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tomandlu

Pensions And Capitalism

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In the ideal world...

The purchasing power you acquire through work (aka money) can either be spent immediately or can be put aside as a pension fund.

Now (and stating the bleedin' obvious), a pension fund isn't 'put aside' - the idea is that the money is invested, and, if invested wisely, will get a good return and give you an income when you retire.

The trouble is, if you don't spend money immediately, you are depressing the economy - you are not buying stuff from producers. Okay, those producers are able to borrow the money you put into your pension fund, but if no one's buying their stuff, your pension fund is not going to get a good return.

In a sense, it all seems a bit like a deflationary spiral - the worse pensions perform, the more you have to put into them. The more you put into pensions, the worse they perform (since they essentially depend on high consumption for profit).

How is it meant to work? I can only assume that either never-ending growth is required or, inevitably some or all pension funds must fail due to poor investment.

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Having just received my pension statement today, and it includes a full analysis of the financial markets, I can honestly say that it isn't going to work out. I'd be better off using the money as firelighters as pension performance is tanking.

Oh well, who needs a pension anyway?

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In the ideal world...

The purchasing power you acquire through work (aka money) can either be spent immediately or can be put aside as a pension fund.

Now (and stating the bleedin' obvious), a pension fund isn't 'put aside' - the idea is that the money is invested, and, if invested wisely, will get a good return and give you an income when you retire.

The trouble is, if you don't spend money immediately, you are depressing the economy - you are not buying stuff from producers. Okay, those producers are able to borrow the money you put into your pension fund, but if no one's buying their stuff, your pension fund is not going to get a good return.

In a sense, it all seems a bit like a deflationary spiral - the worse pensions perform, the more you have to put into them. The more you put into pensions, the worse they perform (since they essentially depend on high consumption for profit).

How is it meant to work? I can only assume that either never-ending growth is required or, inevitably some or all pension funds must fail due to poor investment.

I think that you misunderstand the system entirely. It is not your pension being created, it is the financial adviser's and the financial institution's employees.

You sign up to the long-term payment plan. The FA takes most of your first year's contributions as commission. It is usually a new product so the institution pushes it hard and the staff all get big bonuses. A new product is introduced the next year so you keep paying into a fund that everybody has lost interest in. Then, many years later, somebody remember the fund and loots it.

p-o-p

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In the ideal world...

The purchasing power you acquire through work (aka money) can either be spent immediately or can be put aside as a pension fund.

Now (and stating the bleedin' obvious), a pension fund isn't 'put aside' - the idea is that the money is invested, and, if invested wisely, will get a good return and give you an income when you retire.

The trouble is, if you don't spend money immediately, you are depressing the economy - you are not buying stuff from producers. Okay, those producers are able to borrow the money you put into your pension fund, but if no one's buying their stuff, your pension fund is not going to get a good return.

In a sense, it all seems a bit like a deflationary spiral - the worse pensions perform, the more you have to put into them. The more you put into pensions, the worse they perform (since they essentially depend on high consumption for profit).

How is it meant to work? I can only assume that either never-ending growth is required or, inevitably some or all pension funds must fail due to poor investment.

It's widely accepted that the pensions pyramid will collapse at some point in the future but the idea is to make sure that one is long dead (and hence reaped the reward) when the implosion occurs.

Let some other suckers lose their shirts - that's capitalism !

Edited by Fishman

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Guest vicmac64

Yes - the classic Pyramid Scam to which the salves contribute without a thought as to its mechanics. Just because it has worked for the past 50 years and more does not mean the scam will continue forever.

We are witnessing the collapse of a rotten system. No doubt it will be replaced with something even more obnoxious.

In the ideal world...

The purchasing power you acquire through work (aka money) can either be spent immediately or can be put aside as a pension fund.

Now (and stating the bleedin' obvious), a pension fund isn't 'put aside' - the idea is that the money is invested, and, if invested wisely, will get a good return and give you an income when you retire.

The trouble is, if you don't spend money immediately, you are depressing the economy - you are not buying stuff from producers. Okay, those producers are able to borrow the money you put into your pension fund, but if no one's buying their stuff, your pension fund is not going to get a good return.

