The future of pension funds (source)
NOTE: As crni noted in the comments, Slovenia does not have a pension fund as such, but rather a pas-as-you-go system. So, do me a favour and in the entire post for “pension fund” read “pension system”.
As I promised to my favourite moose yesterday, I have a thought or two on how to keep the pension fund system solvent for the forseeable future.
The situation in Slovenia today is, that statstically 1,1 employed persons support one pensioner. Only twenty years ago this ratio was 1,7:1, which shows that the population is a) rapidly getting older and b) that there is not nearly enough employment to support the pension fund. The government(s) is (are) trying to cope with this huge problem basically in two ways: One, cutting down on pensions (mostly by trying to keep them for rising together with inflation), and two, by making people work longer with a prospect of a much lower pension.
Which is all fine and dandy, with the slight exception that these measures only postpone the problem and do not slove it at all. Because, on the other hand, we have an increasing number of graduates who cannot find a job, which means that they cannot get a credit line to, say, buy an appartament, which in turn means that they cannot start a family, which in turn means a slow but steady drop in child-birth, which finally brings us to out starting point of an ever older population which needs those who are employed work longer for less pay to support both students and pensioners.
What few people seem to take into account is, that today, when people retire, they are still fit – both mentally and physically. Which of course means that they could still work. So there I was, one fine Tuesday morning, thinking what if we forced these people to retire with a more or less full pension, but then re-hired them part time, just like students.
I know this sounds like a crack-pot idea, but think about it for a second: If you force people to retire at a certain age, you spin the wheel of the labour market a bit faster, perhaps freeing a job or two (or a couple of thousand), making room for young people to get their first job. It needn’t be a glorious job, just something to get them started and allow them to start accumulating work-experience.
At the same time, we need to create another parallel labour market – like the student labour market, but this one exclusive to pensioners. The trick would be that the pensioners could keep all the benefits of a pension, but still work as much (or as little) as they would like to and would not get taxed for it – unless of course their income from this source would surpass a certain census – this tax would have to be quite heavy, because we need to destimulate employers hiring only pensioners and students. Thus, the pensioners would still generated added value, but inside a different labour market, freeing up space in the “real” labour market for young people, who had just left the student labour market.
Of course all this is just a set of nifty ideas, not based on a single calculation or a model. I’m not an economist and I don’t have the foggiest how to do this. I basicallly suck at math 😀
So, what I need…. Scratch that… What this country needs is somenoe to throw numbers at these ideas of mine, to see if they are economically viable. Because if they are, it could be really fun. And if they’re not…. well they still are nifty ideas 😆
Any candidates?
The German law actually does allow pensioners to work and earn certain amounts and keep the pension. Now, there are places where there is more work than workforce and my husband says some companies are “headhunting” their retired employers and bringing them back, because they need skilled workforce.
Some details on situation in Germany:
if you are under 65, you may earn up to 345 Euro per month. If you earn more, your pension will be reduced and you have to pay Sozialversiecherung 🙂
above 65, you may work as much as you want to (probably this will be changed into 67, the new legal retirement age) and do not pay any Sozialversiecherung, but your employer does, because your position should not be better than that of your younger, pre-pension colleagues.
Now, this model needs some work done and I am not the one with appropriate knowledge, but someone has to leave the stage to others 🙂
Hmmm… I don’t see how this will change the 1,1:1 ratio and the tax burden on one employed persons salary? Otherwise I guess people should be allowed to work for as long as they want/can.
It might change the ratio in the long run, as (hopefully) more and more young people are employed full-time and decide to have families.
The tax burder in my opinion is not such a big issue (it is, if you want to score cheap political points). I would just tweak taxes a little bit, to help companies employ young people.
Working for as long as they can: I agree, but they can work as pensioners as well, freeing up full-time jobs for younger people.
But as I said – I need someone to crunch the numbers…
@alcessa: So this idea of mine isn’t all that far off, no?
Well, I’m not “crunching” any numbers, but something still seems to be missing. If you retire a person and then re-hire him part time (and thus avoid paying many taxes) how do you free any jobs? Ok, I’ll give it a try with simple economic formula: -1+1=0
Well, a company would still need to get the work done, right? And if they re-hire a retired employee, they a) don’t pay for his social and health services and b) he/she only works part time.
