
The World Economic Forum predicts a USD 400 trillion pensions shortfall by 2050 - mpandita
https://www.weforum.org/press/2017/05/global-pension-timebomb-funding-gap-set-to-dwarf-world-gdp/
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lr4444lr
People will have to pay a little more, a little longer, and take out a little
less in some combination. I am sure the actuaries are smart enough to figure
it out.

~~~
SilasX
No. That is a dangerous attitude on this. There are limits to how much you can
raise through taxes before you trigger a death spiral, where you scare off
working age contributors, which increases the burden the rest have to pay,
which scares off more contributors, and so on.

That's exactly what happened with the dinosaur companies (GM, Bethlehem, etc)
with unfunded pension obligations. The "legacy costs" made it so they couldn't
compete. True, it's harder to switch countries than avoid employment at a
dinosaur, but that's a difference of degree, not kind; the dynamics are all
the same.

Don't start from a model that assumes no one will ever leave. That's how
earlier generations of actuaries "didn't figure it out".

Edit: It's not even necessary that workers flee the country; it could also be
that more of the economy is driven underground, which has its own nasty side
effects.

~~~
lr4444lr
Pension funds are usually funded by the contributions of the qualifying
members in their tier, much less by taxes receipts in state funds in some kind
of general debt obligation. You may also be confounding private and public
pension funds, the latter of which I am guessing makes up the lion's share of
what the article is talking about. Of what I know of actuarial work (not much,
admittedly,) outlooks are calculated on the combination of many risk
dimensions. Changes to pay outs and qualifications are made decades in advance
to attenuate the effect.

But to address your concern head on - yes, the fund can go broke, and it's not
the rest of the public's problem. That's the kind of loss that creates healthy
risk aversion and should make for sensible negotiation by labor leaders and
the politicians they put into office in order to limit corruption.

~~~
SilasX
>Pension funds are usually funded by the contributions of the qualifying
members in their tier, much less by taxes receipts in state funds in some kind
of general debt obligation. You may also be confounding private and public
pension funds, the latter of which I am guessing makes up the lion's share of
what the article is talking about.

I'm not confounding anything; it's the same the problem in both cases: your
organization accrued a liability with no asset to pay it, so you had to take
the payments from newcomers to this system. Whether that happens within a
private or a public pension fund doesn't change the dynamics of the core
problem, which is that your organization is at a cost disadvantage to
competing organizations, which then spirals out.

The example I gave was the dinosaur companies. Bethlehem offers $15/hour but
must take out $1/hour to pay for unfunded pension obligations. NewSteelCorp
offers $15/hour but needn't take out _anything_ for legacy pension
obligations. Where do the best workers go? And what does that to do the burden
on remaining workers?

Likewise, every time you raise SS taxes to cover increased obligations, you're
risking the flight of contributors to other countries and the underground
economy.

I don't know what you think I'm "confounding" there; I see a recognition of a
common pattern that I tried to explicate, with implications for the current
problem. "Oh, this is public, not private" is non-responsive.

>Of what I know of actuarial work (not much, admittedly,) outlooks are
calculated on the combination of many risk dimensions.

And my point was that the actuaries missed a big dimension, which is that the
organization has actual competition. So when you say "oh, we'll just take one
more dollar an hour from workers to shore it up, what's the problem?" you're
failing to model the loss of contributing workers to companies that don't have
to thusly gore them.

You're right that pension funds _can_ retroactively change pension formulas,
but they typically don't, and Social Security definitely hasn't cut pensions
to something sustainable.

>But to address your concern head on - yes, the fund can go broke, and it's
not the rest of the public's problem. That's the kind of loss that creates
healthy risk aversion and should make for sensible negotiation by labor
leaders and the politicians they put into office in order to limit corruption.

So you agree a pension fund can go broke, but are simply claiming that
governments are immune to an analogous problem? I'd say it becomes the
public's problem at that point, when there are millions of seniors that
expected payments they can't get without raiding other critical government
services. Why don't you?

