Guest Post: Update on Global Pension Tension – June 2009

Submitted by Leo Kolivakis, publisher of Pension Pulse.

It’s time to revisit global pension tension. Here are some of the stories covering the global assault on pensions:

  • CPP reforms will squeeze early retirees: Big changes to Canada Pension Plan benefits, announced last week, were overshadowed by news of a larger-than-expected federal deficit.
  • N..B. Investment Management Corp. reports pension funds fall 18.3%: The province’s pension plans suffered an 18.3 per cent loss last year due to the dramatic decline in global equity markets, according to the New Brunswick Investment Management Corp. The value of net assets under management shrank by $1.6 billion in fiscal 2008-09, finishing the year with $7 billion.
  • Air Canada unions may seek stake in pension talks: Air Canada’s unions will be looking for some concrete financial guarantees to backstop their pensions, including the possibility of taking a stake in the airline, when they collectively meet with management later this week to determine whether they will support a moratorium on their pension payments.
  • Iberia says BA pension very important to merger: Iberia and British Airways have no pre-determined deadline to complete merger talks, the Spanish carrier said on Wednesday, but added it was closely watching what burden BA’s pension fund would impose as part of the merger process.
  • BP and Barclays Propose Pension Restrictions to Cut Expenses: BP, Europe’s second-largest oil company, will close its final-salary pension plan to new U.K. workers, and Barclays Plc may ask 18,000 employees to give up similar benefits that the bank says have become too costly.
  • Crunch ‘an excuse to cut pensions’: The joint leader of the UK’s biggest trade union has accused employers of using the recession as an excuse to permanently cut pensions. Derek Simpson of Unite said the union would back workers if they decided to stand up to firms which were “hell bent” on eroding pension benefits. Mr Simpson expressed “outrage” at a series of announcements in recent days, including a move by Barclays to shut its final salary pension scheme to further contributions from existing members.
  • Paterson Vetoes Pension Guarantee for N.Y. Police, Firefighter: New York Governor David Paterson vetoed a bill that would prevent newly hired police and firefighters from getting less generous pension benefits than their senior colleagues, ending a guarantee the Legislature had extended for almost 30 years.
  • Delphi Salaried Retirees To Lose Pension Benefits: For these salaried retirees — and thousands more like them — the latest news from Delphi only adds more insult to injury. The bankrupt parts-maker now wants to get rid of its under-funded pension plan for former white-collar workers — meaning the federal Pension Benefit Guarantee Corporation will take it over.
  • Hungary struggles to rein in runaway pension costs: The country’s poor demographics, failed reform, heavy and ineffective taxation, a skewed labour market and heavy debt burden all threaten the system with collapse and require quick action, analysts say.
  • Network Rail pension deficit swells by 80%: The owner of Britain’s rail system has seen its pension deficit nearly double after a 25 per cent fall in the value of its assets.
  • ECB Staff Plan Strike Over Pay, Pension Terms: European Central Bank union staff are planning the first labor action in the ECB’s 10-year history by walking off their jobs for 90 minutes on Wednesday. Union leaders warn that unless they get more of a say over how pensions and pay are set, there could be more.
  • UK faces ‘lost generation’ of pension savers: Many young people are failing to understand how much they need to save to maintain their standard of living in retirement – and are just choosing not to retire.
  • Another watershed for final salary pensions: Dr Ros Altmann is a former adviser to No. 10 on pensions. Here she explains that while private sector final salary schemes are finished, public sector schemes remain underwritten by the taxpayer.
  • Finally, McGuinty says he can’t understand Harper’s refusal to talk pension reform: Prime Minister Stephen Harper’s refusal to hold a national summit on pension reform is baffling, Ontario Premier Dalton McGuinty said Tuesday as he predicted the issue would be intensely debated at the annual premiers’ meeting in Regina this summer.

The global pension crisis is really a crisis of modern day capitalism. If we don’t figure out a long-term solution to this crisis, we risk having a new class of elderly poor who were cheated out of their pensions.

Global pension tension will not vanish. We are better off holding a summit to look into pensions and think of ways of bolstering retirement plans for future generations. Waiting for the ‘markets’ to rectify this crisis is like waiting to win the lottery. You might be lucky but who wants to gamble away the retirement dreams of millions of workers?