-1 + 0,5 = -0,5
Furthermore, he/she needn’t work for the same company, no?
Ok, but in this theory you have to retire two people to create one free job. So you kicked out two and must now hire a new one and two part-timers. Is this still rational from the point of view of the company? And yes, they needn’t work for the same company, but if you suppose there’s a limited number of available jobs (posts) you can’t create new ex nihilo. Just some other company had to retire somebody else who is now looking for a job somewhere else and so on and so on …
Well, I think it is… You hire a young person full-time for less pay, obviously (since he/she has no work experience). This also means less of a burden in social security costs and taxes per company. You re-hire a pensioner, a highly skilled and experienced worker who works part time, for less pay. Again, you have no costs in terms of taxes and social benefits. As for students – companies will hire them regardless of everything, so you can count them out of the equation altogether.
These are only small steps which on a larger scale of things achieve the following: Relieve the economy of a part of a labour cost, thus freeing up money to hire more young people – preferably not just on a ratio of 1 to 1. But even at that rate comapnies would cut down labour costs while increasing the number of young people employed. And hopefully these youngsters would still generate enough cash for the pension fund to compensate for the sheer number of pensioners.
As I said, I need and economist with good input data to do the math.
But you are wrong about something. From what I understand, in economy you can create something out of nothing. It’s called a “multiplicator effect” or something like that… 😀
From what I understand, in economy you can create something out of nothing. It’s called a “multiplicator effect” or something like that
Well no quite, you do need something to start the multiplication with 😀
Would lower costs of labour do? 🙂
Dumb idea. Sorry. Not only are you forcing people to retire, which solves nothing (remember the 90s and forcing people to retire at 55, where are they now?), you would also like another parallel tax system. WTF? Retirees should be able to work, of course, but their income should be taxed at exactly the same rate as any other working person. That would include their pension in the equation. Same for student labor, get rid of that shit.
In addition to that, there is no fund. SLO pension system is NOT based on any fund whatsoever, it’s PAYG (pay as you go). That means that every single eurocent paid into the system is used up right away, not stored in any fund. Not only that, but currently the system has to be propped up by the income taxes from the state budget in addition to the social security tax.
I didn’t say it was a good idea. I’m just floating it around, seeing if it survives 😀
Having said that, let me just add that the EU Court of Justice ruled that it is entirely legal to force people to retire – in order to promote certain social policies.
I think pensions are already subject to income tax, what I’m proposing is that pensioners who would work under a similar scheme as students do, would be entitled to similar tax exemptions.
In case of students, they get taxed if they earn more that 6500 EUR yearly (minimal wage in Slovenia)
You are, of course right – there is no pension fund in Slovenia. It was an extremely poor choice of terminology on my part.
Not sure I agree about student labour, though… In fact I totally disagree, mostly because I think it is a rather neat idea.
Bleh, you are just proposing benefits for people that do not contribute anything to the pension system( students DO NOT contribute anything!). Working pensionists enjoying the benefits of student labor? Ferfuckssake, lay down the crackpipe. That would only result in an even greater burden on the working people who actually do have to contribute to the PAYG Ponzi scheme. Stick to the political analysis of face grimaces, emotions and behind the curtains blowjob dealings. And sex, of course. This economy stuff is not your strong point.
Hey, can’t you read? 😀 I ain’t proposing anything… I’m floating it around and asking if anyone would actually be willing to do the math on this.
But I probably didn’t make myself clear enough… I’m not saying that pensioners should be relieved of all tax. No. They would pay their taxes as they do now. It’s just that extra income which they would have earned working which would have been tax-free if kept below minimum wage on a yearly basis.
I can read. Whatever you put up there today is retarded, whether you call it a proposal or anything else. Your solution for PAYG is adding more beneficiaries to the pension system, then granting them the ability to work without having to contribute anything to the PAYG system. Basically, continue to promote SLO as a paradise for students and retirees. One does not even need to break out math to see the error of such thinking.
But just for you, my mathematically handicapped friend, I will demonstrate. An employee currently pays 25% of his gross salary into PAYG. You propose to retire this employee. Now the system pays about 70% of his pay. You have just lost 0.25 of X income and added 0.70 X cost. That is together 0.95X. To get that back, you would need to employ 4 people at the same salary level, contributing 0.25X each! In addition to that, you propose that said employee could continue working for the same company, without having to pay anything into the system. Please explain how in the everlasting fuck does this solve anything?