~~~
lr4444lr
I'm not trying to be combative, but there are significant differences between
public and private pensions that I don't think you're accounting for which
stem from the legal mandates in the charter for how the public pension assets
can be invested and the monopsony on the employment of public servants (e.g.,
there is no "competing" state trooper battalion operating at a better labor
cost advantage). Pension funds do _not_ necessarily impose an obligation on
the operating budget of a municipality. That's what it means to say it can go
broke. If it were the public's problem, it would be solvent. It's not like
muni bonds. I'm with you on your description of the pitfalls in the private
sector.

~~~
SilasX
>I'm not trying to be combative, but there are significant differences between
public and private pensions that I don't think you're accounting for which
stem from the legal

Then you agree that you need to address the parallel's I've drawn if you want
to maintain that position?

> (e.g., there is no "competing" state trooper battalion operating at a better
> labor cost advantage).

Are you reading my comments? In both replies, I already explained how there
are relevant ways in public pension funds experience this problem: workers can
be scared into other countries, other jurisdictions, other jobs, and the
underground economy, with the exact same effect on ability to meet
obligations. If you believe this can't happen, you need to flesh it out a bit
more.

"It's not like there's another company they can work for lol" is how GM etc
got into this mess.

> Pension funds do not necessarily impose an obligation on the operating
> budget of a municipality. That's what it means to say it can go broke

I don't know any non-trivial sense in which "a massive class of people
expected pension payments that will be cut off" doesn't count as the public's
problem.

To everyone in the world looking at the this, the problem is that a) lots of
people are expecting to receive pension money and b) lots government services
need to be provided, and we can't afford to do both.

You're saying it's "not a problem" simply because "you can just reneg on a)
while paying b)"? That's a non-standard conception of "not a problem".

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sillypuddy
On a related note, Illinois debt was just downgraded partially because of
their pension debt.

------
ourmandave
Paging WI Governor Scott Walker.

[http://www.politifact.com/wisconsin/statements/2015/aug/14/s...](http://www.politifact.com/wisconsin/statements/2015/aug/14/scott-
walker/wisconsin-only-state-fully-funded-pension-system-s/)

~~~
tbihl
Most discussions about "fully funded" safety nets go something like this. It's
the reason, so far as I can tell, why Republicans talk about social security
being trillions in the hole while others point out that the money in the fund
is more than sufficient. The same principle is responsible (along with other
things) for suburban growth in America.

The reason is that republicans are referring to accrual accounting, while
others are looking at the balance sheet. It's very uncommon to do accrual
accounting in government, though I've heard rumors that military pensions are
funded in this way. My understanding is that, outside the government, it is
obligatory (de facto or legally, I don't know). The absence of accrual
accounting is known as a Ponzi scheme in the private sector.

When you let governments reap the benefits now and pay later, they use
unfunded pensions as compensation and build low-value roads to cheaply built
houses built in corn fields. And for government pensions, it's impossible to
sustain the required infinite growth in a finite world. In the short term, the
tendency of developed nations toward low birth rates breaks the systems even
before we reach space concerns.

~~~
fivestar
The smugness practically drips from your pores. It's not government building
those houses out in the cornfields, it is the monied developers who capture
local governments and bribe them into letting them build those cracker boxes.

I live in an 80s suburb and while I can see that the newer ones are even
worse, I prefer to avoid telling others how they should live their lives. For
example, urban high rises are just human filing cabinets and it's just so
Soviet to pack everyone into cities. I have lived in urban areas, rural areas,
and where I am now, and I can tell you that where I am now is the most
comfortable--it is reasonable density, I am not concerned about being mugged,
and groceries and entertainment are close at hand. But yes, Americans have
been screwed over by developers and shitty politicians, what else is new?

I don't get all the hyperventilating that some people do over low birth rates.
You're right: Infinite growth is not going to happen, it's blatantly obvious.
So what if low birth rates break their system? Their system sucks! Maybe
that's what you were saying. The answer is certainly not importing the bulk of
the third world into our communities, that's bullshit, too.

~~~
Clubber
>So what if low birth rates break their system?

Birth rates fund our social security system. It keeps the "Ponzi" scheme
going.

I think I'm having a hard time with it being called a Ponzi scheme. Had an
individual invested the amount they put into SS into the market, it would not
be a Ponzi scheme, and is essentially a 401K. Is SS is only a Ponzi scheme
because of the way the government manages it?

If I take a step back and government takes money an invests it into the growth
of the GDP, is it no longer a Ponzi scheme?

~~~
jerf
"Ponzi scheme" as a term is generally overused. It identifies a specific
fraud, and things that look sorta vaguely like it may have any number of
critical differences in those sorta-vague similarities that result in a
completely different outcome, including potentially worse ones. It is not a
sufficient analysis of the situation to stick the label "Ponzi scheme" on
social security and think anyone has obtained any sort of understanding of the
situation from it.

Resist metaphors.

~~~
Clubber
I can see the similarities, at least with a pyramid scheme (which I think is
synonymous). Current "investors" are paid by future "investors." Current
investors being people collecting SS, future investors being people paying
into the system. When it was first enacted, the "current" investors at the
time hadn't put anything in (obviously).

I know that's a huge oversimplification. As GDP rises so does the tax revenue
(assuming politicians stop cutting taxes) so I understand it's a little more
nuanced than a simple scheme.

Also, when we had a SS surplus (in the 90s?), the politicians of course spent
it all while increasing the debt. I don't think there is anything inherently
wrong with the way it works financially, as long as the government manages it
properly, which they aren't.

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petra
I don't get something: if the point is to assure pensioners a pretty similar
life quality to the one they have today, with shouldn't be that by 2050 it
would be easy and cheap ?

