am I missing something here? You can't take it with you when you die.

I'm sure I'll have a good bit of regular savings by then but what's with the obsession of pumping as much money as you can into a pension (that'll end up getting raided by the government in subsequent recessions anyway)

I'm going to enjoy my money while I have health and vigour and the government can look after me when I'm an auld boy.

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KyussB

It's been explained repeatedly. A public pension fund, funded by government spending (which is not equivalent 1:1 with taxation), is not dependent on the ratio of younger people to older people, in order to be sustainable - the government doesn't need to pre-fund it either like private pensions, just keep a rainy day fund for economic downturns.

Done this way, it functions nothing like a private pension - and has none of the demographic pitfalls. It's simply a matter of deciding if having an adequately sized social safety net, is important - which we've already decided politically, that it is - and we have to defend this social safety net from governments bent on free-market-fetishism, who want to erode/destroy our social safety nets, by manufacturing a faux crisis with public pensions, due solely to how they are structured (when they can be structured slightly differently in a way which makes the 'crisis' vanish...).

Henry Ford III

A few indisputable facts:-

Our population is getting older. People's life expectancy is increasing. Qualification for state OAP is being pushed towards age 70.

In other words the state scheme is under pressure, and that will get more severe as time passes.

It's incredible that some here are so blinkered by prejudice and plain ignorance that they'd suggest funding your own pension is a bad idea.

[Deleted User]

Henry Ford III wrote: »

It's incredible that some here are so blinkered by prejudice and plain ignorance that they'd suggest funding your own pension is a bad idea.

Or think that 'government spending comes 1:1 from taxes'. Money to spend has to come from somewhere. Tax (including PRSI and USC as a tax), Natural Resources, Trees, Printing Press etc. The reality is a country cannot run on a deficit forever, eventually it will come to a head.

Jim2007

KyussB wrote: »

It's been explained repeatedly. A public pension fund, funded by government spending (which is not equivalent 1:1 with taxation), is not dependent on the ratio of younger people to older people, in order to be sustainable - the government doesn't need to pre-fund it either like private pensions, just keep a rainy day fund for economic downturns.

No it has not, so lets see exactly what you mean. If you have to pay pension to 2m today for the next 30 years and there are 1m workers paying taxes, in ten years time it's say 2.2m pensioners and 850k workers and in twenty years it 2.4m with 700k. And of course doing to a declining workforce corporate taxes are also in decline. So where in your theory does the funds come from to finance the pensions if it's not pre-funded?

GreeBo

Tow wrote: »

Or think that 'government spending comes 1:1 from taxes'. Money to spend has to come from somewhere. Tax (including PRSI and USC as a tax), Natural Resources, Trees, Printing Press etc. The reality is a country cannot run on a deficit forever, eventually it will come to a head.

tbh I think thats irrelevant.
No matter how the state pension is funded, its always going to be the absolute bare minimum that people need to survive, at best.

Why you wouldnt want to supplement this with your own income I dont know.
Talk about cutting off your nose to spite your face.

KyussB

Except, repeating again, it's not the state OAP scheme that is being discussed - it's the governments ability to fund public pensions schemes in general - which means public pensions that are structured completely differently to the OAP scheme.

Governments do pretty much run deficits forever - that is the completely normal state of affairs in pretty much every country on the planet - balanced budgets, and even more rarely, surpluses - they barely ever happen, and are never maintained for long.

Like it or not, government spending equating 1:1 with taxes, is false - it always has been false - it's economic propaganda that has never been true - designed to fool people into thinking government finances, operate like personal finances - when they are completely different.

coylemj

KyussB wrote: »

Governments do pretty much run deficits forever - that is the completely normal state of affairs in pretty much every country on the planet - balanced budgets, and even more rarely, surpluses - they barely ever happen, and are never maintained for long.

Budget defecits are funded by borrowing. Are you saying that we can ignore the shrinking ratio of workers to pensioners and simply borrow all the way to the 22nd century to pay the pensions of retired Gardai, teachers, nurses etc.?

KyussB

Jim2007 wrote: »

No it has not, so lets see exactly what you mean. If you have to pay pension to 2m today for the next 30 years and there are 1m workers paying taxes, in ten years time it's say 2.2m pensioners and 850k workers and in twenty years it 2.4m with 700k. And of course doing to a declining workforce corporate taxes are also in decline. So where in your theory does the funds come from to finance the pensions if it's not pre-funded?

Here you are again, mixing in workers paying taxes: Taxes don't fund government spending 1:1...

Also, you're trying to spin a dependency ratio of more than 250% :rolleyes: what a load of scaremongering bollocks.

jimmycrackcorm

I was able to draw cash out on one of my pensions early when I turned 50. I wont be retiring until normal pension age.
What it had meant is that effectively I saved money tax free that I then could put into my house.

