Your Pension Should Not Be at the State's Disposal

We work away our daylight hours with the hope of progressing, achieving and ultimately earning. We earn to provide for our futures and our children's futures. Retirement funds are not just mere savings accounts, they are idealogical in nature; we work hard now so that we can afford ourselves security in our old age, regardless of the fact that we may not live to enjoy it.

State expropriation of pension funds is not, despite what our newspapers insist, a rare and recent phenomenon. Pension grabs have been seen in a number of countries over the last four years, garnering surprisingly little international attention. 'Expropriation' is really just a nice word for confiscation. Pensions are another form of savings and thus these activities have effectively allowed the state to dip into the private saving of individuals.

Governments have managed to draw upon pension funds for finance through several different methods. In 2008 the Argentine government nationalised the state's private pensions, generating much of the capital it needed to meet its debt repayments and avoiding its second default of the decade. This nationalisation gave the state control of assets totalling $23 billion, which with new contributions has since risen by approximately $4.5 billion a year.

In November 2010 private pension holders in Hungary were forced to choose between handing their retirement savings back to state-managed funds or giving up their state pensions altogether. Workers who opted against returning to the state system stood to lose 70 percent of their pension claim. A similar scheme was implemented in Bulgaria, where the government forced the transfer of $300 million of private early retirement savings into state pension schemes.

In 2010 France withdrew €43 billion from the state's reserve pension fund to tackle a short-term pension deficit. Retirement savings that were to be used in the years 2020 to 2040 will now be used between 2011 and 2024. In March of this year the Polish Government implemented sweeping pension reforms seeking savings totalling €48 billion. The new scheme slashed from 7.3% to 2.3% the proportion of an individual's salary that can be paid into private pension accounts. The 5% difference has been paid into Poland's national social security scheme.

Plenty of justifications are provided for these actions. In times of economic turbulence, national guilt over uncontrolled expenditure encourages citizens to readily accept these kinds of massive changes to financial policy. Others hold that pensions are safer in the hands of the state than in private funds. This argument, presented in favour of the actions of the Hungarian and Bulgarian governments, is rarely true in times when a government is struggling to keep its own financial house in order.

In Ireland my government has made an interesting move by taxing its citizens' retirement savings. This year saw the introduction of a 0.6% levy on the capital saved in private sector pension funds. This tax will apply for four years. It levies not only future savings but also those funds put aside in the past; such a retrospective tax is arguably unconstitutional. The chunk of change held in our pension funds obviously proved too attractive for the government to ignore. Economist David McWilliams estimates that at present the Irish people have €48 billion scurried away in defined benefit private pensions and €23.7 billion in defined contribution schemes.

On top of this levy the government has introduced an additional mechanism to allow it to benefit from private pensions savings. Traditionally pension funds have only been permitted to invest in safe, relatively low-return financial products. However in 2010 a new scheme was established to allow the National Treasury Management Agency (NTMA) to issue new types of government high-yield bonds, to be made available to Irish pension funds. These bonds have since allowed pension funds to buy into Irish sovereign debt paying out an impressively high 9.4% yield. On the face of it this is a rosy idea: in theory the scheme provides a high return on investment for struggling pension funds while also providing an additional source of finance for the state. Yet there is a reason that pension funds have traditionally been forced to avoid high-yield bonds; high yield means high risk. Many of us are now investors in pension funds that are betting on a state that has just required us to tax that very same fund just to ensure its survival. Though it may not look like it, this is further dubious use of private savings to fund a government shore-up attempt.

We work away our daylight hours with the hope of progressing, achieving and ultimately earning. We earn to provide for our futures and our children's futures. Retirement funds are not just mere savings accounts, they are idealogical in nature; we work hard now so that we can afford ourselves security in our old age, regardless of the fact that we may not live to enjoy it. Many of us faithfully put aside a portion of our earnings each month for our pension despite the fact that we are struggling to live on a low disposable income. It is a shame that this most treasured of financial assets has been targeted.

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