As I said a some time ago, a big challenge for Europe will be to integrate the immigrants who will possibly come in there to ease the burden of the aging population. If one looks at how France is integrating with its history, it aint a very rosy pointer to its future.
France Struggling (Economist)
The politicians manoeuvre, but they come no closer to solving the problems of integrating the country's ethnic minorities
“FRANCE is a great nation. Its past was glorious.” “France is a great country, because it has a great history.” They sound like the incantations of a long-forgotten emperor, but in fact they are declarations by those who govern France today: the first by President Jacques Chirac, the second by Nicolas Sarkozy, his interior minister. That France's politicians feel the need for such rousing rhetoric is testimony to how far the country has, after the riots, plunged into a collective depression.
The latest round of self-criticism was set off by a failed attempt last month by the opposition Socialists to repeal a law requiring school textbooks to “recognise in particular the positive role of the French presence overseas, notably in North Africa”. The law was pushed by members of the ruling UMP party from the south of France, home to many pieds noirs (former French settlers in Algeria) and harkis (Algerians who fought for France). Although the law passed without a murmur in February, the Socialists have belatedly cried foul, denouncing this attempt to impose the state's preferred version of history.
Such was the fury that Mr Chirac made a rare televised address to calm tempers. He promised a commission to study parliament's role in the construction of memory and history. This week he added his support for a day to remember slavery. Both he and his prime minister, Dominique de Villepin, have distanced themselves from the February law, insisting that history is a matter for historians, not lawmakers. This has cast Mr Sarkozy, who cancelled a trip to the French West Indies last week after protests against the new law, as its chief defender. He has railed against the “excessive repentance” of the French intelligentsia, arguing that “when one walks around Algiers, one realises that one cannot reduce the French presence to torture.”
Behind this unexpected debate over the virtues of France's colonial past lie two struggles. The first is a fratricidal war on the political right, which has intensified since the riots in the banlieues. The second is the country's difficulty integrating the children of ex-French colonies, so vividly exposed by the riots.
On the first count, the commotion is in some ways yet another row that pits Mr Sarkozy, who heads the UMP, against those from whom he wrested control of that party: Mr Chirac and his protégé, Mr de Villepin. Electorally, the right may gain from the riots, since security fears play to its strengths. But Mr Chirac himself, already enfeebled by the French rejection of the European Union constitution last May, has been further marginalised. A devastating poll in the Journal du Dimanche has suggested that only 1% of French voters want him to seek re-election in 2007.
The contest between his two would-be successors on the right, though, has only just begun. Mr Sarkozy remains the favourite. In the same poll, 36% backed him, against 19% for Mr de Villepin. With his tough-talking ways and his action-man style, Mr Sarkozy has earned a reputation for zero tolerance. With his promises to expel foreign criminals, he has broadened his appeal to far-right voters. Last week, he sealed his grip on the party machine by ensuring that the UMP would back a single candidate for 2007: the party, as one observer puts it, has been déchiraquisé.
Yet Mr Sarkozy's success is not guaranteed. A separate poll by Ifop ranked him as only the fourth most popular politician on the right. Mr de Villepin came top, with a seven-point lead. UMP deputies know that the prime minister has wider appeal to the centre and the left, making him a better second-round candidate. In some ways, the row over colonial history suits the chiraquiens: the more Mr Sarkozy leans to the right, the more space there is in the centre for Mr de Villepin.
A second underlying conflict helps to explain why the textbook row has touched such a raw nerve: the post-riots debate over integration. The left, which admits it was dozing in February, now argues that the textbook law is provocative and wounding for France's ex-colonies and their descendants, at a time when France cannot afford to stigmatise its minorities. Aimé Césaire, a 92-year-old writer from Martinique who has long advocated “negritude” as a response to colonial humiliation, was one of those who refused to see Mr Sarkozy. François Hollande, the Socialist leader, said the law was a “disaster” and would further ostracise those of immigrant origin.
A month after the riots died down, France is still taking stock. In three weeks of violence across the country, some 10,000 vehicles were burned, 255 schools, 233 public buildings and 51 post offices were attacked, 140 public-transport vehicles were stoned, and 4,770 people were arrested, according to figures obtained by Le Monde. A report by the Renseignements Généraux, the police intelligence service, leaked to Le Parisien, concluded that the violence was neither orchestrated nor religious, but was rather a “popular revolt” linked to a “crying lack of integration”. It gave warning of possible fresh explosions on New Year's Eve, when hundreds of cars are torched even in normal years.
In response, a raft of policies is being drawn up. These include tougher controls on unemployment benefits, a crack-down on drug mafias, tighter checks on forced marriages, tax breaks for businesses relocating to the banlieues, apprenticeship schemes for teenagers and extra money for local associations.
Among the most interesting ideas is a new effort to promote ethnic minorities. After the riots, Mr Chirac spelled out for the first time that he wanted France's institutions to reflect its population—but to do it while remaining officially colour-blind. As Mr de Villepin put it on CNN, “we don't want to take into account the colour of the skin, or the religion.” This directly counters Mr Sarkozy's preferred idea of affirmative action for minorities. The French have been tying themselves in knots to work out how to promote diversity (good) without legitimising racial categories (bad), which to republican French ears smack of apartheid and infringe civil liberties.
There are some signs that France is reaching for a compromise. Azouz Begag, the minister for equality (who is of Algerian origin), is one of the few who argues that “we must measure the presence of the children of immigration in the police, magistrature, administration and the private sector.” He suggests using the birthplace of parents and grandparents as a proxy. Social scientists sense a first chance to study a subject that has hitherto been taboo. Nobody is fooled that such ethnic monitoring would solve the difficulties of integration. But it would at least unveil their extent, and offer a way to measure progress.
Thursday, December 15, 2005
Tuesday, December 13, 2005
Senior People studying!
As of now what they are sharpening are their passions: photography, astrology, etc. But soon they may have to plan for second working life! (Would love to do some quick number work one of these days about the amount of wealth these people have and how much income they will need to sustain themselves)
Business Week Article
Meet the Senior Class
Increasing numbers of retirees are ditching the rocking chair and heading back to school. Here are some of the options
Bob Cash, 72, of Cape Elizabeth, Me., retired in 1995 as president of insurance company First Unum of New York. Now he's teaching classes on Dante's Divine Comedy to other retirees. Before becoming a volunteer teacher in one of Maine's "Senior Colleges," he took classes on literature, poetry, and classical music. "I have always been a lover of poetry, and I enjoy learning, period," he says.
Carol Walker, 63, of St. Petersburg Beach, Fla., retired 17 years ago as a lieutenant in the New York Police Dept. harbor unit. Her interest in learning line dancing led her to Eckerd College in St. Petersburg, where she has since studied a variety of subjects, including digital photography and astronomy. Walker has also taught photography and she contributes many of the pictures in the course catalog for Eckerd's Osher Lifelong Learning Institute.