In a sense, it all seems a bit like a deflationary spiral - the worse pensions perform, the more you have to put into them. The more you put into pensions, the worse they perform (since they essentially depend on high consumption for profit).

How is it meant to work? I can only assume that either never-ending growth is required or, inevitably some or all pension funds must fail due to poor investment.

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I think that you misunderstand the system entirely. It is not your pension being created, it is the financial adviser's and the financial institution's employees.

You sign up to the long-term payment plan. The FA takes most of your first year's contributions as commission. It is usually a new product so the institution pushes it hard and the staff all get big bonuses. A new product is introduced the next year so you keep paying into a fund that everybody has lost interest in. Then, many years later, somebody remember the fund and loots it.

p-o-p

cynical but unfortunately mostly true - apart from very few FA exceptions

the pension industry has been set up for the benefit of the banks and insurance companies - maybe thats one of the things you get for allowing big business to influence politicians

of course the state pension scheme is the biggest ponzi finance scam ever

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In the ideal world...

The purchasing power you acquire through work (aka money) can either be spent immediately or can be put aside as a pension fund.

Now (and stating the bleedin' obvious), a pension fund isn't 'put aside' - the idea is that the money is invested, and, if invested wisely, will get a good return and give you an income when you retire.

The trouble is, if you don't spend money immediately, you are depressing the economy - you are not buying stuff from producers. Okay, those producers are able to borrow the money you put into your pension fund, but if no one's buying their stuff, your pension fund is not going to get a good return.

In a sense, it all seems a bit like a deflationary spiral - the worse pensions perform, the more you have to put into them. The more you put into pensions, the worse they perform (since they essentially depend on high consumption for profit).

How is it meant to work? I can only assume that either never-ending growth is required or, inevitably some or all pension funds must fail due to poor investment.

The money goes into equities.Company A has a new product but needs capacity to produce it.It issues equity in the company for capital from pension savings.

The new product cuts the price of the old product by half.The consumer once paying for example £800 for a laptop now pays £400 so the other £400 can be spent elsewhere.

Production growth built from capital makes everyone richer.Including the person who invested the capital.His capital has helped create jobs,or better paid jobs.For the end consumer,better,cheaper products meaning they have more disposable income to buy other goods or services creating GDP growth.

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How else would they have built those nice shiney glass buildings in Canary Wharf?

We're all headed for Chindian wages. Globalisation is good, globalisation cleanses, globalisation is efficient, embrace it, love it, go on you know you want to.

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You are arguing about two seperate points.

Firstly, some pension products are rubbish value and should be avoided. The old financial services model where the consumer lacks interest or any appetite to listen, understand, enquire and examine what they are buying leads to the purchase of a product that is horrifically expensive. You don't have to do it that way, there are sensibly priced alternative - most SIPPs have very low fees. A bit of reading and research n the internet will quickly yield a better solution. Particularly if you avoid the big life cos and an IFA who charges for telling you the bleeding obvious.

Saving defers consumption, true. But long term savings provide the capital for investment - many on here bemoan the lack of industry - this is largely the function of a low savings rate and hence limited funds for investment. The constrast is plain to see. Asian populations, and Germans etc, save money, invest instead of spend, and have built industy that exports and generates wealth. We have underinvested, and this is state-sponsored, Govt has removed incentive to save and invest, encourages spending and indebtedness.

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Having just received my pension statement today, and it includes a full analysis of the financial markets, I can honestly say that it isn't going to work out. I'd be better off using the money as firelighters as pension performance is tanking.

...

They BTL boom was on the back of the newspaper's observation that a pension fund is unlikely to be worth much more than your fire-lighters.

That market has tanked also.

A good big old-fashioned dose of inflation is widely predicted - maybe even Zimbabwe style inflation.

House prices are tanking.

Interesting times are ahead....

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Guest มร หล&#3

Land. At the right time.

It's the only long term option.

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Guest มร หล&#3
careful

there will be a few posters along soon who want to take that land away from you

They'll struggle.

