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Yves here. Even though the precepts that Richard Murphy covers below are well-known to most readers, some things cannot be said often enough. The biggie here is that private savings, whether in the form of a defined contribution plan or simply putting money away for retirement, is an inadequate substitute for a national government defined benefit pension.<\/p>\n
Defined contribution plan members are not only subject to market risk. They are also subject to the considerable grifting of the plan operators, from comparatively few investment options to ridiculous limits on moving funds from one fund to another (as in not just few windows allowed but also abuse of the float) to opaque and high fees, to fund managers too often successfully steering investors into lousy options, in particularly target date funds.<\/p>\n
Keep in mind that in the US, even with an aging population, the stress on Social Security, even before getting to DOGE wrecking its formerly efficient and inexpensive customer service, is due to a long-standing political campaign to gut it or even worse privatize it. Recall that before Trump, the thick-with-bankers Democrats have been in front of this initiative. We have national heroine Monica Lewinsky to thank for derailing Clinton\u2019s effort to \u201creform\u201d Social Security. Obama\u2019s Grand Bargain fortunately ran into the ground. At that time, Dean Baker, among others, stressed that only minor changes were needed to preserve Social Security\u2019s trust fund, the main one being ending the income cap. And that\u2019s before getting to the fact that a currency issuer can always fund spending; the constraint is whether total expenditures are excessive given real economy production capacity. <\/p>\n
By Richard Murphy, Emeritus Professor of Accounting Practice at Sheffield University Management School and a director of Tax Research LLP. Originally published at Funding the Future<\/a><\/strong><\/em><\/p>\n People assume pensions are \u201csaved money<\/a>\u201d \u2014 a pot with their name on it, safely invested for the future. They aren\u2019t.<\/p>\n In this video, I explain how UK pensions actually work, why defined contribution pensions are inherently risky, and why most pension money fuels speculation rather than real investment.<\/p>\n I look at the state pension, defined benefit schemes, and defined contribution pensions and explain who really benefits from the current system, why it is unjust, and why reform is now unavoidable.<\/p>\n This is not pension advice. It is a political economy<\/a> explanation of why pension insecurity is being built into the system by design.<\/p>\n