The Pension System Is The Biggest Evil Ever Invented.

[georgi_zlatev]

The pension must be prohibited the way they are today.The pension model is socialist.The pension insurance is collecting in funds which invested the money in companies and the risk is distributed among all  who paid this insurance.The people must not paid pension insurance but the money they receive they must to invest at their own risk.In this way public companies will be motivated to earn more profit.Not having such insurance people will be much interested where to invest their money whether In stocks,bonds or land to became a farmer after years.Now people with this pension system are irresponsible.They are so irresponsible so that they do not want to have even children.They think that somebody else must pay their pension in future.The public companies shall also be more concerned in making money.Destroying this pension system people will be motivated to start small businesses and to became farmers and they shall wanted to have children.This pension system is in favour  to big companies because they get the money of the pension funds.

[georgi_zlatev]

Removing the pension system will make people more responsible for there future.They shall make small businesses,shall buy perspective stocks or bonds or buy a land and become farmers.Also when they become 65 years old they shall not retire if they can work yet.

[sanctus]

And what happens if you invested in land and a fire burns it down? Or invested responsibly in the market and a big worldwide-economic-crisis comes? Then even being "responsible" like you say you still are f***ed...

 

And anyway, this investment scheme you propose is already in a way of a compromise: if you do not make any extra investment then you will live of the minimum pension and this is low enough to instigate many to actually be more "responsible"...

[georgi_zlatev]

The present pension system is two types.First is called income and expenditure and all pension insurance that are coming in is spend for pension.This is bad to spend all the money for the pensioner.The second type is capital.In this case the pension insurance is spend for bonds and stocks.This type  is better but the problem is that the bonds and stocks are toxic and the money for pensions are coming from incoming pension insurance not from the investment in stocks and bonds.Or this type is functioning as the first type.That is why I think that everyone must decide   what to do with his pension insurance and that today’s pension system is socialist.

[sanctus]

Yeah, but I do not see why a system being socialist is bad ;-). And you seem to use that as the main critic, I do not see that as a problem: those who have more should help those who have less. Because the system is still such that those who have more do not need to give so much that they don't have more anymore. You know it is not always the fault of those who have less to have less.

[georgi_zlatev]

When today's pension system bunkrupt and states get bunkrupt one of the reason of which is pension insurances of state employees then you will understand what i am talking.  

[sanctus]

I agree that there is a problem having more older people than young, but then this might be solved by migration.

 

So what is your argument for that it is gonna go bankrupt? Money is there it is just spent on the wrong things, before going bankrupt there is a lot of re-funneling of money possible. Eg. give pension 5% of the army-budget and all your fears become baseless.

[georgi_zlatev]

Where is the problem.Each generation which is coming after is more educated,more productive and get more money than the previous generation and also make more pension insurance.In the case where the pension system is income and expenditure it is not fair to spend all the money for pension.If all the money are spent, the pensioner get more money than they worked. The pensioner must get smaller sum than that is collected in pension fund and the rest shall be invested.When in the pension fund gathered enough sum the pension fund must be destoyed and all the capital to be allocated between depositor.It is not fair the pensioner to get more money and the young generation to pay for that.

 

[Buffy]

Your ideas would be great if there was perfect knowledge of future events and everyone knew how to invest in an educated manner.

 

My dad retired just before the bubble burst in the market in 2001. He's a smart guy and a prudent investor, so actually in a much better position to do what you're suggesting than about 95% of the folks out there. 

 

Unfortunately, purely because of timing, his lifestyle went from fairly comfortable to moderately uncomfortable. Most of the folks in his age group did much worse than he did.

 

The fact is, that no matter what, most people can't invest to save their souls, and while when times are good and even bad investors could make a killing, if you're unlucky enough to retire just before a major recession, you're screwed.

 

Now the other major element you're missing is that if you are in the "I got mine, screw you" Libertarian camp, you're ignoring the fact that having a large part of the retirement age populous be destitute DOES cost you money: it increases crime, puts loads of homeless people you have to step over going into the grocery store, and probably means your parents move back in with you because they can't afford a place to live or even cat food to eat.

 

So there's actually not just a societal benefit, but a direct benefit to you if we don't have old folks dying in the street.

 

Now the fact is that "pension systems" can be designed to be fully self-sustaining. The problem comes when they're not funded properly (what has happened to government pensions predominantly), or that the money was stolen or badly invested (common among private company pensions in the last decade or so). The US Social Security system even without needed changes is still "fully funded" for 35 years into the future with lots of easy modifications that could even increase it's benefits. And what most people don't realize is that "fully funded" does not mean it would stop in 35 years, but that payouts would have to be cut slightly.

