Category Archives: Finance

Retirement, and the destruction of our financial system.

140530_retirementThe number of people over 65 is set to double within 25 years. By 2035 Japan will have 69 old people for every 100 of working age (up from 43 in 2010), and Germany 66. In China the dependency rate will double from 15 to 36. By 2050 China will have 440 million pensioners or more than the projected population of the US!

Most countries have the PAYG system whereby the workers pay for those in retirement. When the scheme was initiated there were about 7 workers to pay for one retiree. In Europe there are now almost 4 people of working age to pay for each person over 65. They are now paying far more than when the scheme was introduced. Increasing the payments further is politically impossible. But by 2050 the number of workers to pay for one pensioner will be halved to about 2. The system is obviously unsustainable.

Unless the retirement age is changed there will be relative fewer and fewer workers to pay for more and more of the retired.  Not only will there be more retirees but they will live longer and pensions will have to be paid for increasing longer periods. Already in Germany, retirement for a female lasts 20 years. It has been estimated that 20% of those living today will reach 100; Thus having a retirement lasting 40 years!   Financing pensions with the present scheme will then be impossible.

Under the UN`s assumption that a working life ends at 65 and with no increase in productivity, ageing populations could cut growth rates by between one third and one half over the coming years (Economist 411(8884): 18). This is probably an over- optimistic view.

Not only is there no increase in productivity growth, but there is a growth decrease from 2.2% in 1971-2007 to only 0.3% per year since 2008!

All these factors help to explain why the UK has unfunded pension obligations of a staggering £4.7 Trillion (with a GDP of £1.5 Trillion). This amounts to £180,000 per person (Office of Nat. Statistics.). The National Debt would be increased 5 times if the unfunded pension obligations were added. The UK Government has pension liabilities of over 300% of GDP. In Poland and France they are over 350% of GDP (FT 23rd Aug. 2016).

While these figures can be questioned, it has been estimated that if the US pension liabilities were to be added to the US National Debt, the debt would be increased 7 times!    Federal unfunded liabilities alone exceed $127 Trillion or $1.1million per taxpayer (Forbes, Jan. 2014). US pension liabilities have increased 6 times over the last 10 years, (Harvard Kennedy School; “Unfunded Public Pensions in the US”).

The FTSE 100 global companies with pension schemes had a net pension deficit of 290 Billion Euros in 2011 or nearly double the amount of 170 Billion Euros in 2010. (A pension deficit of 170 Billion Euros is more than the Greek bailout package).

An example of the enormous burden of pensions schemes on individual companies can be illustrated by the BT Group (UK). The pension liabilities are estimated at £47 Billion and the company has a market capitalization of only £35.5 Billion. The Pension Fund is 1.5 times larger than the size of the company!   The UK `s 6,000 schemes had an aggregate deficit of close to £300 billion (FT Aug.12th 2016 p.8). IBM has pension obligations of a staggering $99.7 Billion, (Fortune Nov. 2014).

There is a bright spot. Britain`s Pension Protection Fund to protect workers pensions had a surplus of £3.6 Billion. The American Pension Benefit Guaranty Corporation on the other hand, had liabilities of $164 Billion with total assets of only $87.7 billion; a record deficit of $76.3 billion. Congress has provided a levy of £27 per employee per year. This is $270 million, which is woefully inadequate to cover a liability of $52 Billion. (Economist, April 9th 2016, p.62). The severity of the problem has not been realized.

The idea of pumping more money into the economy or “quantitive easing” with historically low interest rates to revive the economy, has resulted in global debt increasing to $200 Trillion; far outpacing growth. (This amount is greater than the world debt before the financial crisis (McKinsey Survey)). The extreme low rates of interest have resulted in a massive increase in pension fund liabilities. The liabilities of pension funds in the US are now double their assets.  (They had a surplus 30 years previously)!

There is fear that some states, cities and pension funds may have to declare bankruptcy, due to pension liabilities. The City of Detroit was declared bankrupt with half of the debt being pension debt.

While some figures may be questioned the fact remains that retirement is massively bleeding the world economy, by reducing the relative size of the working force, (thereby reducing productivity), through ever increasing massive pension demands on the state, cities, companies and pension funds (thereby reducing investment). It is no accident that the economy stagnates.

The figures are enormous. They are frightening (G. Magnus) and are increasing by a huge amount every minute, as more and more people become older and older. The figures have been ignored because the pension debt and liabilities are not on the balance sheets. But they have the potential of causing a world financial crisis with our children and grand children living in poverty.

Unless the present retirement system is completely overhauled, and the elderly incorporated into the working force, making a contribution to society, the world will face a human disaster.

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Marriage

“Never treat a stranger” (General Shira).

In order to give yourself what you want, you must know yourself. If you wish to have a partner then you must know everything possible about him or her. As far as my marriage was concerned I made 2 serious mistakes.

I needed a physically active person and selected one that was very physically active in our group of students. I only realized after marriage that she was very inactive.  She then told me that she was only active in order to be a member of the group.  The second mistake was that I am an early bird and my partner was nocturnal.

Apart from romance, marriage is a serious financial commitment. Marriage is a relationship that has a foreseeable end. It will either end through divorce or through death.  Divorce rates are as high as 50% although this figure is questioned.

“If you wish for peace, then prepare for war” (Machiavelli). If you wish for a peaceful termination of your relationship, then plan for the termination. Because no plans were made, my first marriage ended in a messy divorce lasting 3 years. Joint accounts should be avoided. Lists should be made of the worldly goods that each brought to the marriage. After a few decades these can be forgotten and proof lost.

Should you employ your partner in any capacity whatsoever, they must be paid wages and have an official contract.

In a state of bereavement after the death of your partner, under no circumstances should important decisions be made or contracts signed until 6 months have passed, as your state of mind is not normal during bereavement.

People who marry and stay married are wealthier than singles. By retirement age, married people have nearly 10 times the financial assets of singles, (Nat. Bureau of Economic Research). But people who divorce experience an average drop in wealth of 77%, (Zagorsky, Ohio State Univ.).

Those that divorce will be divorced under the laws of the first residence, which is the place of marriage. If marriage takes place on the Fiji Island then the divorce laws of Fiji will apply, unless previous provisions have been made.

The expense of raising a child is usually underestimated. According to income in the UK, the cost is £230,000  to £390,000 (Daily Telegraph) not including cost of University or staying art home as a dependent. The cost of GP training is an additional £498,489 (BMA Jan. 2012). In other words, a son or daughter as a physician costs about £900,000.

In the US, from birth to college the cost is estimated to be $1.1 Million (Time Sept.2009).

It seems that staying married is worth the trouble but our babies are worth a Million.