Experts in education and gerontology say that as baby boomers age and approach retirement, the number of retired Americans who are spending time -- or planning to -- on educational pursuits is growing fast. The trend is driven by such factors as increased longevity, people enjoying more years of good health, and a growing realization by many that a retirement into passivity is not only boring but can lead to atrophy of both mind and body. The federal government estimated in 2001 that additional life expectancy for a 65-year-old was 16.4 years for men and 19.4.years for women. That's a lot of time to fill if you're not working and in good health.
GROWING VARIETY. Margery Silver, a neuropsychologist on the Harvard Medical School faculty and an expert on the aging process, points out that scientific research shows that "keeping your mind active has a physiological [benefit]. When you learn new things, you build new connections in your brain." This can even help stave off symptoms of diseases such as Alzheimer's, she says. Silver, who is 73, still works part-time. In 2001, and her husband moved into Lasell Village, a retirement community affiliated with Lasell College in Newton, Mass., where residents can take courses and use the facilities, including the campus Internet system.
Certainly, educational opportunities aimed at the 65-and-older set aren't new. Elderhostel was created 30 years ago to offer educational travel to people 55 and older. The first "lifelong learning institute" targeted specifically at retirees opened in 1962 at the New School for Social Research in New York, according to Elderhostel, and there are many others that have been around for two decades or more.
What's new is the tremendous variety of learning opportunities and venues available to baby boomers as they approach retirement. The options range from one-shot lectures, seminars, or day trips organized by a local college or retirement home to retirement communities that market their educational opportunities as aggressively as they do their golf courses.
ON THE ROAD. So whether you're already retired and looking for something interesting to fill your time, or just starting to think about a retirement lifestyle, you may want to check into some of these options. Here are a few suggestions for identifying programs that coincide with your interests.
Educational travel is appealing because it combines the exploration of a new place with deepening your understanding of its history, geology, or literature. Elderhostel (www.elderhostel.org) offers 10,000 programs a year in 90 countries. The average age of Elderhostel participants is 73, but last year the organization created a new "Road Scholars" program, which is attracting people with an average age of 64.
Road Scholars programs tend to offer more free time and more participatory experiences. Another educational travel option is Senior Summer School (www.seniorsummerschool.com), which started out to offer retired Floridians an educational and northerly escape from the summer heat in Madison, Wisc. Now it offers campus-related summer programs in eight locations in the U.S. and Canada.
BACK TO THE DORM. If you prefer to stay close to home, ask local community colleges, four-year colleges, and universities about their programs. Many campus-based programs participate in the Elderhostel Institute Network, which serves as a resource and coordinator for "lifelong learning institutes," programs that offer a college-level curriculum but don't have grades or tests. You can search for an institute in your area by clicking here.
Maine has a network of 15 "senior colleges" (www.maineseniorcollege.org) where anyone 50 or older can register. Each school in the network has its own schedule. Among the subjects being offered in the spring session at Penobscot Valley Senior College in Orono are growing orchids for fun, women of Africa, Maine wildlife ecology, and management philosophy. There's an annual membership fee of $25, and each course is $25. Dallas' Richland College Emeritus program offers both credit and non-credit classes on campus and special programs, such as day trips -- all open to anyone 55 and older. It also provides free lectures on topics such as music and literature at local retirement homes.
Perhaps the ultimate commitment to lifelong learning is moving into a retirement community affiliated with an educational institution. For folks who like the idea of living in a campus environment, the Kendal Corp., a developer based in Kennett Square, Pa., has built six retirement villages near campuses in Ohio, New York, Virginia, Pennsylvania, and New Hampshire. The programs give residents' access to campus activities, allow them to attend or teach classes, as well as work on joint-research projects with undergrads, grads, or faculty. One group studied how people's choices about living arrangements affect their quality of life as they age.
NO TESTS REQUIRED. Another such community, not built by Kendal, has sprung up in Academy Village, outside of Tucson. There, the impetus for 5- and 10-week courses on topics such as "advances in medical research" came from a resident who is a former president of the University of Arizona.
In our shorter-lived-parents' generation, people were often satisfied to define retirement in terms of what they weren't doing -- namely, working. But with the possibility of 20 or more years ahead after leaving your primary job or profession, you owe it to yourself to envision a positive, enjoyable way to spend your time. Continuing education might be the answer. Not only do you not have to take tests or pull an all-nighter to struggle for a good grade, you can study any topic you want, almost anywhere in the world -- and on your own schedule.
Business Week Article
Meet the Senior Class
Increasing numbers of retirees are ditching the rocking chair and heading back to school. Here are some of the options
Bob Cash, 72, of Cape Elizabeth, Me., retired in 1995 as president of insurance company First Unum of New York. Now he's teaching classes on Dante's Divine Comedy to other retirees. Before becoming a volunteer teacher in one of Maine's "Senior Colleges," he took classes on literature, poetry, and classical music. "I have always been a lover of poetry, and I enjoy learning, period," he says.
Carol Walker, 63, of St. Petersburg Beach, Fla., retired 17 years ago as a lieutenant in the New York Police Dept. harbor unit. Her interest in learning line dancing led her to Eckerd College in St. Petersburg, where she has since studied a variety of subjects, including digital photography and astronomy. Walker has also taught photography and she contributes many of the pictures in the course catalog for Eckerd's Osher Lifelong Learning Institute.
Experts in education and gerontology say that as baby boomers age and approach retirement, the number of retired Americans who are spending time -- or planning to -- on educational pursuits is growing fast. The trend is driven by such factors as increased longevity, people enjoying more years of good health, and a growing realization by many that a retirement into passivity is not only boring but can lead to atrophy of both mind and body. The federal government estimated in 2001 that additional life expectancy for a 65-year-old was 16.4 years for men and 19.4.years for women. That's a lot of time to fill if you're not working and in good health.
GROWING VARIETY. Margery Silver, a neuropsychologist on the Harvard Medical School faculty and an expert on the aging process, points out that scientific research shows that "keeping your mind active has a physiological [benefit]. When you learn new things, you build new connections in your brain." This can even help stave off symptoms of diseases such as Alzheimer's, she says. Silver, who is 73, still works part-time. In 2001, and her husband moved into Lasell Village, a retirement community affiliated with Lasell College in Newton, Mass., where residents can take courses and use the facilities, including the campus Internet system.
Certainly, educational opportunities aimed at the 65-and-older set aren't new. Elderhostel was created 30 years ago to offer educational travel to people 55 and older. The first "lifelong learning institute" targeted specifically at retirees opened in 1962 at the New School for Social Research in New York, according to Elderhostel, and there are many others that have been around for two decades or more.
