One of the main economic issues that societies and governments have to address today are pension and retirement systems. The modification or little purchasing power of the same can give way to demonstrations and even changes in the political configurations of the countries.
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Retirement pensions are a social security measure that guarantees a regular income to people who have reached a certain age and/or years of service. Above all, it protects those who are no longer able to work. This idea dates back to the time of the Romans, who established pensions for disabled military veterans as a way of providing security for the soldiers in their army.
In the Middle Ages, corporations of merchants and merchants established retirement systems for their members. The United Kingdom was the first country to establish a national pension system in the 19th century. Also, in 1908, they established a system for people over 70 years old with low incomes.
In the United States, the first pension system was established by the federal government in 1862 for veterans of the Civil War. And, in 1935, President Franklin D. Roosevelt signed the Social Security Act, which established the nation's pension system for people age 65 and older and is the foundation of that nation's retirement systems today.
There are ideological currents that consider that retirements should not exist, being the sole responsibility of each individual. Although I agree that each person should save money or maintain investments to guarantee a better old age, I believe that social retirement systems are necessary.
The main objective of retirement pensions is to give financial security to people who can no longer work. They are people who gave their time, dedication and effort to a company or government in exchange for a salary and the guarantee of income when they accumulate a number of years of service and a certain age.
However, the objective of this post is not to determine the validity or not of the retirement systems, it has more to do with their sustainability and financing. Most of them are financed through monthly contributions from employers, employees and the government, the amount to be earned is related to the average salary of the person during his working life.
Over the years, these processes have evolved adapting to the needs of society and the active workforce. However, there are two large structures:
- Public: retirees are paid with the monthly contributions of active workers.
- Private: the contributions made by workers and employers are managed by a pension fund that is in charge of managing and investing the money to make it grow. At the time of retirement, it is given to each pensioner according to their contributions and investment earnings.
It must be acknowledge that these systems face sustainability challenges that may affect the ability to provide adequate income to present and future retirees.
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One of the main problems is the aging of the population. As the population ages and life expectancy increases, the number of retirees increases. This requires a greater number of people who contribute to the system, taxpayers who, contrary to what is needed, decrease.
This produces an imbalance between income and expenses that makes it difficult to distribute adequate income to retirees. For these reasons, many retirement laws have been modified to increase the age and years of contribution in order to reduce the difference. This is one of the main reasons why many say that public pension systems are a Ponzi or pyramid system.
But private pension systems are not without problems. Many times a bad investment can lead to the loss of the entire bag saved for retirement. With the financial crisis unleashed in the world in 2008, it was the case that many pension funds lost all the money that their contributors contributed, leaving them financially unprotected in their old age.
In addition, low economic growth and low interest rates can affect them, as this can cause lower investment returns, which can affect the ability to provide an adequate income for retirees.
Beyond sustainability, another problem has to do with the purchasing power of the accrued pension. Inflation can cause the amount received to stop meeting its objective in a period of a few years, being insufficient to cover the basic needs of retirees.
An obvious example is that of Cuban pensioners, where after a monetary adjustment in the country's politics, most of the retirees went from nominally earning an average salary in the country to receiving less than a minimum wage each month. Then the inflation process halved their already poor purchasing power.
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Another frequent situation occurs in countries where there is no free and universal public health system, where the increase in health care costs reduces the income available for other expenses. This is because as the population ages, the cost and amount of medical care required also increases.
The ideal would be a mixed system, linking the contributions of the public system with the investments of the private sector. However, each person must take care to ensure an income independent of the pension. Either by savings, investment or income, so that when the pension fails or inflation hits your purchasing power is not affected as much.
Investing in Bitcoin in the long term as a store of value or receiving between 10 and 30 percent of retirement in this cryptocurrency could be effective alternatives to guarantee the purchasing power of pensioners.
Retirees represent around 30% of the general population, being an important factor in consumption that stimulates and develops the economy. Hence the importance that those responsible for public policy and the government address solutions to guarantee the sustainability of pensions and the financial security of retirees without affecting the current working class.
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Posted Using LeoFinance Alpha