Pension Funds – The Next Global Earthquake

The world’s pension fund industry is worth over 30 Trillion US Dollars. It sounds like a lot of money, but when you divide it amongst the 8% of the world’s population over 65 (1/2 a billion), you arrive at the dismal sum of $28,000, which is expected to last them for the rest of their expanding life expectancy – anywhere between 15 and 20 years.

Obviously, this would be the situation if the world’s largest pension funds decided to liquidate their assets today and divide them amongst all those eligible for pensions, regardless of geography, health or any other socio-economic parameter. Still, whichever way you look at it, clearly, the entire pension fund scheme is severely underfunded; and with life expectancy rising and less working youngsters replenishing the coffers – the situation is getting quickly worse.

Life at the Edge of a Cliff – The Money’s Running Out

In the UK, many pension funds have begun closing doors to new clients while others have simply altered the parameters according to which pensions are paid. In the US, companies have ‘dumped’ plans into funds that are about to go bankrupt.

One way the funds try to bolster income is by investing their assets in financial markets; however, interest rates have been declining steadily over the past decade and more traditional and conservative venues can hardly justify themselves. Thus, the wider the margin between income (people paying into the funds) and expenses (pensioners drawing their pensions) the higher the risk are regarding assets that fund managers are willing to invest in. The not surprising result is a host of pension funds that have gone bust owing to ill-advised investments, such as those that invest in real estate scams.

Selling the Public a Balloon Within a Balloon

In a sorely inadequate attempt to stem the tide, state regulators are now offering the public databases where the individual can search for the funds owed to him/her across the myriad networks of pension plan investments. But perhaps the most ironic new industry is that of insurance funds offering pension insurance. For what is a pension plan but insured income? Indeed, there is little difference between an insurance plan and a pension
plan; and many life insurance plans actually include a savings component! Still, where there is fear, there will be a fund manager willing to monetize that fear and charge for its allayment.

In fact, pension funds are by definition meant to be insured by the fund! However, a recent report in Consumer Reports states that 80% of private sector funds are not!

Time to take your future in hand

With the vested interest some pension funds may have in where they invest our money, it is becoming painfully clear that the age of trust is over. Nobody under the age of 65 can take it completely for granted that a pool of income is awaiting him or her alongside the company gold watch and farewell party. And governments are becoming severely over-extended to the point that welfare is a sad joke across the board.

Luckily, today it is quite possible for an individual to invest his savings independently in those same financial instruments that a complete stranger may currently be sinking our nest egg. The only difference is that the stranger may be getting a kickback to invest our pension in a losing cause.
Private individuals today have access to the same tools and information that those strangers require in order to make more competent decisions. Using any from a wide array of online investment platforms, the individual may today invest in market assets and put his/her money to work. The knowledge required to master that technology is minimal, and the daily data, based on which those assets rise and fall, is freely available across the internet’s myriad news and financial sites.

If you have a pension fund, by no means should you dismantle it and sink your future into a risky path; however, just as a truly feasible portfolio is one that is spread across a wide array of asset classes, it pays to spread your nest egg over as many nests as conceivably possible and guard over at least one of them by yourself.

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1 Comment

  1. January 14, 2017 at 3:35 am — Reply

    Just do me a favor and keep writing such trhennact analyses, OK?

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