What's new is the tremendous variety of learning opportunities and venues available to baby boomers as they approach retirement. The options range from one-shot lectures, seminars, or day trips organized by a local college or retirement home to retirement communities that market their educational opportunities as aggressively as they do their golf courses.
ON THE ROAD. So whether you're already retired and looking for something interesting to fill your time, or just starting to think about a retirement lifestyle, you may want to check into some of these options. Here are a few suggestions for identifying programs that coincide with your interests.
Educational travel is appealing because it combines the exploration of a new place with deepening your understanding of its history, geology, or literature. Elderhostel (www.elderhostel.org) offers 10,000 programs a year in 90 countries. The average age of Elderhostel participants is 73, but last year the organization created a new "Road Scholars" program, which is attracting people with an average age of 64.
Road Scholars programs tend to offer more free time and more participatory experiences. Another educational travel option is Senior Summer School (www.seniorsummerschool.com), which started out to offer retired Floridians an educational and northerly escape from the summer heat in Madison, Wisc. Now it offers campus-related summer programs in eight locations in the U.S. and Canada.
BACK TO THE DORM. If you prefer to stay close to home, ask local community colleges, four-year colleges, and universities about their programs. Many campus-based programs participate in the Elderhostel Institute Network, which serves as a resource and coordinator for "lifelong learning institutes," programs that offer a college-level curriculum but don't have grades or tests. You can search for an institute in your area by clicking here.
Maine has a network of 15 "senior colleges" (www.maineseniorcollege.org) where anyone 50 or older can register. Each school in the network has its own schedule. Among the subjects being offered in the spring session at Penobscot Valley Senior College in Orono are growing orchids for fun, women of Africa, Maine wildlife ecology, and management philosophy. There's an annual membership fee of $25, and each course is $25. Dallas' Richland College Emeritus program offers both credit and non-credit classes on campus and special programs, such as day trips -- all open to anyone 55 and older. It also provides free lectures on topics such as music and literature at local retirement homes.
Perhaps the ultimate commitment to lifelong learning is moving into a retirement community affiliated with an educational institution. For folks who like the idea of living in a campus environment, the Kendal Corp., a developer based in Kennett Square, Pa., has built six retirement villages near campuses in Ohio, New York, Virginia, Pennsylvania, and New Hampshire. The programs give residents' access to campus activities, allow them to attend or teach classes, as well as work on joint-research projects with undergrads, grads, or faculty. One group studied how people's choices about living arrangements affect their quality of life as they age.
NO TESTS REQUIRED. Another such community, not built by Kendal, has sprung up in Academy Village, outside of Tucson. There, the impetus for 5- and 10-week courses on topics such as "advances in medical research" came from a resident who is a former president of the University of Arizona.
In our shorter-lived-parents' generation, people were often satisfied to define retirement in terms of what they weren't doing -- namely, working. But with the possibility of 20 or more years ahead after leaving your primary job or profession, you owe it to yourself to envision a positive, enjoyable way to spend your time. Continuing education might be the answer. Not only do you not have to take tests or pull an all-nighter to struggle for a good grade, you can study any topic you want, almost anywhere in the world -- and on your own schedule.
Sunday, December 11, 2005
Legal protection?
What stops me from transferring all my wealth to a company (in which i hold all the shares) at a nomial price.
That way:
1. I can book losses on my holdings when I transfer the assets to the company.
2. When I die, I can nominate my leagal heirs to the shares and they will not have to pay any inheritance tax, if any
3. If my creditors sue me, my money is safely in the legal confines of my company
Thoughts / comments?
That way:
1. I can book losses on my holdings when I transfer the assets to the company.
2. When I die, I can nominate my leagal heirs to the shares and they will not have to pay any inheritance tax, if any
3. If my creditors sue me, my money is safely in the legal confines of my company
Thoughts / comments?
Innovative Idea for pension funding?
Innovative Idea for pension funding?
That there is a serious under-funding for the pensions should come as no surprise to anyone. NY Times reports that the unfunded costs of medical benefits promised to retired government (city) employees could be as high as a trillion dollars! Already battles are being fought as politicians try to grapple with the issue of siding with either current workers or with the retiree workers. Whether it will be the economic might (via political donations that they can afford - point nited below also) or the sheer number of them (in at least the coming years), the baby boomers who are retiring now will have to fight an inter-generational battle with the current workers.
One potential way for the governemnts to solve this problem is to raise debt to finance these outflows. However, that is a simply passing on the responsibility of repaying debt to the younger generation. The other is to raise current taxes: this again burdens the current working generation.
However, one way the government can raise money without impinging on the earnings of the current working populace is to increase the inheritance tax. When a person dies and his estate passes on to his / her legal heirs, the government should claim a larger percentage share in the property that passes. While this will lower the amount that the younger generation will inherit, it will essentially be the wealth of the old generation that will be used to pay off the retirement benefits for their generation.
What remains to be done is the feasibility analysis of this solution. I dont know if I should hazard a guess, but here go some dirty number work. The GDP of the States is ~$12tn a year. Assuming the wealth to flow ratio of 10, the total wealth of the country's inhabitants is ~$120 tn. Of this wealth, ~10% would be in private hands and we come back to the number of ~$12tn as the wealth that pvt individuals have. (Now, Bill Gates has ~40bn and the top 100 odd people have ~$1 tn with them and hence this number does not sound completely out-of-whack). [I do note that I need to actively reconsider the mathematics and economics here.]
Now one notes that just as wealth is not distributed evenly amongst the people, even amongst the people, it is not distributed evenly during their lifetime. I would hazard a guess saying that the cohort of the age of 55-75 (which would account for ~25% of the population: 20 years divided by 80 years), they would have ~40% of the wealth. Hence, this cohort, which is would die over the next 25 years (80 - 55) would have ~$5tn with them. If this wealth is taxed at ~20-25% rate as inheritance tax, the governemtn could use the wealth of these people to finance the costs that the government would incur on there people.
I know the numbers might be all over the place, but I think the idea that I have in mind is clear. In any case, almost everyone is moving away from the pay-as-you-go DB plans to DC plans. Younger workers can look forward to a couple of risks: unknown costs of health case 20 to 30 years down the line (when they retire) and the risk of their investments performing (sustaining!) as they build their retirement nest. However, they are protected from the ignomy of having to borrow from their future generations!
How the governments deal with this issue will be something to closely look out for! Major social and political battles have to be fought now!
NY Times article
December 11, 2005
The Next Retirement Time Bomb
By MILT FREUDENHEIM
and MARY WILLIAMS WALSH
SINCE 1983, the city of Duluth, Minn., has been promising free lifetime health care to all of its retired workers, their spouses and their children up to age 26. No one really knew how much it would cost. Three years ago, the city decided to find out.