When I retire I'll sell this house and move back down the country so I'll get get both the benefit now from that plus it'll increase the value of my house so when I do sell, I'll get that back then.

Its worthwhile checking the conditions when you can cash in on your pension.
I've another they can be cashed when I'm 60, if circumstances warrant then, I can do that after. But it's tax free savings.

KyussB

coylemj wrote: »

Budget defecits are funded by borrowing. Are you saying that we can ignore the shrinking ratio of workers to pensioners and simply borrow all the way to the 22nd century to pay the pensions of retired Gardai, teachers, nurses etc.?

Government budgets can be funded by a pretty wide range of financial mechanisms: The budgets are always sustainable, so long as they are not attempting to push the economy beyond Full Output (i.e. maximum GDP potential, which is roughly around the point of full employment).

You still need sound economic policy in setting the budget, to avoid undermining the economy - e.g. by indirectly promoting a private debt bubble - but there are zero issues with funding state pensions in this manner.

coylemj

KyussB wrote: »

Government budgets can be funded by a pretty wide range of financial mechanisms:

Budget defecits are funded by borrowing. Any attempt to talk your way around that is pure waffle.

If the estimates say that you are spending more than you will take in, you have to either cut spending or borrow.

Henry Ford III

State pensions are paid out of current revenue.

There's no central pension fund as such, infact I think the last of the pension reserve fund was spent in recent years.

Nermal

KyussB wrote: »

Also, you're trying to spin a dependency ratio of more than 250% :rolleyes: what a load of scaremongering bollocks.

And you're ignoring the dependency ratio entirely.

It will increase, ergo we either spend a greater fraction of societal wealth maintaining current benefits, or we spend the same fraction and cut the benefits.

Inescapable logic, even for Keynesians...

KyussB

coylemj wrote: »

Budget defecits are funded by borrowing. Any attempt to talk your way around that is pure waffle.

If the estimates say that you are spending more than you will take in, you have to either cut spending or borrow.

There are a lot of ways to fund government spending - we magicked up IOU's out of nowhere to help bail out the banks, for instance, and got the central bank to accept them - pretty much printing money out of thin air to bridge government spending.

Whether you use government bonds, IOU's, parallel/quasi currencies etc. etc. - it really doesn't matter how you fund it, all that matters, is that you don't keep spending beyond Full-Output/Maximum-GDP (roughly the point of Full Emloyment) - we can do that perfectly fine with taxes/bonds if we like - anything within that is sustainable, and paying for a public pension within that is perfectly manageable, if we keep it a priority.

KyussB

Nermal wrote: »

And you're ignoring the dependency ratio entirely.

It will increase, ergo we either spend a greater fraction of societal wealth maintaining current benefits, or we spend the same fraction and cut the benefits.

Inescapable logic, even for Keynesians...

Being Keynesian, you understand that the sustainability of pension payments, is all about their contribution to Effective Demand - the economy can thus perfectly afford ample public pension payments, so long as their contribution to Effective Demand does not overheat the economy (and if it did, we'd just use taxes to tamp down overheating sectors).

The sustainability of it has nothing at all to do with workers taxes - it's solely to do with what the underlying economy can support - and the best way to maximize its sustainability, is to simply keep the economy at Full Output.

coylemj

KyussB wrote: »

There are a lot of ways to fund government spending - we magicked up IOU's out of nowhere to help bail out the banks, for instance, and got the central bank to accept them - pretty much printing money out of thin air to bridge government spending.

You're living in cloud cuckoo land. We didn't 'magic' up anything, we borrowed. Real money.

We did not print money 'out of thin air', we have a national debt of €215 billion.

Ireland’s debt: €44,365 is owed by every man, woman and child in the State

Nermal

KyussB wrote: »

Being Keynesian, you understand that the sustainability of pension payments, is all about their contribution to Effective Demand.

By this rationale, we should all just retire now.

Liam D Ferguson

KyussB wrote: »

It's been explained repeatedly. A public pension fund, funded by government spending (which is not equivalent 1:1 with taxation), is not dependent on the ratio of younger people to older people, in order to be sustainable - the government doesn't need to pre-fund it either like private pensions, just keep a rainy day fund for economic downturns.

Done this way, it functions nothing like a private pension - and has none of the demographic pitfalls. It's simply a matter of deciding if having an adequately sized social safety net, is important - which we've already decided politically, that it is - and we have to defend this social safety net from governments bent on free-market-fetishism, who want to erode/destroy our social safety nets, by manufacturing a faux crisis with public pensions, due solely to how they are structured (when they can be structured slightly differently in a way which makes the 'crisis' vanish...).