 

Now what also gets confused in these discussions is what happens to the money in pension systems: the money actually *does* get invested. In the case of government social security systems, in the government itself. This represents the safest (lowest Beta to financial types) that you can have as an investment, and thus provides the best return at a risk level that is for all intents and purposes "zero" (at least in the first world). The rate of return is actually not just the rate of return on government securities, but can be directly adjusted upward by law to account for the growth in the economy of the country, thus capturing the "more educated and more productive" side of a successful economy. 

 

And depending on your timing, that return could be positive even if your own investments went to zero.

 

Honestly, the alternatives are not pretty.

 

 

Life clocks are a lie! Carousel is a lie! THERE IS NO RENEWAL! :phones:

Buffy

[georgi_zlatev]

Defending today's system you want the younger generation always to pay the pensioner.Today's pension system is reason for not having children.The younger generation has no future.The god shall punish you for that.

[Buffy]

Defending today's system you want the younger generation always to pay the pensioner.Today's pension system is reason for not having children.The younger generation has no future.The god shall punish you for that.

 

Well, if we were in the old days of using mostly physical currency, you'd be right: the physical dollar that a pensioner would receive may well have been the physical dollar that the young worker paid in social security taxes.

 

Money however is fungible, and in fact the dollar the pensioner's getting can just as easily be seen as being the dollar he himself paid in years ago, plus the "interest" it earned while being loaned out to the government to pay for roads and bridges, whose existence greatly accelerated the growth in the economy, creating more jobs paying more money so that the youngsters working today are wealthier and pay more taxes.

 

That's what's called modern economics and it has superseded the old notions of accounting that quite frankly disappeared centuries ago, but which your arguments are dependent upon.

 

Do you understand what I've just described? It's pretty fundamental to economics that is ascribed to even by conservative leaning economists, and you may wish to research this a bit before responding.

 

 

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science,’ :phones:

Buffy

[georgi_zlatev]

Let’s talk a little about the money. When in one economy there is a lot of money and there is many businesses which compete each other these bisnesses work for very low profit or even at loss. The investment In such  businesses is low even negative. Or those who invested may lose capital. The case with labour is not the same. The money earn with labour may be much than if you are investor. Or the labour is more effective earning money than investment. That is the situation when there is a lot of money in economy. In that situation if pensioner have investments they shall receive very little money-lower  than they get from pension fund who gathered the pension insurance. In the nature the young are strong while the  old are weak.  In the economy is the same. The younger work and get money and they are strong. We must not take money from young people and give the pensioner. The young people must invest that money and when they grew older they will retire and they will become weak because they will rely on their investment. From their investment they will receive less money in most of the cases. But so is in the nature.

[Buffy]

Let’s talk a little about the money. 

 

Sure!

 

When in one economy there is a lot of money and there is many businesses which compete each other these bisnesses work for very low profit or even at loss. The investment In such businesses is low even negative. 

 

I don't think you mean "investment" but rather "return": in highly competitive markets, prices tend to drop close to actual costs, and indeed sometimes run at a loss, but in fact, if they are among the dominant players, they can attract very high levels of investment. An excellent example is Amazon, which has run at a loss for many years of it's existence but is a stock market darling with one of the highest capitalizations of any company in the world.

 

... Or those who invested may lose capital. 

 

Businesses with larger market shares or high capitalization (that is strong balance sheets that can supply cash for operations) can sell at or below cost like Amazon or Walmart. That activity tends to drive out the competition, at which point they can raise prices and earn higher profits. If they can do so to the point where there is a monopoly or even an oligopoly, they will see the ability to charge prices far in excess of costs. 

 

Now the initial competitors will all be out of business, but most likely they were acquired by the winners or their managers were hired after they crashed. Managers are really good at keeping their jobs. It's what you learn in business school.

 

Now all this is exactly why there's a need for government regulation of markets to prevent the formation of dominant market players who can dictate prices regardless of demand. We have this situation in many markets today, where government has allowed companies to consolidate and looked the other way when clear cases of anti-trust have occurred. Telecoms and Cable are excellent examples of this, In some places oil and gas is too (come to Southern California where gas costs twice what it costs elsewhere in the country because of artificial "shortages" created by there being only3 refiners for 10 million cars).

 

But this is getting off track. The point here is that when this consolidation occurs, the investors in the smaller companies do indeed lose their investment, BUT that potential risk of losing your capital is *exactly* why you expect higher returns. 

 

Investment is GAMBLING, albeit legal and government sanctioned.

 

What you're not accounting for differing risks of various investments, you're simply assuming profit margins are thin. In fact profit margins are at an all time high. That's precisely why not only is the participation in the stock market high, but why we're having this argument at all: you're arguing that there should be no pensions, an argument that only makes sense if the risk of all investments is zero,

 

If the risk on investments is non-zero, then as a *society* we have a problem of people who are unsophisticated investors or simply unlucky, are a drain on society because they've been impoverished by losing their investments upon which their retirement depends.

