Spain is Doomed; Youth Unemployment Hits 51%

[Tamas]

Again, necessity will have us go back to the family being a more "real" financial unit. Or something.

Well to be fair that is why it ever was in the first place

yes

[Zanza]

Isn't over-saving part of the reason for the worldwide imbalances? There is a glut of capital looking for the few safe investments left.

[Berkut]

Sustainability depends on how generous the benefits are and the demographics of the state concerned. The burden of state pensions in the UK is not expected to rise in the next 40 years. But then we have relatively favourable demographics and a relatively mean state pension.

http://www.pensionspolicyinstitute.org.uk/uploadeddocuments/BNs/PPI_Briefing_Note_3.pdf

See, the problem is that those kinds of projections are just that - projections. You can project demographics pretty accurately of course, but you cannot project the states ability to pay for some groups retirement accuratly, because you have no idea what the specifics of the economic situation will be at some point in 40 years.

And honestly, 40 years is just one generation - but the laws passed and setting up a viable welfare state must be done to last for longer than that, if you want something that is actually sustainable. Which is my point - the rules that define what the people retired NOW are getting are almost always something that was passed in the previous generation, and hence have no bearing on the current situation as far as ability to actuallly afford them.

There is one caveat to that - if things are really great right now, there is a pretty good chance that the currently retired/soon to retire will vote to increase their benefits under the assumption that the current financial reality is somehow permanent.

When things are bad, nobody will vote to decrease benefits however, because how can you be sucha  monster forcing grandma to eat cat food?

So this cannot work in the long run. There is a ratchet effect here, where benefits can only ever stay the same or go up, but never go down. While the ability to pay varies considerably.

[Monoriu]

If that is the problem, is mandatory individual savings accounts the solution?

Well that is what Social Security pretends to be.  Not sure how that would work in practice.

Unfortunately though savings accounts return about 0.0005% interest in these days of tiny interest rates.

We have mandatory individual savings accounts in HK.  You are legally required to put x% of your monthly salary in it.  It is yours; nobody touches it.  But you can only take money from it under certain conditions: when you reach a certain age, if you have cancer, if you buy a flat for the first time etc.  You can buy stocks or bonds with the money. 

[Zanza]

Pensions here are going down in real terms for years now and are predicted to do so for the next three decades at least, so it's not impossible. We even had cuts in nominal terms as our pensions are directly linked to nominal wage developments.

[Zanza]

We have mandatory individual savings accounts in HK.  You are legally required to put x% of your monthly salary in it.  It is yours; nobody touches it.  But you can only take money from it under certain conditions: when you reach a certain age, if you have cancer, if you buy a flat for the first time etc.  You can buy stocks or bonds with the money.

What happens with that money if you die of cardiac arrest on your job farewell party aged 65?
What if you want to celebrate your 100th birthday but the money has sadly run out last month?

[Malthus]

The problem with having everyone provide for their own retirement security is that very few have the financial discipline to actually do it. While the system would be perfectly fair, in a sort of 'ant vs. grasshopper' sense, people are unlikely to tolerate the sight of old folks being reduced to beggary, no matter how much they deserve it for spending all of their moolah on big-screen TVs while they were working.

If that is the problem, is mandatory individual savings accounts the solution?

Sure, that's one way to do it. In Canada they incentivise voluntary individual savings through the RRSP mechanism - the incentive is tax deferral - or TFSAs - where money inside the TFSA is not taxed.

[Monoriu]

We have mandatory individual savings accounts in HK.  You are legally required to put x% of your monthly salary in it.  It is yours; nobody touches it.  But you can only take money from it under certain conditions: when you reach a certain age, if you have cancer, if you buy a flat for the first time etc.  You can buy stocks or bonds with the money.

What happens with that money if you die of cardiac arrest on your job farewell party aged 65?

Same as your other money: your heir gets it. 

[Monoriu]

What if you want to celebrate your 100th birthday but the money has sadly run out last month?

Your problem.

[Monoriu]

Sure, that's one way to do it. In Canada they incentivise voluntary individual savings through the RRSP mechanism - the incentive is tax deferral - or TFSAs - where money inside the TFSA is not taxed.

We can't do the tax incentive thing here, because so few people pay any income tax at all.  Have to mandate it by law. 

[Valmy]

Your problem.

Yeah but that creates political problems and demands for the state to step in.  That was why I was leery of implementing a savings scheme for pensions in the US.  Ultimately it is politically impossible for us to let the seniors rot.  But I guess if that only applied to people 100+ years old it might work.

[DGuller]

The problem with having everyone provide for their own retirement security is that very few have the financial discipline to actually do it. While the system would be perfectly fair, in a sort of 'ant vs. grasshopper' sense, people are unlikely to tolerate the sight of old folks being reduced to beggary, no matter how much they deserve it for spending all of their moolah on big-screen TVs while they were working.

If that is the problem, is mandatory individual savings accounts the solution?

It is a solution, but a pretty terrible one, as it would not take advantage of the pooling of death risks.

[Malthus]

The problem with having everyone provide for their own retirement security is that very few have the financial discipline to actually do it. While the system would be perfectly fair, in a sort of 'ant vs. grasshopper' sense, people are unlikely to tolerate the sight of old folks being reduced to beggary, no matter how much they deserve it for spending all of their moolah on big-screen TVs while they were working.

If that is the problem, is mandatory individual savings accounts the solution?

It is a solution, but a pretty terrible one, as it would not take advantage of the pooling of death risks.

Please expand on this ...

[Malthus]

Sure, that's one way to do it. In Canada they incentivise voluntary individual savings through the RRSP mechanism - the incentive is tax deferral - or TFSAs - where money inside the TFSA is not taxed.

We can't do the tax incentive thing here, because so few people pay any income tax at all.  Have to mandate it by law.

Even with the tax incentive thing, which is frankly pretty sweet, it isn't enough to get people here to save enough. 

"Oh yeah, tax deferral, savings for retirement ... oooh look, shiny new cellphone that doubles as a sex toy! TV the size of our living room wall! Woo hoo!"

[Zanza]

Please expand on this ...

You can predict with reasonable certainity how old a population will get, thanks to statistics.
An individuals lifespan on the other hand is fairly random.