Sorry but what you're saying just doesn't make sense. State pensions are not paid out of a pre-funded pot like private sector pensions. State pensions are paid out of current Government expenditure. In other words, the State pensions being paid today are being paid from the money coming into the Government today.

So how can you claim that the State pensions have "none of the demographic pitfalls"? I'll put it as simply as I can. If there are more people in the future drawing State pensions and less people working, then this will put pressure on the State pension system. It's a demographic pitfall of this type of system. I don't see what basis you have for claiming that it's not.

GreeBo

Any chance we can break out the "how a government funds pensions" from the "should I have a pension" conversations?

KyussB

coylemj wrote: »

You're living in cloud cuckoo land. We didn't 'magic' up anything, we borrowed. Real money.

We did not print money 'out of thin air', we have a national debt of €215 billion.

Ireland’s debt: €44,365 is owed by every man, woman and child in the State

We used IOU's/Promissory-Notes which got financed by the central bank - more than €30 billion worth - which was effectively printing money. Only later were they converted to long term debt.

The raw national debt numbers, and per capita numbers, are meaingless. You look at debt based on GDP - and based on its interest payments.

Back in August, Ireland could have doubled/tripled/quadrupled the National Debt - and get paid to do so - because interest rates were negative then (and in the low 0.0's, now).

Basically, we could already have borrowed a pension pot big enough to fund the entire countries needs for more than half a century (probably a century at least) and get paid to do it - with zero negative effect on the countries financial sustainability. This alone shows how artificial the pension 'crisis' is - and how discussion of public finances is filled with simplistic propaganda.

You're still thinking about government finances, as if they work like personal finances - you have no idea how government finances work - and you have no idea what determines the sustainability of government bonds.

KyussB

Liam D Ferguson wrote: »

Sorry but what you're saying just doesn't make sense. State pensions are not paid out of a pre-funded pot like private sector pensions. State pensions are paid out of current Government expenditure. In other words, the State pensions being paid today are being paid from the money coming into the Government today.

So how can you claim that the State pensions have "none of the demographic pitfalls"? I'll put it as simply as I can. If there are more people in the future drawing State pensions and less people working, then this will put pressure on the State pension system. It's a demographic pitfall of this type of system. I don't see what basis you have for claiming that it's not.

As I've said many times: Taxes do not 1:1 fund government spending - so in that case it does not matter how many people are working relative to pensioners - workers do not 1:1 fund public pensioners in that case.

You're still thinking like governments run balanced budgets all the time, and that government finances work like personal finances - that's not the case, budgets are almost never balanced.

Here is a better way to phrase the general argument you are trying to make - leave money out of it altogether, and talk in terms of resources:
It could be argued, that there will be a greater number of idle people (pensioners) who are no longer contributing labour to the economy, relative to active workers contributing labour - meaning that there will be more idle people taking a bigger slice of the economic pie, relative to working people - and that this is a zero sum game, which will make working people less well off (possibly even a negative sum game, with the reduced ratio of working people harming the maximum GDP potential).

I do not agree with that argument - but at least it is a more accurate way of representing what you're trying to say. I believe that the standard of living will keep on increasing, GDP per capita will keep on increasing - and that despite the demographic changes, it will be a positive sum game where the economy has grown bigger, and workers will still maintain or even expand the size of their 'slice' of the economic pie (despite it being a smaller overall percentage) - even if pensioners may increase their share of the overall economic pie.

KyussB

GreeBo wrote: »

Any chance we can break out the "how a government funds pensions" from the "should I have a pension" conversations?

The thread is currently bumped due to government enacting auto-enrollment into private pensions, which has spurred the discussion on whether government should be subsidizing private pensions and the finance industry in this way - versus maintaining/expanding proper public pensions instead.

sheepsh4gger

Nobody is going to get their pension, that's the catch. The government can't even run the post office. I see just a long deflation, slow erosion of the living standard ahead so I would not trust them with my money.

I made a 500% profit from a small investment in 2017. Then pulled out at the right time and moved it into another. That's up since when I bout it 40%. (I'm not going to give anyone advice, don't ask me) Maybe it's beginner's luck but I feel like I can look after myself better than the corrupt politicians as long as there's a free market.

sheepsh4gger

KyussB wrote: »

The thread is currently bumped due to government enacting auto-enrollment into private pensions, which has spurred the discussion on whether government should be subsidizing private pensions and the finance industry in this way - versus maintaining/expanding proper public pensions instead.

That's where the oligarchs dump their bags.

kippy

sheepsh4gger wrote: »

Nobody is going to get their pension, that's the catch. The government can't even run the post office. I see just a long deflation, slow erosion of the living standard ahead so I would not trust them with my money.