 

So what DO you propose we do about the indigent? Should they starve in the streets?

 

The alternative is to be realistic and recognize that various investments have different levels of risk, and there is a market demand for very low risk investments, and that the ultimate low-risk investment that solves the societal need for supporting even those who are unsophisticated investors or simply unlucky, is a social security system. The next level--if we assume positive, long-term labor-corporate relationships--are private pension/profit-sharing plans.

 

The funny thing about the latter is that in the old days, companies LOVED profit sharing plans because they guaranteed a flow of investment money that was *captive* in terms of the fact that they could use the shares to keep control of the company. It was greedy outside investors who wanted both to maximize their own profits as well as raise outside control of companies that voted these pension plans out.

 

 

The case with labour is not the same. The money earn with labour may be much than if you are investor. Or the labour is more effective earning money than investment.

 

Aside from being an apples-and-oranges comparison, you're not defining any of your terms in establishing what "more effective earning money" is. 

 

Labor is somewhat similar to a business: Labor is an individual who has the ability to do something that earns a wage (gross income) and they can support a certain lifestyle and savings rate (expenses and retained earnings) based on that.

 

But investments are very different animals. You are investing an amount of your capital, and then you can go off and do other things until you get paid a dividend/interest or you sell the investment.

 

But in spite of these differences, there's no *intrinsic* reason that one or the other is "more effective earning money." Labor can be highly profitable. I've been an executive making silly amounts of money per hour, mostly shooting my mouth off and telling people what to do. Conversely you could be a janitor or a teacher working very long hours making no where near enough to maintain a decent lifestyle. Similarly for investments you could make a lot or make a little depending on both your risk expectation and knowledge of potential growth as well as pure luck.

 

If you consider the *time* you're investing in investments, heck, they're *extremely* effective in earning money. You buy it. You go to the beach. You sell and collect your money. 

 

But mostly hang out at the beach. Highly effective.

 

 

That is the situation when there is a lot of money in economy. In that situation if pensioner have investments they shall receive very little money-lower  than they get from pension fund who gathered the pension insurance. 

 

That's a little garbled, but that's actually the point: if poorly invested or simply unlucky, a pensioner will get less money from his investments than he will from his pension fund. That is, the the pension fund is the only thing keeping him out of the homeless shelter (paid for with the young people's taxes!).

 

Good thing there's social security, eh?

 

In the nature the young are strong while the  old are weak.  In the economy is the same. The younger work and get money and they are strong. We must not take money from young people and give the pensioner. The young people must invest that money and when they grew older they will retire and they will become weak because they will rely on their investment. From their investment they will receive less money in most of the cases. But so is in the nature.

 

This is starting to sound like Libertarian-style Social Darwinism, but you'd need to clarify more.

 

The alternative to letting the old folks starve so that the young might be able to invest in hopes of having enough money when they're old is to set up a situation where there is a system by which we make sure that the old folks today don't starve AND we protect the young of today from ending up starving too SIMPLY BECAUSE THEY'RE UNLUCKY. This is exactly the kind of thing we moved toward when social security was invented.

 

This modern system recognizes that luck is as strong a determinant of your future wealth as is your physical and mental abilities when you're young and in the labor market. Having such a system ensures that no one starves to death in the streets (well we work toward it, and lives are improved), and that those who are unlucky are not a direct drag on the economy, PRECISELY BECAUSE THEIR SOCIAL SECURITY/PENSION CONTRIBUTIONS ALREADY PAID FOR THAT INCOME.

 

This is where you're missing that these social security payments are NOT taking from today's young, they are the payoff for an *investment* that the pensioner paid for their whole lives.

 

Why would you want to go back to the dark ages of people starving in the streets when we have a system that--while it obviously can be improved--actually works and improves our society as a whole?

 

The real world is quite a bit more complex than your simplistic argument so far appears to accept. You might wish to study how modern economies work a little more because you seem to have a lot of misconceptions about their fundamental processes.

 

 

Rather than justice for all, we are evolving into a system of justice for those who can afford it. We have banks that are not only too big to fail, but too big to be held accountable, :phones:

Buffy

[georgi_zlatev]

I must say something about the money.There is a paradox.From one hand today’s money have low value than money in past.This is called inflation.But today is much harder to win the money than in the past.In the future will be harder to win the money than today.Knowing that it is very important to appreciate the money won from labour today.The money for pension must come from investment not from pension insurance because of the hardship of winnig money from labour.

[georgi_zlatev]

There is some kind of link between devaluation of the money and money won from labour.Devaluating the money cause much harder to win money from labour.

[Buffy]

I must say something about the money.There is a paradox.From one hand today’s money have low value than money in past.This is called inflation.

 

Yes, this is correct: inflation is the measure of the increase in the nominal amount of money required to purchase a given basket of goods.

