Wednesday, 4 January 2017

Confused Thinking on Pensions

Who wants to argue with mighty Wall Street Journal or Bloomberg? These Media giants dominate public discourse but I still want to put pen to paper with my five cents of wisdom:

Quo usque tandem?

The (endless) debate about pension reform would benefit if one aspect would get sufficient consideration: which of the three possible methods (DB,DC or State Pension) is CHEAPER to run? While DB providers are usually financially astute corporations - at least in most cases - and able to select providers that give decent value and performance the great unwashed public that gets shunted into Defined Contribution Schemes is easy prey for expensive providers that often do not give good performance to add insult to injury.

If you expect ordinary citizens that are not trained in financial matters to select providers and/or decide matters of asset allocation they have as much chance to get it right as if they are expected to do brain surgery on themselves..

State Pension systems should be simple to run. One large computer, a few details about each individual. No difference in benefits - the better off or those more thrifty can make additional savings to pay for the lifestyle they desire to have in retirement. When the day arrives the system will start sending out the pension, no need for lengthy and expensive verification. 0.01% should be enough to run the system - compared to fees on fees on fees for DC, and only marginally less for DB schemes.

No comments: