Pension as Risk
Pfäffikon SZ, Switzerland – The time when the power of the phenomenon of the interest rate on interest rate was taught in school lies behind us. Currently, the factor of interest rate is developing as a risk for society as a whole. The aging population is increasingly a heavier burden on social systems based on interest income. Very slowly, fewer workers bear the cost of more pensioners. Worldwide, this has a permanent negative effect on the growth of our prosperity.
Mismatch
Demographic problems accumulate very slowly. Due to these shifts, an unimaginably considered retirement crisis is lurking. The mismatch between the perceived and actual financial security in old age is ––to say the least–– a underestimated area of concern for the coming years. Many parties are still trying to stay active. However, the gap between ambition and reality regarding pension will need to close. Worldwide, social pensions are seriously underfunded.
More risk and debt
Many retirees cheerfully point to their assets. However, the 0% interest rate policy causes that these assets, in terms of return, are not enough to meet all obligations. Moreover, in many cases, the pension is not your asset, you are only entitled to a benefit for which you have to pay your whole working life; but no matter. Several pension funds are thus forced to take more risks, with all its consequences.
Several experts assumed that the debts would decrease after 2008 and that banks and citizens had learned their lesson. Unfortunately, nothing is less true. The clutter from 2008 is not cleared, and citizens even further increased their debts. Many countries have lived on credit to get out of the slump of 2008. Everyone knows that life on credit is no more than taking an advance on the future. Additional debt is not a sustainable economic model. Many will have to pay this price.
Solution
To not let explode the pension system, choices will have to be made. The simplest solution is to pay pensioners less money. These retirees will probably be forced to sell early any other assets, such as a house. For younger generations, the current situation is a sign on the wall. Previously promised results do not make sense. In several respects, the old solution of a large family is probably the best guarantee of a carefree retirement.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above mentioned shares and has no intention of doing so in the next 72 hours.