Now that you put it that way… it doesn’t. I mean, it does get four people employed, but that nearly quadruples the costs of labour, so it is obviously out of the question.
I will think a bit more about this. At least now I know what would not work at all.
I guess I should thank you for taking the time and walking me through it, although part of me feels the urge to throw petri dishes at you.
However – let me just say one thing: If everyone stuck to what they’re good at, there would be no progress at all. There’s no need to get all rabid just because someone asked what other people think about something. You live and you learn.
Sorry dude. It’s just that this is one of my pet peeves and it irritates me to no end that every damn solution in SLO is “let’s take more money from everybody and give it away”. This simply cannot work. Just like the PAYG will end up not working, but there is really no solution. Retirees are too numerous and their votes are too important to the politicians.
It also annoys me to no end that even intelligent people like yourself are so misinformed about the workings of SLO tax and pension system and what it all really means.
The last thing that ticked me off was the attitude. “Hey, I have an idea! All we really need is some schmuck to do the math, but it’s really my idea that’s the most important. I am the savior!” Having spent some time in hardcore science world I have learned that ideas are a dime a dozen. In addition, it’s mind-boggling to me that a university educated person such as you cannot do some simple math. On a related note, my mother recently got a new employee with a university degree who could not calculate how much 2 tons of stuff that costs $4.74 / kg would cost. It ain’t only Americans that are stupid…
Goddamn, I sound like a grumpy old man. Kids, get off my lawn!
It’s also mind-boggling how univeristy educated people, specially economists, still walk around this globe with the idea, that mathematics is the only world of science. Like good old Mićo-I-studied-in-America-and-you-are-all-so-stupid-here-so-let-me-just-throw-a-couple-of-formulas-at-your-head-anyway-you-won’t-understand-shit-Mrkaić and the kind. But I know some economists, and the only thing I realized is they are light years away from any real scientific theory. They are, as we say, just “experts”. They had never read Smith, Patty, Ricardo, Marx, Keynes etc., they know shit about the history of the political ecconomy and capitalism, at LJ Faculty of economics people study from textbooks! Textbooks!? Is this a fucking primary school?
Anyway, my point is, they are all so good in formulas and math, but totally incapable of seeing or theorizing the world outside their liberal-capitalist ideology. Yes, it is not the “nature of things” it is just an ideology, hasn’t always been here and maybe, just maybe, it won’t always be.
Luka dude, you just let out enough hot air to melt all the snow in SLO. If you have ever read Mrkaic’s columns you would know that he has said it himself that economics is not “hard science” and that ideology and reading of the guys you mentioned is important. He then proceeded to rip a new bunghole to the “math doesn’t matter” crowd also on the ideological discourse grounds.
As far as LJ economics program is concerned, I have no idea; never stepped into that building.
Crni, it was nothing personal, I just had to say something about what irritates me. I sure don’t read Mrki on regular basis, but last time I was reading him it was something about “Mramor doesn’t understand shit, he is stuck in some past ideology, let me explain how simple all that is by just throwing a formula or two at your head, but if you are just an average Slovenian whithout a degree in economics, anyway you won’t understand zilch. It’s just that I’m so goddam intelligent!”
But let’s not even start getting into a debate about “hard” and “soft” sciences and everything around that. Let’s rather admire cummed over chick in Pengovsky’s today post, and start letting some hot air out for totally different reasons!
@Luka: Take it easy… I appreciate the moral support, especially since crni slammed the door pretty hard on me, but in this case he’s right. You were as well, but you didn’t follow up on your comment.
I think most of us agree that Mrkaič is a nit-wit (especially since he is not all that good at math, as Dušan Mramor recently proved in Sobotna Priloga), but good old Mičo has nothing to do with this post.
I do, however, agree with your second paragraph @ 5.26 am
Ah, beat me to it for two minutes… Damn time difference 🙂
Hey Pengovsky, I’m totally calm and always there for moral support 🙂 You say I was right too, but the difference was, I was not attacking your idea as a bad and stupid one, I was just saying it probably wouldn’t work. But it might work in different circumstances.
It irritates me to no end that every damn solution in SLO is “let’s take more money from everybody and give it away”.
@Crni: word! I think I’ll print this on my t-shirt 😀