It's 6500 miles away from them and it's all in my daughters name.

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Land. At the right time.

It's the only long term option.

That's not an agregate solution

It is like suggesting we all steal from pensioners to provide for our pension

The only reason land does so well is that its investment thieves from the rest of the economy

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Some interesting - and mostly enjoyably cynical - answers.

The trouble is, afaict, that even the positive ones ("land", "look for a better product") depend on an "I'm alright Jack" approach. Some must suffer for others to prosper. If everyone went after land, we'd just get a huge bubble in land-prices, to no-one's benefit. If everyone went for the better products (and how is that going to happen?) IMHO they'd end up being devalued (too much money chasing too little opportunity for investing it wisely).

The most positive response (investment funds the development of cheaper products), whilst touching in its optimism still ignores the transfer of money from the consumer to the investor. Okay, the product is cheaper, but there's still less money going into the economy (and let's all pretend that all cheaper products come about through product innovation rather than paying sh1t wages in the developing nations).

I suppose that one aspect that I've ignored is that, in theory, the pensioners do end up eventually spending the money, plus whatever return has been made, plus the money was used to fund growth in the economy. Which would seem to be a win-win.

So how come it's as broken as it is? Did it ever work? When did it break? Or has it really been a big ponzi-scheme since the word go?

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Guest sillybear2
Some interesting - and mostly enjoyably cynical - answers.

The trouble is, afaict, that even the positive ones ("land", "look for a better product") depend on an "I'm alright Jack" approach. Some must suffer for others to prosper.

Err... that's exactly how pensions work, they're a zero-sum game, ultimately you are living off the productive output of others.

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Guest มร หล&#3
That's not an agregate solution

It is like suggesting we all steal from pensioners to provide for our pension

The only reason land does so well is that its investment thieves from the rest of the economy

Correcto!

We did this a week or so ago. I rope some poor sod in with the "buy land" thing then we discuss how the real pensions system has been smashed. The one where pensions invested in real industry, R&D, infrastructure to make it possible to pay pensions in the future.

After Brown did his damage, what other option was there?

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Err... that's exactly how pensions work, they're a zero-sum game, ultimately you are living off the productive output of others.

This is just untrue

Pensions can come from the extra production enabled by the investment of pension companies..but this only happens if pension companies invest in production. Unfortunately, for some time, the whole economy and ergo pension investment and its returns has been dominated by the zero sum of real estate 'investment'

Edited by Stars

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There is a basic problem. Many here have a problem with capitalism. Many seem to despise profit.

If you do not believe in profit you cannot believe in ownership. If you don't believe in capitalism you cannot believe in pensions. If you don't beleive in pensions then you cannot have a problem with earning money and giving large amounts of it to others in retirement. After they have worked and spent all their money and now spend your money.

Pensions is the deferment of spending now to spending later, and deferring near term spending instead to invest in the means of production or an asset that in future someone will be prepared to buy from you.

We have a govt that wants the outcome and benefit of investment but despises those that invest to produce. The systematic moving of the goal posts of pensions is state confication of assets and benefits from those who chose to save not invest - what is apprarent here is those whose pensions hsave proved miserable investments do not connect the poor outcome, at least in part, with Govt conficating returns and penalising the decsion to be socially responsible in saving. We need a World that respects our right to choose to spend or save, and not shaft those that save, as is happening in spades today.

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Guest sillybear2
This is just untrue

Pensions can come from the extra production enabled by the investment of pension companies..but this only happens if pension companies invest in production. Unfortunately, for some time, the whole economy and ergo pension investment and its returns has been dominated by the zero sum of real estate 'inverstment'

The rates of return available by investing in new enterprises and production cannot sustain the pension fund beast, there simply aren't enough opportunities given the birth rate demographics and life expectancies. Pensions have long been almost pure ponzi, even before the rest of the economy joined the finance lead pyramid scheme.

Equitable Life didn't fail because of fraud or investment losses remember, it simply made a load of promises it couldn't keep, because it assumed gilts will always deliver 10% returns, and obviously corporate bonds would always trade at a premium to the risk free rate, oh, and when that plan failed they ran out of new members (mugs) to plunder in order to bail out existing members. The legal action against Equitable is like suing the leprechaun for not leading you to the pot of gold at the end of the rainbow, then demanding a tax payer bailout for the riches that never existed.