It took an actuary about three months to identify all the past and current city workers who qualified for the benefits. She tallied their data by age, sex, previous insurance claims and other factors. Then she estimated how much it would cost to provide free lifetime care to such a group.
The total came to about $178 million, or more than double the city's operating budget. And the bill was growing.
"Then we knew we were looking down the barrel of a pretty high-caliber weapon," said Gary Meier, Duluth's human resources manager, who attended the meeting where the actuary presented her findings.
Mayor Herb Bergson was more direct. "We can't pay for it," he said in a recent interview. "The city isn't going to function because it's just going to be in the health care business."
Duluth's doleful discovery is about to be repeated across the country. Thousands of government bodies, including states, cities, towns, school districts and water authorities, are in for the same kind of shock in the next year or so. For years, governments have been promising generous medical benefits to millions of schoolteachers, firefighters and other employees when they retire, yet experts say that virtually none of these governments have kept track of the mounting price tag. The usual practice is to budget for health care a year at a time, and to leave the rest for the future.
Off the government balance sheets - out of sight and out of mind - those obligations have been ballooning as health care costs have spiraled and as the baby-boom generation has approached retirement. And now the accounting rulemaker for the public sector, the Governmental Accounting Standards Board, says it is time for every government to do what Duluth has done: to come to grips with the total value of its promises, and to report it to their taxpayers and bondholders.
The board has issued a new accounting rule that will take effect in less than two years. It has not yet drawn much attention outside specialists' circles, but it threatens to propel radical cutbacks for government retirees and to open the way for powerful economic and social repercussions. Some experts are warning of tax increases, or of an eventual decline in the quality of public services. States, cities and agencies that do not move quickly enough may see their credit ratings fall. In the worst instances, a city might even be forced into bankruptcy if it could not deliver on its promises to retirees.
"It's not going to be pretty, and it's not the fault of the workers," said Mayor Bergson, himself a former police officer from Duluth's sister city of Superior, Wis. "The people here who've retired did earn their benefits."
The new accounting rule is to be phased in over three years, with all 50 states and hundreds of large cities and counties required to comply first. Those governments are beginning to do the necessary research to determine the current costs and the future obligations of their longstanding promises to help pay for retirees' health care. Local health plans vary widely and have to be analyzed one by one. No one is sure what the total will be, only that it will be big.
Stephen T. McElhaney, an actuary and principal at Mercer Human Resources, a benefits consulting firm that advises states and local governments, estimated that the national total could be $1 trillion. "This is a huge liability," said Jan Lazar, an independent benefits consultant in Lansing, Mich. "If anybody understands it, they'll freak out."
Last spring, the state of Alaska was the scene of a showdown over retirement benefits that those involved said was a precursor of fights to come. Conservative lawmakers who supported scaling back traditional retiree health care and pension benefits squared off against union lobbyists, advocates for the elderly and the schools superintendent of Juneau, the state capital, who defended the current benefits.
After saying that Alaska's future combined obligations for pensions and retiree health care were underfunded by $5.7 billion, Gov. Frank H. Murkowski called a special session of the Legislature and pushed through changes in pension and retirement health care benefits for new state employees. (The state Constitution forbids changing the benefits of current employees.)
Instead of having comprehensive, subsidized medical coverage, new public workers will have a high-deductible plan and health savings accounts. The changes cleared the State Senate and passed by a one-vote margin in the House.
Even the White House weighed in on the Alaska problem. Ruben Barrales, President Bush's director of intergovernmental affairs, lobbied wavering Republican legislators, arguing in favor of replacing pensions and traditional retiree health benefits with private savings accounts for new employees. Mr. Barrales noted that the president was seeking similar changes in Social Security, including a plan for private accounts.
The union that represents state employees in Alaska said the narrower benefits would make it harder to recruit qualified teachers and government workers. "They keep chiseling away" at school employees' pay and benefits, said Julia Black, a single mother and union activist who earns $11 an hour as an aide in classes for disabled children in Juneau.
Actuaries say that about 5.5 million retired public employees have health benefits of some kind - and accountants joke that there are not enough actuaries in the country to do all the calculations necessary to estimate how much all these retirees have been promised.
Though it may seem strange after a decade of double-digit health cost inflation, hardly any public agencies have been tracking their programs' total costs, which must be paid out over many years. The promises seemed reasonable when they were initially made, officials say.
In Duluth, Mayor Bergson said the city actually offered free retiree health care as a cost-cutting measure back in 1983. At the time, Duluth was trying to get rid of another ballooning obligation to city workers: the value of unused sick leave and vacation days. Public workers then were in the habit of saving up this time over the course of their careers and cashing it in for a big payout upon retirement. Compared with the big obligations the city had to book for that unused time, substituting free retiree health care seemed cheap. "Basically, they traded one problem for another," Mayor Bergson said.
WITH some exceptions, most states and cities have set aside no money to pay for retiree medical benefits. Instead, they use the pay-as-you-go system - paying for former employees out of current revenue. Agencies did not have to estimate the total size of their commitment to retiree health care, so few did so.
Under the new accounting rule, local governments will still not have to set aside any money for those promises. But they will be required to lay out a theoretical framework for the funding of retiree health plans over the next 30 years, and to disclose what they are doing about it. If they fail to put money behind their promises to retirees, they may feel the unforgiving discipline of the financial markets. Their credit ratings may go down, making it harder and more expensive to sell bonds or otherwise borrow money.
Parry Young, a public finance director at Standard & Poor's, the credit rating agency, said his analysts look at total liabilities, including pension and now other "post-employment" obligations. Many governments, he added, have already been grappling with big deficits in their employee pension funds.
A few agencies are wrestling with the daunting task of estimating their total retiree health obligations and coming up with a way to slice it into a 30-year funding plan. They are finding that under the new method, the benefit costs for a particular year can be anywhere from 2 to 20 times the pay-as-you-go costs they have been showing on their books.
Maryland, for example, now spends about $311 million annually on retiree health premiums. But when that state calculated the value of the retirement benefits it has promised to current employees, the total was $20.4 billion. And the yearly cost will jump to $1.9 billion under the new rule, according to an analysis for the state by actuaries at Aon Consulting, which advises companies on benefits.
That is because Maryland would not be recording just its insurance premiums as the year's expense, but instead would report the value of the coverage its employees have earned in that year as well as a portion of the $20.4 billion they amassed in the past. After 30 years, the entire $20.4 billion should be accounted for.
Michigan says it has made unfunded promises that are now valued at $17 billion for teachers, part of a possible $30 billion total for all public agency retirees. Other places that have done the math include the state of Alabama; the city of Arlington, Tex.; and the Los Angeles Unified School District. New York City has not yet completed an actuarial valuation of its many retiree benefit plans. But in its most recent financial statements, the city said it expected that the new rule would "result in significant additional expenses and liabilities being recorded" in the future.