How does that go into the calculations , if att all ?

~~~
slv77
Effectively your arguing that productivity growth will effectively bail us out
of our high levels of debt and pension obligations (which are another form of
debt) and there are more than a few that have argued the same.

The challenge is that productivity gains have been slowing. Computers and the
internet are now fairly mature technologies and aren't driving the
productivity gains we saw in the 80's and 90's. Also as people age the economy
is shifting from goods and services that can be highly automated
(entertainment) to those that cannot (nursing home care).

~~~
petra
I free with the point you made, but: Productivity growth is maybe a too
abstract concept and that creates confusion .

For example, some claim that the reason we don't see Productivity growth
across the econmy is that because people(across all age groups) take the money
saved from sectors with growing productivity(say, manufactured goods) and use
that in sectors with stagnant productivity , say restaurants, plays ,spas ,
etc.

As for the shift towards nursing care - yes, it is true today, but one could
imagine(and some are building) all kinds of technologies that reduce that need
and it's expense.For example, if there was a really affordable and good:
custom meal delivery, transportation , telehealth and medical adherence , fall
prevention, some arrangement that prevents loneliness, and some better medical
treatments and tools to age related diseases , and many of today's drugs will
be off-patent[1] - it's possible that elderly treatment cost, at today's
quality levels would go down significantly.

[1]Of course ,new treatments should be too available to seniors, and that
raises the question of ever growing health care costs ,which is a big issue
itself.

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RobertoG
I get how an excess of pensioners (not enough workers) in an economy can be a
problem.

I get how an excess of unemployed people (people without a job) can be a
problem.

What I don't get is how both can be a problem at the same time.

~~~
mac01021
Imagine a desert island with three inhabitants: W, P, & U.

W climbs trees every day to fetch coconuts and then swims them across the
channel to a neighboring island where she barters them away for drinking water
and then swims back with jugs full of water.

P used to help W with the tree climbing, but is now too old to do the work.
However, he long ago made a deal with W, and she's a man of her word, so she
keeps him supplied with enough fresh water to get by every day. Still, when
the yield of coconuts becomes bad, or when there's a glut of coconuts on the
neighboring island, she is liable to feel that there is an excess of
pensioners on the island.

U is in desperate need of water and would do almost anything, but he doesn't
know how to swim or climb trees.

Now, tell me: How does the existence of U help get the fresh water that P
needs? How does the existence of P help U find a way to earn his water?

~~~
nosmas
Well, P could take steps to help U learn to help W. e.g. giving them a bit of
water, and training them to help W; instead of blaming U for the poor coconut
yield. Which in turn would help W yield more coconuts, or be flexible to
diversify how they get water to be robust against the coconut market. I get
how you example illustrates how the amount of P's aren't dependant on the
number of U's, but I think this example is too microscopic.

I think there's another factor to consider. W doesn't give water directly to
P, there's G who takes a little bit of water from everyone. G has enough water
for themselves, and instead of drinking just the water they need, or helping U
to make their island economy better, they decide to bathe in the water. Then
when P wants some water like G has promised and there's none left, they blame
U. Which makes W and P angry at U.

The situation is more like G is taking a little bit of water from everyone,
and there's yet another person on the island E. E is in charge of delegating
coconut fetching tasks to W and up until recently P. G decided E should also
be in charge of distributing water that comes from G to W and P.

E realizes that once P leaves, there will only be one coconut fetcher. So,
worried that they won't be getting enough water to give to G, E gives less
water to W instead of hiring and training U to help this coconut fetching
business. This isn't good because eventually W will become a P, and E will
have no one, and G will not be getting water from E. Everyone becomes a U
because G decided to give water to E to delegate instead of directly to W, P,
and U.

~~~
mac01021
?!

Why do you want to add so many additional people to my already overcrowded
island?!

------
havella
In the US, one initiative that should help tremendously is increasing the
limit to all tax advantaged retirement contributions, and future periodic
adjustments to inflation.

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anovikov
How can a shortfall happen, technically? I mean, why not just print enough
money to inflate it, to cut real values of pensions to make ends of the system
meet? After all pensioners aren't likely to riot.

~~~
onion2k
_After all pensioners aren 't likely to riot._

I would highly recommend reading The Road To Serfdom
([https://en.wikipedia.org/wiki/The_Road_to_Serfdom](https://en.wikipedia.org/wiki/The_Road_to_Serfdom)).
It details precisely why a right wing government needs to invest in welfare
and social care for this exact reason; when a government fails the poor (or
the poor's parents I imagine) they have a tendency to rise up and kill all the
rich people.

~~~
twoquestions
> It details precisely why a right wing government needs to invest in welfare
> and social care

I was gobsmacked when I read this, as most of the Hayekians I know argue to
let the poor/weak fend for themselves, as it would be better to let the weak
perish than to steal from the strong to protect them. I may actually have to
read it now!

Also, I feel it's unreasonable for those without property to respect property
rights if they gain no benefit from doing so (other than not being a victim of
State violence).

~~~
onion2k
Hayek was one of the first to suggest a Universal Basic Income would be a good
idea. That would be quite a strange notion if he thought the poor should be
left to fend for themselves (at least economically).

