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I have always thought that keeping finaincial assets in a diversified group of countries excluding your country of residence is a good idea.

As fiscal conditions deteriorate, states become increasingly desperate in the measures that they take to deal with their problems.

While diversification wouldn't have helped in this instance, Hungary's actions are a stark reminder that nationalisation of financial assets is creeping closer to home.

It is also worthwhile repeating the view expressed on here that property is fixed, not mobile and very easily taxed.

Being a renter with the bulk of your assets diversified by currency and location is the only protection that most of us have against rash and desperate behaviour by governments.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=a65jwBCrWyS8&pos=7

Hungary is giving its citizens an ultimatum: move your private-pension fund assets to the state or lose your state pension.

Economy Minister Gyorgy Matolcsy announced the policy yesterday, escalating a government drive to bring 3 trillion forint ($14.6 billion) of privately managed pension assets under state control to reduce the budget deficit and public debt. Workers who opt against returning to the state system stand to lose 70 percent of their pension claim.

“This is effectively a nationalization of private pension funds,” David Nemeth, an economist at ING Groep NV in Budapest, said in a phone interview. “It’s the nightmare scenario.”

Hungary is rolling back pension changes implemented more than a decade ago as countries from Poland to Lithuania find themselves squeezed by policies designed to limit long-term liabilities by shifting workers into private funds. Now the cost is swelling debt and deficit levels at a time when the European Union is demanding greater fiscal discipline.

Hungary, the most indebted eastern member of the EU, is following the example of Argentina, which in 2001 confiscated about $3.2 billion of pension savings before the country stopped servicing its debt. The government in Buenos Aires nationalized the $24 billion industry two years ago to compensate for falling tax revenue after a 2005 debt restructuring.

Under EU rules, pension contributions collected by the state then transferred to private funds are considered budget expenditures. The bloc last month rebuffed a request from nine members, including Hungary, Poland and Sweden, to discount deficit figures by the amount shifted to private managers.

‘Huge Hole’

Prime Minister Viktor Orban plans to use pension funds to pay current government pensions and reduce debt to meet a pledge to cut the budget deficit to less than the EU limit of 3 percent of gross domestic product next year from a targeted 3.8 percent this year.

“There is a huge hole in the state pension system fund,” Matolcsy told reporters in Parliament. “The government fund’s revenue from pension contributions is 900 billion forint less than its expenditure. This is unsustainable.”

In 1998, Hungary required workers to put a portion of their pension contributions into privately managed funds that were designed to supplement state pensions. Today, about 3 million people have money in the private plans.

The funds’ assets will be automatically shifted to the state system on Jan. 31, unless they specifically opt out. Those who decide to remain in the private funds will lose their government pension after future contributions even as the state will continue to claim 70 percent of pension contributions paid after the individual, Matolcsy said.

‘Blackmail’

“This is open blackmail,” Julianna Baba, president of the Stabilitas Penztarszovetseg, which groups private pension funds, said in a phone interview today. “It’s a rigged deal.”

The association is filing a motion at the Constitutional Court to have the law annulled. It says the pension fund plan violates constitutional guarantees against discrimination, for the rule of law, social security, the defense of property and human dignity.

Other eastern EU members are also seeking to cut deficits with the help of pension funds.

Polish Prime Minister Donald Tusk said yesterday that the country may issue long-term pension bonds to compensate private funds for funneling some employee contributions to the budget.

The plan is “one of these ideas that guarantee safety of future pensioners and the budget without a revolution in the pension system,” Tusk said in parliament. “A concrete proposal will be presented next week.”

Lithuania, Estonia, Bulgaria

Lithuania reduced contributions to private funds last year, and Estonia announced in April 2009 that it would freeze pension-fund contributions through the end of this year. The government in Tallinn is reinstating partial contributions to pension funds from January.

In Bulgaria, private vocational pension funds will put 20 percent of their assets under state control to cover early retirement until 2014 to curb a widening deficit. This amounts to 100 million lev, or $68 million. Such retirement funds cover about 100,000 workers in specific professions who are forced to retire early.

In Hungary, employers set aside 24 percent of each worker’s salary for pension contributions and employees are required to pay 10 percent. Forcing workers back into the state system means the government will retain control of all that money, rather than transferring a portion to the private funds.

Under the rules announced yesterday, workers who choose to remain in the private pension funds will lose the social security contributions made by their employers, Matolcsy said. The government would continue to transfer contributions made by employees to the funds, he said.

“It’s unprecedented in Europe that a government is threatening to kick its own citizens out of the state pension system,” Zoltan Torok, a Budapest-based economist at Raiffeisen Bank International AG, said in a phone interview. “It’s probably enough to ensure that no one is going to stay in the private pension fund system in his or her right mind.”

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I have always thought that keeping finaincial assets in a diversified group of countries excluding your country of residence is a good idea.

As fiscal conditions deteriorate, states become increasingly desperate in the measures that they take to deal with their problems.

