Pension Crisis Paul R Earl Facultad de Ciencias Biol

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Pension CrisisPaul R EarlFacultad de Ciencias
BiológicasUniversidad Autónoma de Nuevo LeónSan
Nicolás, NL 66451, Mexico
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A pension is a series of payments paid to a
worker or their survivors following retirement. A
pension scheme is the set of financial,
administrative, legal and social arrangements
established for the purpose of providing
pensions. Most important in financial terms is
the provision of medical services and other
benefits like leisure facilities, the provision
of legal and financial services and so on. A
pension scheme is simply a saving scheme with
deferred compensation as the source of saving.
Annuities resulting from disability insurance
schemes or other are often referred to as
pensions.
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Variable annuities offer you access to investment
options from wellknown fund families plus a
fixed account. Pay no income taxes on your
earnings until you make withdrawals. Choose
guaranteed (2) lifetime income. When you start
taking income from your annuity, you can choose
options, including guaranteed income for life. No
matter what happens in the market, your annuity
provides you with death benefit options that may
help protect your investment for your
beneficiaries.
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The demographic aspects of pension systems are
much revealed by examining the actual number of
pensioners by the actual number of workers (PWR),
e. g., about ¼ in the US. In some European
countries like Italy, the main feature can be a
high proportion of elderly persons that by their
votes can keep benefits high. What shall we do
when we have more retired people than workers ! ?
As mortality and fertility drop, and aging rises,
the quality of life can also rise influenced by
the generosity of the pension system. Will this
system remain sustainable? In the developed
countries, most of the gigantic job of protecting
the elderly from poverty has been done. Longevity
rises as the quality of life improved.
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Confronting aging populationsWomen and
immigrants can raise productivity to restructure
the taxation program needed to support future
pensions. Subsidizing child care would ease the
difficulties of mixing work with childbearing. On
the average, actual fertility in developed
countries has a bit lower than desired family
size, and reductions in the cost of childbearing
will make it easier for women to combine a career
with their preferred level of childbearing.
Regardless, some of these 2 kinds of peoplewomen
and migrants--may not in any way need a college
education yet have many job opportunities.
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Lets say it takes 25 years or less to graduate
from university, and work is usually a 40-year
trip. To reach 85 years adds on another 20 years.
In this university, people retire at full salary
after 30 years of service. If they are men
something over 50, they may look for a new job,
their wives not working. Single women will keep
on working. Worldwide, retirement was forced at
65, but now many people are allowed to stay on.
The minimum age of eligibility for public
pensions is 60 years in Canada, France, Germany,
Japan and the United Kingdom, 62 years in the
United States, and 55 in Italy.
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This lecture is based somewhat on Population
aging and the rising cost of public pensions, by
John Bongaarts of the Population Council
www.popcouncil.org/pdfs/wp/185.pdf/.
He studied 7 countries Canada, France, Germany,
Italy, Japan, the United Kingdom (UK) and the
United States (US) for which comparable
demographic and labor statistics were available.
Most unfortunately, Bongaarts did not study
Sweden. The economic and philosophic development
of the quality of life and longevity themes from
David Hume on are given on http//www.pitt.edu/s
uper1/lecture/ lec13401/index.htm
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Overpopulation, competition, evolution, socialism
and comfortable longevity like sustainability are
all related themes involved with the resources
needed for a cheerful life. See also Feldstein,
M. H. Siebert, Social Security Pension Reform
in Europe. See also The Global Retirement Crisis
by R. Jackson, 2001.http//www.csis.org/gai/globa
l_retirement.pdfUS citizens should use Pension
and Annuity Income, Publication 575 of the
Internal Revenue Service.
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Many company contract for retirement annuities
such as Am Century Investment Management, Inc.,
Am Express Fund, Blue Chip Advantage Fund,
Calvert Variable Series, Inc., Capital Resource
Fund, Cash Management Fund Credit Suisse Asset
Management, Fidelity Management Research,
Global Bond Fund, High Yield Bond Fund,
International Fund, Managed Fund, New Dimensions
Fund, etc.
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LongevityLongevity is
correlated with national economies rather than
with medicine. Although medical control of life
death may be overrated, we all aim to improve the
quality of life, and much activity is going on in
this field, even to the questionaire level.
Sweden, Japan and a few others that have the
greatest longevity may also have the highest
pension benefits. Nevertheless, improvement in
the quality of life seems to be a reasonable goal
for all ages and all nations. The small family
lives better, whereas the large family may be
starving and migrant. Industrialized is normal,
whereas rural is simply terrible as poverty
is.
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Pension trendsTwo factors that
affect the pension structure are 1/ people
retiring early, and 2/ unemployment. The
pensioner/worker ratio determines expendi-tures
on public pensions. The politics of Germany,
France and Italy has included a long history of
strong unions and has greater pension benefits
than other parts of the world. Where workers are
covered by collective bargaining agreements,
pensions and related insurance, and health care
benefits are important items of negotiation
between management and labor. This was especially
true in the US and the UK and is also important
in Japan, the Netherlands, Germany, Sweden and
Switzerland. The other group with less benefits
is US, UK Canada.
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Both Sweden and Japan will be discussed in
sections further along in this lecture.Situation
s in other countries are more stringent.
Recognizing that many employees are not equipped
to make wellinformed retirement savings
decisions, particularly with respect to finding
asset, many employers have turned to various
forms of financial education provision to help
their employees meet the challenges of planning
for an economically secure retirement.
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Latin American pensionsIn Mexico, the
current federal pension plan was started in 1997.
However, savings are not popular as long as
inflation is at destructive rates. The high cost
of energy is another issue that might impede
investments and savings.Seven Latin
nationsPeru (1993), Argentina (1994), Colombia
(1994), Uruguay (1996), Bolivia (1997), Mexico
(1997), and El Salvador (1998)have also
privatized their pension systems along the lines
of the successful Chilean model of 1981.