The numbers can vary wildly by locality, depending on how rich its benefits are, what assumptions its actuary uses about future demographics and investment earnings, and that great unknown: the cost of health care 30 years in the future.
"Fifteen years ago, who would have projected 10 years of double-digit increases in health care costs?" said Frederick H. Nesbitt, executive director of the National Conference on Public Employee Retirement Systems, an advocacy group in Washington. Mr. Nesbitt pointed out that when the accounting rulemakers began requiring a similar change in financial reporting for companies in the 1990's, it was followed by a sharp decline in the retiree medical benefits provided by corporate America.
Today, only one in 20 companies still offers retiree benefits, according to Don Rueckert Jr., an Aon actuary. The rate for large companies is less than one in three, down from more than 40 percent before the private-sector accounting change, according to Mercer Human Resource Consulting. General Motors and Ford are among the big companies that still offer retiree health benefits. But G.M. recently persuaded the United Automobile Workers union to accept certain reductions, and Ford is seeking similar cuts.
"We expect the same thing in the public sector, unless we help employers do the right thing," said John Abraham, deputy research director for the American Federation of Teachers.
The Governmental Accounting Standards Board, known by the acronym GASB (pronounced GAZ-bee), is a nonprofit organization based in Norwalk, Conn., and a sister to the Financial Accounting Standards Board that writes accounting rules for the private sector. Karl Johnson, the project manager for the retiree-benefits rule, said GASB began hearing from public employees' unions as soon as it issued a first draft of its new standard. The unions said that if governments were forced to disclose the cost of their plans, they would probably cut or drop them, just as companies have done.
Mr. Johnson said the accounting board had no interest in trying to reduce anyone's benefits, and no power to dictate local policy even if it wanted to. "Accounting is just trying to hold up a good mirror to what's happening," he said. "These are very expensive benefits."
Under the new rule - outlined in the board's Statement No. 45 in June 2004, and known widely as GASB 45 - large public governments and school boards with large health care obligations to retirees will have to start reporting their overall benefits cost in 2007 - either on Jan. 1 of that year or, for most big governments, on the start of the fiscal year beginning June 1, 2007. Smaller governments will start using the new method in the two years after that.
The change comes at a rough time for state and local governments. Spending on Medicaid and education has been spiraling, and Congress continues to cut federal taxes and shift burdens of governing away from Washington. In some areas, including parts of Michigan, governments are also suffering from the financial difficulties of important local industries. Max B. Sawicky, an economist at the Economic Policy Institute, a liberal research group in Washington, called the new requirement "another straw on the camel's back" for state and local governments already straining under their budget burdens.
Mr. Johnson said the accounting board had tried to issue the retiree health care rule 10 years ago, when the economic picture was rosier. It did succeed then in issuing an accounting standard for government pension plans, but before it could turn to the related issue of retiree health care, other urgent accounting issues crowded onto its agenda. The board finally cleared its decks and voted to address retiree benefits in 1999. Coming up with the new methodology took five years.
Now that it is here, "the general sense in the marketplace is that GASB 45 is going to lead to a watershed in public-sector health benefits," said Dallas L. Salisbury, president of the Employee Benefit Research Institute, a nonpartisan research center in Washington.
Indeed, the handful of states and cities that have already calculated their obligations to retirees have concluded they must also rein in the costs. Michigan, for example, with its possible $30 billion in largely unfunded health care promises, is already considering legislation that would shift "a considerable amount of the cost for health insurance to the retiree," said Charles Agerstrand, a retirement consultant for the Michigan Education Association, a teachers union. The legislation would require teachers retiring after 20 years to pay 40 percent of their insurance premiums, as well as co-payments and deductibles, he said.
The pressure is greatest in places like Detroit, Flint and Lansing, where school systems offered especially rich benefits during the heyday of the auto plants, aiming to keep teachers from going to work in them. Away from those cities, retiree costs may be easier to manage. In the city of Cadillac, 100 miles north of Grand Rapids, government officials said they felt no urgent need to cut benefits because they promised very little to begin with. Instead, Cadillac has started putting money aside to take care of future retirement benefits for its 85 employees, said Dale M. Walker, the city finance director.
Ohio is one of a few states to set aside significant amounts. Its public employee retirement system has been building a health care trust fund for years, so it has money today to cover at least part of its promises. With active workers contributing 4 percent of their salary, the trust fund has $12 billion. Investment income from the fund pays most current retiree health costs, said Scott Streator, health care director of the Ohio Public Employee Retirement System. "It doesn't mean we can just rest," he said. "It is our belief that almost every state across the country is underfunded." He said his system plans to begin increasing the employee contributions next year.
In Duluth, Mayor Bergson grew quiet for a moment at the thought of a robust trust fund. "There was not a nickel set aside" in Duluth, he said. "The reason was, if you set money aside, you'd do less 'pretty projects.' Less bricks and mortar. Fewer streets. Fewer parks. So no one set the money aside. "If the city had set $1 million aside every year for those 22 years" since the promise was made, he added, "we'd be in really good shape right now."
Mayor Bergson said his city intends to start setting aside money for the first time in 2006, but he is also trying to rein in the growth of new obligations. He raised to 20 from 3 the number of years that an employee must work for the city in order to qualify for retirement benefits.
He also imposed a hiring freeze and pledged not to lift it until Duluth could hire employees without promising them free lifetime health care. As the city has lost police officers, firefighters, an operator of its huge aerial lift bridge and other workers, the remaining employees have racked up more than $2 million in overtime. But Mayor Bergson says that this is still cheaper than dealing with free retirement health care once the new accounting rule takes effect.
Most recently, he reached out for what may prove a political third rail: he took issue with the idea that once a public employee has retired, his benefits can never be reduced. This idea, as applied to pensions, is rooted in the constitutions of about 20 states, and unions argue that it also protects retiree health care.
Active employees in Duluth have had to start paying more for their health care under the city plan, Mayor Bergson said. If active workers must make concessions, he said, retired workers should make concessions, too. Otherwise, in relative terms, they are pulling ahead of the active work force.
That there is a serious under-funding for the pensions should come as no surprise to anyone. NY Times reports that the unfunded costs of medical benefits promised to retired government (city) employees could be as high as a trillion dollars! Already battles are being fought as politicians try to grapple with the issue of siding with either current workers or with the retiree workers. Whether it will be the economic might (via political donations that they can afford - point nited below also) or the sheer number of them (in at least the coming years), the baby boomers who are retiring now will have to fight an inter-generational battle with the current workers.
One potential way for the governemnts to solve this problem is to raise debt to finance these outflows. However, that is a simply passing on the responsibility of repaying debt to the younger generation. The other is to raise current taxes: this again burdens the current working generation.