 

 

But today is much harder to win the money than in the past.In the future will be harder to win the money than today.Knowing that it is very important to appreciate the money won from labour today.

There is some kind of link between devaluation of the money and money won from labour.Devaluating the money cause much harder to win money from labour.

 

 

It is a bit difficult to understand what you're trying to say here, but I assume when you use the word "win" you mean "earn."

 

But what I don't understand is what you mean by it is "harder to earn money" today versus the past.

 

Inflation affects both prices of goods AND wages. So while it costs $4 for a Big Mac today versus $2 20 years ago, salaries have also gone up, although unfortunately recently not quite as much. So if you're talking about wages not quite keeping up with inflation, you're right, but that's precisely because labor's power to negotiate wages has dramatically decreased along with the unionization of workers, which is now lower than at any time since the 1930s. Strong unions are highly correlated with keeping wages in line with increases in prices of goods and services.

 

What all this means is that while your statement is true *today* the effect we're seeing is not what's normal when we have strong unions, and when we return to that normal, there is a reasonable expectation that labor will keep pace with prices and as a result won't be harder to earn in the future.

 

Now there's a big caveat in all of this and that is that we're really talking here only about lower-wage work. As you move of the scale of wages to highly paid positions, it's actually gone the other way completely. People making more than $100,000 per year for the most part have seen their incomes increase much faster than inflation, so actually when you work out the average, it's pretty much in line.

 

Unfortunately if you make less than that, you're pretty much screwed. 

 

It means you probably don't have any private pension plan or even any savings whatsoever.

 

And that's where we run into a problem: it's not so much where the money comes from than the fact that as far as inflation recovery (the ability for rising wages to be in parity with rising prices) goes, things are not at all fair across the population. And that is primarily an issue of the negotiating power of labor.

 

The money for pension must come from investment not from pension insurance because of the hardship of winnig money from labour.

 

There are a bunch of misconceptions you have about economics that are all bundled up into this one sentence:

• Pensions are pensions: by definition, the money is invested and the pensioners get their money back plus some additional return on investment.
• Employee pension plans are the same whether they are from public or private employers.
• Social security plans offered by the government are pension plans too: the money is paid in through payroll taxes and invested.
• While employee pension plans are invested in the company or in outside investment funds, government pensions are invested in the *country* via buying government bonds.
• Money is NOT being taken from *current* workers to pay for for *current* pensioners except in the literal--and most important COMPLETELY IRRELEVANT--sense that the physical dollar that got paid in does go directly out because it's foolish to pay the transaction cost of buying a bunch of investments in the current month and then selling them (that would reduce payouts!), but from an ACCOUNTING standpoint, workers ARE NOT paying pensioners. 
• As a result, the fact that lower-wage labor today is not keeping up with inflation has NO bearing on either the amount that can be paid out nor the future earning power of those "investing" WHEN ADJUSTED FOR RISK.
• Since government bonds are the lowest risk, they do earn the lowest return, but they are also the one that is not likely to disappear because the company went under, or the plan manager invested in it unwisely, or the corporation "borrowed" money from the plan before going under.
• ANY investment plan should include a diversified portfolio that includes government bonds, simply because of the risk of losing all your money if you put it in higher risk investments.
• Risk IS REAL, and depending on someone's timing of retirement, some people WILL lose significant amounts of their investments.

You seem to be arguing more than anything the simple notion that one can always make more money if you invest yourself instead of the government "investing" for you. But this completely misses the point that the government only invests in itself and the whole point is that that investment is the lowest risk possible so that you can COUNT ON it being there when you retire. The rest is all the luck of what you're able to save and invest yourself in things that have HIGHER RISK which means if you're unlucky, you will LOSE IT ALL. That's why even *with* Social Security, lots of people buy more government bonds to take the risk out of their own portfolio.

 

Which oddly enough is simply like paying more social security taxes and getting higher social security payments, because IT'S THE SAME INVESTMENT (which it actually isn't, it's better, because you get the return on the overall increase in the size of the economy to go along with it).

 

The last piece that you have continued to ignore is that last bullet point: some people will lose under your scheme of "every man for himself" retirement: doing all your own investing is guaranteed from an actuarial standpoint to guarantee that there will be some very significant minority of the population who "lose it all." Once you recognize that fact, you need to answer the question: Who pays for these people? Do they die in the streets? Do you have homeless shelters? Do you feed them? Do you round them up and put them in concentration camps? Do you build Soylent Green factories?

 

What are you going to do? And do any of these alternatives cost less than having them *pay for their own retirement through government social security programs*?

 

It's something to think about, and I encourage you to do so.

 

 

True individual freedom cannot exist without economic security and independence. People who are hungry and out of a job are the stuff of which dictatorships are made, :phones: 

Buffy