I made a 500% profit from a small investment in 2017. Then pulled out at the right time and moved it into another. That's up since when I bout it 40%. (I'm not going to give anyone advice, don't ask me) Maybe it's beginner's luck but I feel like I can look after myself better than the corrupt politicians as long as there's a free market.

No such thing as a free market.

Liam D Ferguson

KyussB wrote: »

As I've said many times: Taxes do not 1:1 fund government spending - so in that case it does not matter how many people are working relative to pensioners - workers do not 1:1 fund public pensioners in that case.

You're still thinking like governments run balanced budgets all the time, and that government finances work like personal finances - that's not the case, budgets are almost never balanced.

Yes I'm aware that the budget is rarely if ever balanced and that income does not fund spending on a 1:1 basis. I try to keep things relatively simple. If the Government spends more than it takes in, it needs to borrow the excess and has various means by which it can do this. Your argument seems to be that although the well-known demographic issue of the changing dependency ratio will inevitably cost Governments more as time goes on, it's nothing to worry about as long as the Government can access more and more money to meet the shortfall. How can increased borrowing not be an issue?

KyussB wrote: »

I believe that the standard of living will keep on increasing, GDP per capita will keep on increasing - and that despite the demographic changes, it will be a positive sum game where the economy has grown bigger, and workers will still maintain or even expand the size of their 'slice' of the economic pie (despite it being a smaller overall percentage) - even if pensioners may increase their share of the overall economic pie.

That all sounds lovely, but do you have any factual basis we can look at for making such rosy predictions?

KyussB

There is no 'shortfall', because the pensions are not funded by workers tax payments, they are funded by government spending - and government spending is not as simplistic as expanding debt.

You have an archaic view of how government finances work. If, back in August when interest rates were negative, government expanded public debt by 10x, 100x, or 1000x (which would be trillions) - and placed all of that money in a pension pot - then the government would be getting paid to do that - our Public Debt vs GDP would be 65,000% - and our public finances would be perfectly sustainable, with a pension pot fit to last 500 years or so.

Issuing government bonds at practically zero - or even negative - interest rates, renders Public Debt utterly meaningless. It's as good as the government having a printing press - in fact, much of that money would get indirectly sourced from ECB QE, effectively being exactly printed from nothing.

What matters isn't the money - that is not what determines whether funding public pensions through government spending is sustainable or not - what matters is the real economy, and making sure that government spending isn't still pushed, when the economy reaches Full-Output/Maximum-GDP (which is roughy analogous to the point of Full Employment).

As for GDP Per Capita: That is increasing well in advance of the dependency ratio, so workers have nothing to worry about, regarding the future - they'll still be better off.

[Deleted User]

KyussB wrote: »

There is no 'shortfall', because the pensions are not funded by workers tax payments, they are funded by government spending - and government spending is not as simplistic as expanding debt.

Greece did not fund their pension payments from tax payments and look there it got them.

awec

mydingaling2 wrote: »

Currently paying 15% of my salary into a 401K pension with the employer matching 8%.
I can withdraw whenever I like but plan on retiring at 55 and going home permanently. I can take it at 55 if im still with the same company and before this i'm hit with a 10% penalty. I only started paying in at age 28. This is what my pension will look at going by years.

Age 35: 143K
Age 40: 307K
Age 45: 548K
Age 50: 899K
Age 55: 1,404,000
Age 60: 2,127,000
Age 65: 3,158,000

I am taxed on whatever i take out.

I know that I am secure with the rest of my salary once i am paying into the pension but still manage to save 1200 a month out of my main salary without the pension. Thinks could change and I might plan on retiring at 50 and heading home and have my savings and pension as a nest egg.

Tow wrote: »

I wish you luck. Those are like the pie in the sky figures Eagle Star quoted me 20+ years ago. Compounded 12% interest and assuming large pay increases each year until retirement.

dotsman wrote: »

I think you really need to reexamine your figures before you get your hopes up!

Without knowing the details, I can only assume that the above figures assume that you stay invested in high-risk, volatile stocks. While that is definitely the investment approach you want in your 20's and 30's (even 40's), once you begin to approach 10-15 years of your planned retirement age, you need to seriously deleverage. Your last 7-odd years before you retire should be pulling you in a consistent 1-3% returns.

The figures are likely not adjusted for inflation too.

awec

Anyone who thinks a pension is a bad idea should go to a financial advisor and get them to run some numbers. Even just for curiosities sake. They will ask you what sort of retirement you want, like what you want to do, any hobbies etc. They'll come up with a figure as to how much you'll need each year, and then tell you how much you need to be saving to get that.

And you will be shocked.