However, one way the government can raise money without impinging on the earnings of the current working populace is to increase the inheritance tax. When a person dies and his estate passes on to his / her legal heirs, the government should claim a larger percentage share in the property that passes. While this will lower the amount that the younger generation will inherit, it will essentially be the wealth of the old generation that will be used to pay off the retirement benefits for their generation.
What remains to be done is the feasibility analysis of this solution. I dont know if I should hazard a guess, but here go some dirty number work. The GDP of the States is ~$12tn a year. Assuming the wealth to flow ratio of 10, the total wealth of the country's inhabitants is ~$120 tn. Of this wealth, ~10% would be in private hands and we come back to the number of ~$12tn as the wealth that pvt individuals have. (Now, Bill Gates has ~40bn and the top 100 odd people have ~$1 tn with them and hence this number does not sound completely out-of-whack). [I do note that I need to actively reconsider the mathematics and economics here.]
Now one notes that just as wealth is not distributed evenly amongst the people, even amongst the people, it is not distributed evenly during their lifetime. I would hazard a guess saying that the cohort of the age of 55-75 (which would account for ~25% of the population: 20 years divided by 80 years), they would have ~40% of the wealth. Hence, this cohort, which is would die over the next 25 years (80 - 55) would have ~$5tn with them. If this wealth is taxed at ~20-25% rate as inheritance tax, the governemtn could use the wealth of these people to finance the costs that the government would incur on there people.
I know the numbers might be all over the place, but I think the idea that I have in mind is clear. In any case, almost everyone is moving away from the pay-as-you-go DB plans to DC plans. Younger workers can look forward to a couple of risks: unknown costs of health case 20 to 30 years down the line (when they retire) and the risk of their investments performing (sustaining!) as they build their retirement nest. However, they are protected from the ignomy of having to borrow from their future generations!
How the governments deal with this issue will be something to closely look out for! Major social and political battles have to be fought now!
NY Times article
December 11, 2005
The Next Retirement Time Bomb
By MILT FREUDENHEIM
and MARY WILLIAMS WALSH
SINCE 1983, the city of Duluth, Minn., has been promising free lifetime health care to all of its retired workers, their spouses and their children up to age 26. No one really knew how much it would cost. Three years ago, the city decided to find out.
It took an actuary about three months to identify all the past and current city workers who qualified for the benefits. She tallied their data by age, sex, previous insurance claims and other factors. Then she estimated how much it would cost to provide free lifetime care to such a group.
The total came to about $178 million, or more than double the city's operating budget. And the bill was growing.
"Then we knew we were looking down the barrel of a pretty high-caliber weapon," said Gary Meier, Duluth's human resources manager, who attended the meeting where the actuary presented her findings.
Mayor Herb Bergson was more direct. "We can't pay for it," he said in a recent interview. "The city isn't going to function because it's just going to be in the health care business."
Duluth's doleful discovery is about to be repeated across the country. Thousands of government bodies, including states, cities, towns, school districts and water authorities, are in for the same kind of shock in the next year or so. For years, governments have been promising generous medical benefits to millions of schoolteachers, firefighters and other employees when they retire, yet experts say that virtually none of these governments have kept track of the mounting price tag. The usual practice is to budget for health care a year at a time, and to leave the rest for the future.
Off the government balance sheets - out of sight and out of mind - those obligations have been ballooning as health care costs have spiraled and as the baby-boom generation has approached retirement. And now the accounting rulemaker for the public sector, the Governmental Accounting Standards Board, says it is time for every government to do what Duluth has done: to come to grips with the total value of its promises, and to report it to their taxpayers and bondholders.
The board has issued a new accounting rule that will take effect in less than two years. It has not yet drawn much attention outside specialists' circles, but it threatens to propel radical cutbacks for government retirees and to open the way for powerful economic and social repercussions. Some experts are warning of tax increases, or of an eventual decline in the quality of public services. States, cities and agencies that do not move quickly enough may see their credit ratings fall. In the worst instances, a city might even be forced into bankruptcy if it could not deliver on its promises to retirees.
"It's not going to be pretty, and it's not the fault of the workers," said Mayor Bergson, himself a former police officer from Duluth's sister city of Superior, Wis. "The people here who've retired did earn their benefits."
The new accounting rule is to be phased in over three years, with all 50 states and hundreds of large cities and counties required to comply first. Those governments are beginning to do the necessary research to determine the current costs and the future obligations of their longstanding promises to help pay for retirees' health care. Local health plans vary widely and have to be analyzed one by one. No one is sure what the total will be, only that it will be big.
Stephen T. McElhaney, an actuary and principal at Mercer Human Resources, a benefits consulting firm that advises states and local governments, estimated that the national total could be $1 trillion. "This is a huge liability," said Jan Lazar, an independent benefits consultant in Lansing, Mich. "If anybody understands it, they'll freak out."
Last spring, the state of Alaska was the scene of a showdown over retirement benefits that those involved said was a precursor of fights to come. Conservative lawmakers who supported scaling back traditional retiree health care and pension benefits squared off against union lobbyists, advocates for the elderly and the schools superintendent of Juneau, the state capital, who defended the current benefits.
After saying that Alaska's future combined obligations for pensions and retiree health care were underfunded by $5.7 billion, Gov. Frank H. Murkowski called a special session of the Legislature and pushed through changes in pension and retirement health care benefits for new state employees. (The state Constitution forbids changing the benefits of current employees.)
Instead of having comprehensive, subsidized medical coverage, new public workers will have a high-deductible plan and health savings accounts. The changes cleared the State Senate and passed by a one-vote margin in the House.
Even the White House weighed in on the Alaska problem. Ruben Barrales, President Bush's director of intergovernmental affairs, lobbied wavering Republican legislators, arguing in favor of replacing pensions and traditional retiree health benefits with private savings accounts for new employees. Mr. Barrales noted that the president was seeking similar changes in Social Security, including a plan for private accounts.
The union that represents state employees in Alaska said the narrower benefits would make it harder to recruit qualified teachers and government workers. "They keep chiseling away" at school employees' pay and benefits, said Julia Black, a single mother and union activist who earns $11 an hour as an aide in classes for disabled children in Juneau.
Actuaries say that about 5.5 million retired public employees have health benefits of some kind - and accountants joke that there are not enough actuaries in the country to do all the calculations necessary to estimate how much all these retirees have been promised.
Though it may seem strange after a decade of double-digit health cost inflation, hardly any public agencies have been tracking their programs' total costs, which must be paid out over many years. The promises seemed reasonable when they were initially made, officials say.
In Duluth, Mayor Bergson said the city actually offered free retiree health care as a cost-cutting measure back in 1983. At the time, Duluth was trying to get rid of another ballooning obligation to city workers: the value of unused sick leave and vacation days. Public workers then were in the habit of saving up this time over the course of their careers and cashing it in for a big payout upon retirement. Compared with the big obligations the city had to book for that unused time, substituting free retiree health care seemed cheap. "Basically, they traded one problem for another," Mayor Bergson said.