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In Mexico, the substitution of an investment
based private system of individual pension
savings accounts for a government-run social
security system are slowly transforming the
Mexican economy. The public pension system for
private-sector workers was established in 1944
(revised in 1997) and has since been managed by
the Instituto Mexicano de Seguridad Social
(IMSS). The IMSS also manages the national health
care system and provides unemployment insurance
and daycare services for private-sector workers.

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US Social Security AdministrationSS formula
redistributes benefits according to number of
years worked. With less than 10 years of
coverage, no benefits exist. Also, only the 35
highest years of earnings are counted towards the
benefit computation. A person who works for
15 years at 30,000 gets as much in benefits as
someone who works for 30 years at 15,000This
formula is Base Benefit Final Average Monthly
Salary x Years of Creditable Service x 0.016
(Formula Factor).
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US MedicareIf you are
retired and receiving SS benefits, the SSA will
send you a Medicare enrollment packet
approximately 6-8 weeks before the month of your
65th birthday. If you do not receive this packet
shortly before your 65th birthday, contact SSA
immediately.Your Medicare enrollment packet
includes a red, white and blue Medicare card
showing that you will be automatically enrolled
in Part A (hospital insurance) and Part B
(medical insurance). There is no cost for
Medicare Part A however, you pay a monthly
premium for Medicare Part B66.60 per month in
2004which, in most cases is automatically
deducted from your monthly SS check.
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Medicare generally pays 80 of eligible charges
and your state health plan coordinates to pay
secondary. If you are a HealthSelect member,
HealthSelect pays 70 of the allowable charge
for services not covered by Medicare such as
routine physicals and medical care provided
outside the US. You pay 30 and in some cases
the amount above the allowable charge. assignment
may not charge more than 15 above the
Medicare-approved amount.
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For more information, go to www.medicare.gov.The
implication of early retirement is a growing
number of economically inactive senior citizens
with the corresponding increase in demand for
many social services like health care. Will
employers will be compelled to turn to foreign
workers to meet their manpower needs. While an
increase in skilled and talented foreign workers
will enhance competitiveness, an increase in the
number of unskilled foreign workers will create
more social problems.
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AnnuitiesIn theUS, you can
buy the contract for your retirement annuity
alone or with the help of the Internal Revenue
Service (IRS) or your employer. Many
annuitiesareof course available in the markets of
the world.A qualified employee annuity is a
retirement annuity purchased by an employer for
an employee. A tax-sheltered annuity plan (in
the US often referred to as a 403(b) plan or a
tax-deferred annuity plan) is a retirement plan
for certain tax-exempt organizations like public
schools.
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Pension questionsAn extremely useful
list of questions given here is available from
the US SSA. The questions come from an SS
pamphlet for women. 1/ Does your employer have
a pension plan? 2/ Do you know what type of
plan it is? 3/ Are you included in the plan?
Pension plans do not have to include every
worker. Some jobs may be excluded from the plan
and parttime workers may not be covered. 4/
Have you worked long enough to earn a
pension?Generally, you must work five years
under a plan to qualify for benefits. 5/ Do you
know how much your pension will be?
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For more information, contact these agencies in
the USEmployee Benefits Security
Administration, U.S. Department of Labor,
Internet http//www.dol.gov/ebsa/ and Pension
Benefit Guaranty Corporation Internet
http//www.pbgc.govSocial Security and Medicare
as answers to retirement and longevity do not
seem to surpass the parallel situations in Sweden
and Japan.
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The Swedish systemThe 2 Internet
numbers suggested arehttp//www.ppm.nu/tpp/infodo
cument/1113http//www.ppm.nu/dbfiles/pdf/Din_
ppension_ENG.pdfThe second number provides a
15-page PDF booklet on the 2000 system. The
Swedish national pension consists of income
pension, premium pension and guaranteed pension.
Each year 18.5 of the pension-based income is
reserved to the national pension system, and 16
of this sum is set aside for your income pension,
which is adjusted upwards in step with the
development of the Swedish economy. The remaining
2.5 are reserved for your premium pension. You
can invest this portion of your pension savings
in funds.
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Health care can be found uner the Ministry of
Health and Social Affairs at http//www.sweden.gov
.se/sb/d/2061See the International Forum on
common access to health care services that will
give politicians, administrators and researchers
from different countries an opportunity to
exchange knowledge, experience and ideas for
public health services provided according to need
and on equal terms. Try http//www.sweden.gov.se/
sb/d/2950/ a/17124jsessionidah4CQUeIYt69
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Japan, health and longevityIn Japan in 1963,
the Old-Age Welfare Law provided free medical
care for those over 70, followed in 1982 by
reforms of Health and Medical Services for the
Aged. The Gold Plan of 1989 led to a large
expansion of nursing beds and home help
services.
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Between 1950 and 1970, the Japanese population
grew from 83-104 million. The median age in 1950
was 19 years. Between 1970 and 1995, the
population increased to 125 million, and the
median population age doubled to 38. From 1995 to
2020, the median age is projected to increase to
44, the total population, reducing slightly to
about 123 million.Japan, with its compulsory
universal social health insurance system, pays
for health care through insurance premiums and
taxes in different proportions, depending on
which insurance scheme they belong to. Over 80
of health care providers are private. This system
resembles pay-as-you-go.
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What have we learnt about retirement ?The
quality of life is measured by longevity which
depends on the individual and national economy.
Comfortable longevity is reflected by adequate
pensions and health care plans.The private
annuity or life insurance business seems
universally desirable, witness Sweden.
Inflation destroys savings.Pensions combined
with health care plans are sometimes compulsory.