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  1. wintermute

    I really don't like capitalism being blamed all the time. The whole pension crisis is brought about by the abuse and mis-use of capitalism. Capitalism is the best system for raising living standards for whole societies. This is irrefutable.

    The abuse of capitalism is the problem. Abuse by those inside the process: business leaders too fixated on golden handshakes, bonuses and parachutes. Impotent shareholders are to blame for not keeping business leaders in check.

    But most blame is upon government. Not just total regulatory failure -and cabal-like business/political cliques.
    Worst is that all governments want bigger and bigger GDP to tax to finance their social engineering power-trips – they go further continually debasing their fiat currencies – by borrowing from the future to fund today – targeting inflation of 2% to eliminate debt overhang rather than pay it back.

    Inflation is a killer for pensions. We need zero inflation for decades to have a stable and viable pension system. Governments are abusing capitalism to the point that the whole system is broken. Pensions are canaries in a coal-mine full of toxic gases.

  2. jmk

    correct me if i'm wrong

    but basically the lack of any serious pension income will be the developed world's greatest disaster for many years to come when the last of the baby boomers enter retirement?

  3. Hugh

    I have always meant to ask Leo if he thinks there will be a pension crash and if so what is his timeframe for one. Or does he think that some pensions will fail or be restructured but that overall pensions will muddle through?

    I tend to think more in crash terms but that is just me.

  4. duffolonious

    Since the modern world is based on large amounts of energy consumption, without an increase in a cheap supply, the slows and falters.

    "Peak Oil" or "Limits to Growth"

    Since 2005 production of oil has more-or-less plateaued. I would get ready for what is essentially a permanent recession.

    Pensions are being hit first, perhaps because they are so mismanaged or have some transparency that other institutions don't – in any case I'll predict the rise of the proletariat – people that are only worth the value of their sons (and daughters).

  5. acearle

    So, some people don't like Capitalism being blamed for its own failures? Hmmm, what scapegoat would you have? How about blaming the pensioners for having the audacity to not retire and immediately die ;-).

    Capitalism is an interesting theory. So is socialism. Communism also has some interesting points on paper. Any of the three systems works beautifully in an academic setting. The problem is that when you inject greed in to the equation, all three fly apart.

    At the moment, it is looking as if democratic socialism may be the way for the next few years. However, without making greed an offense for which one can be prosecuted, we are, as a species, in deep trouble.

  6. Cat

    American-style capitalism is broken. It raised standards of living for the top 2%. The rest got by on massive borrowing. That does not a standard of living make.

    Other forms of capitalism (other than American) might have merits. The American version is a gross perversion of capitalism, a blight, a destroyer of equality and a pox on civilization and Western values, and should be repudiated and dismantled.

    Happily, it *is* being dismantled. We'll see if what comes after is in anyway different from fascist Corporatism, which is the ditch that American capitalism veered into toward the end.


  7. Leo Kolivakis


    In case you have not noticed, the pension crash has already happened. Private plans are being taken over by the PBGC who is underfunded. Public plans are all down 20 to 30% and some even worse.

    It is a monumental mess that will require a lot more than an increase in contribution rates and a decrease in benefits. Remember, public plans must meet their obligations by law, so if they do not have sufficent funds, they will increase taxes.

    But longer-term, we need to think of a better way than Casino Capitalism to ensure people's pensions.



  8. Yeda

    we risk having a new class of elderly poor who were cheated out of their pensions

    what about a new class of young people prevented from acquiring homes or forming families due to over-taxation, to pay for those elderly people pensions???

    I say, LET IT ROT. Print money, fix the pensions in nominal terms, and let inflation eat those pensions. It is a net transfer from elderly people to me. The only elderly people I care for are my relatives. Once I am rid from working to pay pensions for people I don't know, I'll have enough for my liffe, my retirement and to help my relatives

    Screw the pensions.

  9. Hugh

    I understand that the unraveling of pensions has begun. I would think too that many are hiding insolvency through creative valuation of their investments. But I suppose I am looking for a critical moment when this issue comes to the fore like the freezing of the BNP Paribas funds on, I believe, August 9, 2007 that officially burst the housing bubble or the September 15, 2008 demise of Lehman.

  10. Jonathan

    I was talking with a Zurich money manager about the North American pension crisis. The problem works itself out, he said: Life Expectancy Will Drop.

    Russian life expectancy fell on average by around 10 years after the collapse of the Soviet system. Why do people suppose it won't happen as such in the Americas?

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