WITH some exceptions, most states and cities have set aside no money to pay for retiree medical benefits. Instead, they use the pay-as-you-go system - paying for former employees out of current revenue. Agencies did not have to estimate the total size of their commitment to retiree health care, so few did so.
Under the new accounting rule, local governments will still not have to set aside any money for those promises. But they will be required to lay out a theoretical framework for the funding of retiree health plans over the next 30 years, and to disclose what they are doing about it. If they fail to put money behind their promises to retirees, they may feel the unforgiving discipline of the financial markets. Their credit ratings may go down, making it harder and more expensive to sell bonds or otherwise borrow money.
Parry Young, a public finance director at Standard & Poor's, the credit rating agency, said his analysts look at total liabilities, including pension and now other "post-employment" obligations. Many governments, he added, have already been grappling with big deficits in their employee pension funds.
A few agencies are wrestling with the daunting task of estimating their total retiree health obligations and coming up with a way to slice it into a 30-year funding plan. They are finding that under the new method, the benefit costs for a particular year can be anywhere from 2 to 20 times the pay-as-you-go costs they have been showing on their books.
Maryland, for example, now spends about $311 million annually on retiree health premiums. But when that state calculated the value of the retirement benefits it has promised to current employees, the total was $20.4 billion. And the yearly cost will jump to $1.9 billion under the new rule, according to an analysis for the state by actuaries at Aon Consulting, which advises companies on benefits.
That is because Maryland would not be recording just its insurance premiums as the year's expense, but instead would report the value of the coverage its employees have earned in that year as well as a portion of the $20.4 billion they amassed in the past. After 30 years, the entire $20.4 billion should be accounted for.
Michigan says it has made unfunded promises that are now valued at $17 billion for teachers, part of a possible $30 billion total for all public agency retirees. Other places that have done the math include the state of Alabama; the city of Arlington, Tex.; and the Los Angeles Unified School District. New York City has not yet completed an actuarial valuation of its many retiree benefit plans. But in its most recent financial statements, the city said it expected that the new rule would "result in significant additional expenses and liabilities being recorded" in the future.
The numbers can vary wildly by locality, depending on how rich its benefits are, what assumptions its actuary uses about future demographics and investment earnings, and that great unknown: the cost of health care 30 years in the future.
"Fifteen years ago, who would have projected 10 years of double-digit increases in health care costs?" said Frederick H. Nesbitt, executive director of the National Conference on Public Employee Retirement Systems, an advocacy group in Washington. Mr. Nesbitt pointed out that when the accounting rulemakers began requiring a similar change in financial reporting for companies in the 1990's, it was followed by a sharp decline in the retiree medical benefits provided by corporate America.
Today, only one in 20 companies still offers retiree benefits, according to Don Rueckert Jr., an Aon actuary. The rate for large companies is less than one in three, down from more than 40 percent before the private-sector accounting change, according to Mercer Human Resource Consulting. General Motors and Ford are among the big companies that still offer retiree health benefits. But G.M. recently persuaded the United Automobile Workers union to accept certain reductions, and Ford is seeking similar cuts.
"We expect the same thing in the public sector, unless we help employers do the right thing," said John Abraham, deputy research director for the American Federation of Teachers.
The Governmental Accounting Standards Board, known by the acronym GASB (pronounced GAZ-bee), is a nonprofit organization based in Norwalk, Conn., and a sister to the Financial Accounting Standards Board that writes accounting rules for the private sector. Karl Johnson, the project manager for the retiree-benefits rule, said GASB began hearing from public employees' unions as soon as it issued a first draft of its new standard. The unions said that if governments were forced to disclose the cost of their plans, they would probably cut or drop them, just as companies have done.
Mr. Johnson said the accounting board had no interest in trying to reduce anyone's benefits, and no power to dictate local policy even if it wanted to. "Accounting is just trying to hold up a good mirror to what's happening," he said. "These are very expensive benefits."
Under the new rule - outlined in the board's Statement No. 45 in June 2004, and known widely as GASB 45 - large public governments and school boards with large health care obligations to retirees will have to start reporting their overall benefits cost in 2007 - either on Jan. 1 of that year or, for most big governments, on the start of the fiscal year beginning June 1, 2007. Smaller governments will start using the new method in the two years after that.
The change comes at a rough time for state and local governments. Spending on Medicaid and education has been spiraling, and Congress continues to cut federal taxes and shift burdens of governing away from Washington. In some areas, including parts of Michigan, governments are also suffering from the financial difficulties of important local industries. Max B. Sawicky, an economist at the Economic Policy Institute, a liberal research group in Washington, called the new requirement "another straw on the camel's back" for state and local governments already straining under their budget burdens.
Mr. Johnson said the accounting board had tried to issue the retiree health care rule 10 years ago, when the economic picture was rosier. It did succeed then in issuing an accounting standard for government pension plans, but before it could turn to the related issue of retiree health care, other urgent accounting issues crowded onto its agenda. The board finally cleared its decks and voted to address retiree benefits in 1999. Coming up with the new methodology took five years.
Now that it is here, "the general sense in the marketplace is that GASB 45 is going to lead to a watershed in public-sector health benefits," said Dallas L. Salisbury, president of the Employee Benefit Research Institute, a nonpartisan research center in Washington.
Indeed, the handful of states and cities that have already calculated their obligations to retirees have concluded they must also rein in the costs. Michigan, for example, with its possible $30 billion in largely unfunded health care promises, is already considering legislation that would shift "a considerable amount of the cost for health insurance to the retiree," said Charles Agerstrand, a retirement consultant for the Michigan Education Association, a teachers union. The legislation would require teachers retiring after 20 years to pay 40 percent of their insurance premiums, as well as co-payments and deductibles, he said.
The pressure is greatest in places like Detroit, Flint and Lansing, where school systems offered especially rich benefits during the heyday of the auto plants, aiming to keep teachers from going to work in them. Away from those cities, retiree costs may be easier to manage. In the city of Cadillac, 100 miles north of Grand Rapids, government officials said they felt no urgent need to cut benefits because they promised very little to begin with. Instead, Cadillac has started putting money aside to take care of future retirement benefits for its 85 employees, said Dale M. Walker, the city finance director.
Ohio is one of a few states to set aside significant amounts. Its public employee retirement system has been building a health care trust fund for years, so it has money today to cover at least part of its promises. With active workers contributing 4 percent of their salary, the trust fund has $12 billion. Investment income from the fund pays most current retiree health costs, said Scott Streator, health care director of the Ohio Public Employee Retirement System. "It doesn't mean we can just rest," he said. "It is our belief that almost every state across the country is underfunded." He said his system plans to begin increasing the employee contributions next year.