While diversification wouldn't have helped in this instance, Hungary's actions are a stark reminder that nationalisation of financial assets is creeping closer to home.

It is also worthwhile repeating the view expressed on here that property is fixed, not mobile and very easily taxed.

Being a renter with the bulk of your assets diversified by currency and location is the only protection that most of us have against rash and desperate behaviour by governments.

http://noir.bloomberg.com/apps/news?pid=20601087&sid=a65jwBCrWyS8&pos=7

OK but which personal pension plan are you recommending?

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Yes I would agree, if I were a Hungarian. To compare a (relatively) politically unstable country like Hungary to the UK is a bit extreme. I'm sure the tinfoil hat brigade will flame me for this though.

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Yes I would agree, if I were a Hungarian. To compare a (relatively) politically unstable country like Hungary to the UK is a bit extreme. I'm sure the tinfoil hat brigade will flame me for this though.

Unstable - surely not! Phil and Krusty were trying to dupe a couple into buying there not so long ago, so it must be a safe bet.

http://www.channel4.com/4homes/on-tv/relocation-relocation/episode-information/luton-budapest-08-06-19_p_1.html

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Yes I would agree, if I were a Hungarian. To compare a (relatively) politically unstable country like Hungary to the UK is a bit extreme. I'm sure the tinfoil hat brigade will flame me for this though.

It is almost free to diversify geographically. Paying nothing to insure against a very remote event is worth doing in my view. Not because I expect it to happen but rather because there is a very small but non zero chance that it will.

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It is almost free to diversify geographically. Paying nothing to insure against a very remote event is worth doing in my view. Not because I expect it to happen but rather because there is a very small but non zero chance that it will.

for a pleb like me it isn't free, the tax benefits of a UK pension wrapper are significant AFAIK

however, Argentina also did this:

http://news.bbc.co.uk/1/hi/7741021.stm

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It's a trend: see this yet? For **** sake, wake up! This will wipe you out if you don't pay attention NOW.

http://www.efinancia...pension-reserve

Indeed. Cameron has already outlined plans to make private pensions compulsory for all workers in the private sector. At first glance this seems a prudent move, after all many people can't be trusted to adequately prepare for their own retirement. But scratch the surface of this proposal and what do we find? That's right, pension funds are legally obligated to buy a significant number of UK gilts as part of their portfolio. This is basically a plan to prize more money from private individuals to finance govt. debt and also boost stock prices. Apparently they'd be an opt out for individuals if the proposal is enacted, but all the same, this will secure a lot more of your money for the govt. to waste that you'll never get back in real terms.

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That's right, pension funds are legally obligated to buy a significant number of UK gilts as part of their portfolio.

no they're not - "all equity funds" are availble in the new pension products

Edited by Si1

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no they're not - "all equity funds" are availble in the new pension products

Yes but don't annuities have to used to buy governments' debt?

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Yes but don't annuities have to used to buy governments' debt?

that is a good point

this has just been rescinded, or is in the process of, by George Osborne:

http://www.guardian.co.uk/uk/2010/jun/22/budget-abolishes-pension-savers-annuity-requirement

however, it seems that those with smaller pension pots may well have to have an annuity just to guarantee long term income stability

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Its happening in the USA already -

http://www.housepricecrash.co.uk/forum/index.php?showtopic=137104&st=0&p=2392637&fromsearch=1entry2392637

Government theft.

What can the sensible saver do?

Gold will be made illegal, pensions converted into conffetti government junk bonds. I am sure ISA's will get taxed at 40% or so in the future.

Paying off the mortgage may be the only way of saving in the future as the individual property will be the last thing they will touch perhaps.

I fuking hate big government.

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It is almost free to diversify geographically. Paying nothing to insure against a very remote event is worth doing in my view. Not because I expect it to happen but rather because there is a very small but non zero chance that it will.

Yes, one of those fat tail events that Taleb talks about. However, you have to consider that if your assets are locked down then your person might be as well. No good having all those assets abroad if you have to dodge searchlights and climb barbwire to get at it.

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This is an ideal thread for Injin to boast he predicted it all..

Has he been banned, or is he just sulking a bit?

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for a pleb like me it isn't free, the tax benefits of a UK pension wrapper are significant AFAIK

however, Argentina also did this:

http://news.bbc.co.uk/1/hi/7741021.stm

If I were just starting out to-day, I am not sure whether I would bother with any voluntary pension contributions or not.

The tax deferral is decreasing in value (both in terms of contribution limits and deferral rate) and, over a long period of time, the additional fees charged to administer many pensions versus other assets might eat up the value of the tax deferral anyway.

The ability to pack up one's bags in a week and leave any jurisdiction with the vast majority of one's assets intact might become very valuable in the next few years.

This is not a prediction but rather an additional factor in the overall cost / benefit analysis of buying versus renting and pension versus non pension financial assets. Different people will come up with different answers depending on the probabilities that they assign to the range of possible outcomes.

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  • 245 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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