It doesn't matter how you try and slice and dice things, you simply cannot have a significant proportion of the population spending equivalent to half their working life in retirement on a significant percentage of their former working salary, especially when you have a background of negative demographics/an aging society. It's a pipe dream, for a time a small number could live at the top of the pyramid, and it's important pension companies try and maintain this fallacy, otherwise people would see through the con from day one.

Edited by sillybear2

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Equitable Life didn't fail because of fraud or investment losses remember, it simply made a load of promises it couldn't keep, because it assumed gilts will always deliver 10% returns, and obviously corporate bonds would always trade at a premium to the risk free rate, oh, and they run out of new members (mugs) to plunder in order to bail out existing members.

Your point is right - Equitable made a promise, then completely and utterly failed to manage to the promise. The resulting loss had to be paid by all other policyholders without the promise. That is management failure, not the failure of the principal of saving for retirement. It may not be fraud, but it was negligence oor ineptitude. Equitable could have removed the promise from new business when it realised it wasn't appropriate. Equitable could have matched assets and liabilities, rather than use the profit on long dated gilts (whose capital value balloned as yields fell) to pay the wrong generation of policyholders.

At essence we see the current problem - low interest rates to bail out current absurd levels of Govt and personal spending is being paid for by those who prudently set aside for retiement and now have to lend it to the profliagate for little or no reward as it value is eroded by unrecognised increases in the cost of living.

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Guest sillybear2
At essence we see the current problem - low interest rates to bail out current absurd levels of Govt and personal spending is being paid for by those who prudently set aside for retiement and now have to lend it to the profliagate for little or no reward as it value is eroded by unrecognised increases in the cost of living.

In essence a zero-sum game, the govt tries to prop up an unsustainable ponzi scheme called the housing market and hoses the pension system in the process. I rest my case.

Cui bono?

Edited by sillybear2

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The rates of return available by investing in new enterprises and production cannot sustain the pension fund beast, there simply aren't enough opportunities given the birth rate demographics and life expectancies.

Nope, you are just guessing

The more people there are, the more production is needed and so the more money can be made in production, the fewer there are, the less pension is needed in the future. There is nothing neccessary about the present mess. Pensions need not fail and can be arranged to inflict no cost.

Pensions have long been almost pure ponzi, even before the rest of the economy joined the finance lead pyramid scheme.

I mentioned real estate, not finance

The real estate pyramid scheme has been on and off since the industrial revolution.

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The rates of return available by investing in new enterprises and production cannot sustain the pension fund beast, there simply aren't enough opportunities given the birth rate demographics and life expectancies. Pensions have long been almost pure ponzi, even before the rest of the economy joined the finance lead pyramid scheme.

Equitable Life didn't fail because of fraud or investment losses remember, it simply made a load of promises it couldn't keep, because it assumed gilts will always deliver 10% returns, and obviously corporate bonds would always trade at a premium to the risk free rate, oh, and when that plan failed they ran out of new members (mugs) to plunder in order to bail out existing members. The legal action against Equitable is like suing the leprechaun for not leading you to the pot of gold at the end of the rainbow, then demanding a tax payer bailout for the riches that never existed.

It doesn't matter how you try and slice and dice things, you simply cannot have a significant proportion of the population spending equivalent to half their working life in retirement on a significant percentage of their former working salary, especially when you have a background of negative demographics/an aging society. It's a pipe dream, for a time a small number could live at the top of the pyramid, and it's important pension companies try and maintain this fallacy, otherwise people would see through the con from day one.

You're only pumpin' this shit coz it's true.

p-o-p

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Guest มร หล&#3
You're only pumpin' this shit coz it's true.

p-o-p

+1

Sillybear really ain't silly at all. The problem comes down to demographics and ever increasing consumption not being an option.

Old people don't need much though surely. A spare pair of knitting needles and yesterdays Telegraph.

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