In Duluth, Mayor Bergson grew quiet for a moment at the thought of a robust trust fund. "There was not a nickel set aside" in Duluth, he said. "The reason was, if you set money aside, you'd do less 'pretty projects.' Less bricks and mortar. Fewer streets. Fewer parks. So no one set the money aside. "If the city had set $1 million aside every year for those 22 years" since the promise was made, he added, "we'd be in really good shape right now."
Mayor Bergson said his city intends to start setting aside money for the first time in 2006, but he is also trying to rein in the growth of new obligations. He raised to 20 from 3 the number of years that an employee must work for the city in order to qualify for retirement benefits.
He also imposed a hiring freeze and pledged not to lift it until Duluth could hire employees without promising them free lifetime health care. As the city has lost police officers, firefighters, an operator of its huge aerial lift bridge and other workers, the remaining employees have racked up more than $2 million in overtime. But Mayor Bergson says that this is still cheaper than dealing with free retirement health care once the new accounting rule takes effect.
Most recently, he reached out for what may prove a political third rail: he took issue with the idea that once a public employee has retired, his benefits can never be reduced. This idea, as applied to pensions, is rooted in the constitutions of about 20 states, and unions argue that it also protects retiree health care.
Active employees in Duluth have had to start paying more for their health care under the city plan, Mayor Bergson said. If active workers must make concessions, he said, retired workers should make concessions, too. Otherwise, in relative terms, they are pulling ahead of the active work force.
Wednesday, December 07, 2005
Europeans to work till 68!!!
The demographics catching up with them!
Will the pension funds start becoming more riskier? I remember reading pension funds in the US are moving about USD 3bn to the hedge funds claiming that they produce better returns with lower risk (I will never understand this, will I?)
More thoughts on this later...
_______________________________________________________________
Turner report calls for rise in pension age to 68
By FT reporters
Published: November 29 2005 21:52 | Last updated: November 30 2005 11:38
Lord Adair Turner published his eagerly-awaited recommendations for British pension reform on Wednesday which included restoring the link to earnings, increasing the state retirement age from 65 up to 68, and the establishment of a pensions savings scheme.
Key points of the report
• 5 per cent automatic contribution from employees
• 3 per cent compulsory contributions from employers
• Voluntary top ups allowed
• Employees automatically enrolled but can opt out
• Gradual increase in pension age up to 68 by 2050
• National pensions savings scheme
Lord Turner said his aim was to stimulate a rational debate by recommending “policies which over time will make state pension provision more generous and less means-tested but with the state pension age rising gradually as life expectancy increases.”
“The trade-off must reflect a point of view on equity between generations on the economic impact of increased taxes and on the importance of pensions relative to other public expenditure priorities,” Lord Turner added.
TUC chief Brendan Barber called the report bold and hard headed. He said: “It sets politicians - and all of us involved in the pensions debate - a real challenge to create the consensus needed to implement its radical agenda. ”
The savings industry made clear it wants as big a share as possible of the increased pensions investment to flow through private schemes.
Stephen Haddrill, director general, said: “The ABI supports automatic enrolment into pension schemes, with a matching employer contribution where the employee does not opt out. But we don’t need to create a new, expensive and risky state quango; we should use the expertise and infrastructure of our existing private sector to put this vision into effect. Doing so will give Britain a head start.”
Tony Blair paved the way for the landmark report by backing its central recommendation that the UK should move to a more generous earnings-linked basic state pension.
The prime minister – who was given a copy of the study earlier this month – on Tuesday declared that “the basic construct of Turner is right”.
Although Gordon Brown, the chancellor, is concerned that state pension increases in line with earnings would entail big tax rises, Mr Blair said Britain “needs a system that enshrines a decent basic state pension, funded by the taxpayer.”
In a sign that the government will try to forge a firm policy next year, Mr Blair promised in advance that he would respond to the Turner report with “comprehensive, detailed proposals” in the spring.
Downing Street and the Treasury are playing down suggestions that the report will trigger off new tensions.
http://news.ft.com/cms/s/0368bf62-6121-11da-9b07-0000779e2340,_i_rssPage=7eb2a08a-cbe5-11d7-81c6-0820abe49a01.html
Will the pension funds start becoming more riskier? I remember reading pension funds in the US are moving about USD 3bn to the hedge funds claiming that they produce better returns with lower risk (I will never understand this, will I?)
More thoughts on this later...
_______________________________________________________________
Turner report calls for rise in pension age to 68
By FT reporters
Published: November 29 2005 21:52 | Last updated: November 30 2005 11:38
Lord Adair Turner published his eagerly-awaited recommendations for British pension reform on Wednesday which included restoring the link to earnings, increasing the state retirement age from 65 up to 68, and the establishment of a pensions savings scheme.
Key points of the report
• 5 per cent automatic contribution from employees
• 3 per cent compulsory contributions from employers
• Voluntary top ups allowed
• Employees automatically enrolled but can opt out
• Gradual increase in pension age up to 68 by 2050
• National pensions savings scheme
Lord Turner said his aim was to stimulate a rational debate by recommending “policies which over time will make state pension provision more generous and less means-tested but with the state pension age rising gradually as life expectancy increases.”
“The trade-off must reflect a point of view on equity between generations on the economic impact of increased taxes and on the importance of pensions relative to other public expenditure priorities,” Lord Turner added.
TUC chief Brendan Barber called the report bold and hard headed. He said: “It sets politicians - and all of us involved in the pensions debate - a real challenge to create the consensus needed to implement its radical agenda. ”
The savings industry made clear it wants as big a share as possible of the increased pensions investment to flow through private schemes.
Stephen Haddrill, director general, said: “The ABI supports automatic enrolment into pension schemes, with a matching employer contribution where the employee does not opt out. But we don’t need to create a new, expensive and risky state quango; we should use the expertise and infrastructure of our existing private sector to put this vision into effect. Doing so will give Britain a head start.”
Tony Blair paved the way for the landmark report by backing its central recommendation that the UK should move to a more generous earnings-linked basic state pension.
The prime minister – who was given a copy of the study earlier this month – on Tuesday declared that “the basic construct of Turner is right”.
Although Gordon Brown, the chancellor, is concerned that state pension increases in line with earnings would entail big tax rises, Mr Blair said Britain “needs a system that enshrines a decent basic state pension, funded by the taxpayer.”
In a sign that the government will try to forge a firm policy next year, Mr Blair promised in advance that he would respond to the Turner report with “comprehensive, detailed proposals” in the spring.
Downing Street and the Treasury are playing down suggestions that the report will trigger off new tensions.
http://news.ft.com/cms/s/0368bf62-6121-11da-9b07-0000779e2340,_i_rssPage=7eb2a08a-cbe5-11d7-81c6-0820abe49a01.html
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