Blogroll
25 Aug 10 Pension funds are for suckers waiting to be robbed
People often look at me with bewildered amusement when I say I don’t believe in pensions nor put any money into a pension fund. The reason is simple: most pension systems are thinly disguised ponzi schemes, money going in today is often used towards current pensioners pensions rather than your own.
But even in the cases where you contribute to your own pension, you’re hardly safe - firstly, the money is locked in. You don’t have an account from which you can transfer money elsewhere by the press of a button. Even if you can move money, it usually comes at a cost, with exit taxes and other penalties.
Secondly, you can have no expectation of the rules being the same tomorrow as they where yesterday. You can’t even expect yesterdays rule to stay the same tomorrow, should the government decide to change the rules retroactively, which they often do.
There is nothing stopping overstretched governments from forcing your pension fund to invest a certain amount into the governments own debt to prop it up, or change the rules to means test your money the day you want them out. Or to outright confiscate it.
The first prime example of this recently is the UK’s decision to change Retail Price Index (currently 5.2%) linked pensions to become Consumer Price Index (currently 3.1%) linked pensions. These two measures of inflation diverge wildly, and at the current rate, the decision will mean that pensioners who thought they had their purchasing power protected by inflation linking will see themselves lose 20% of their purchasing power just inside 5-7 years.
A second example of this is recent news that Spain will use private pensions to buy Spanish sovereign debt in the hopes of postponing a sovereign default for now. This is nothing short of legalised theft in order to save politicians bacon from being cooked today. Once Spain does default (which they inevitably will), these private pensions will be worthless.
Spain is the first country to do this in this round of sovereign financial problems, though I don’t think the US and perhaps even the UK are that far behind in taking similar measures should the bond markets turn on them.
Personally, I don’t pay a dime to any pension fund. I do so at the cost of higher taxation as I cannot benefit from any tax relief pension contributions would give me. But I’m prepared to pay the price of paying extra tax now and keep most of what I make, rather than receive an imaginary tax relief now at the risk of being robbed of 100% when I get older.
The simple truth is, anyone who pays money into a pension and expects to get more than a pittance back is a sucker, especially if you’re younger than 50.
