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Politics : American Presidential Politics and foreign affairs
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To: Peter Dierks who wrote (45952)9/17/2010 10:22:54 PM
From: TimF  Read Replies (2) of 71588
 
The unfunded portion of public pensions is going to threaten the well being of most taxing jurisdictions.

Even the funded part can be problematic.

1 - The funds might be in investments that don't turn out so well (that can include investments normally considered safe that don't keep up with inflation or other ways that the anticipated output grows).

2 - As the ratio of retirees to workers grows, you can have a problem even if their is money set aside for those retirees. The money has to purchase actual produced goods and services to support the retirees, but with a lower ratio of workers, the produced goods and services may not grow enough to keep up with the extra demand. This is less of a problem if the pension funds helped grow the economy and most importantly investments that improve productivity, which may be the case for private pension funds or public worker funds, but for the most part isn't the case for social security (yes some government spending does amount to a real long term investment with a positive and sufficiently high return that relates to productivity increases, but not a very large percentage of it). But even the productivity increase may not help, if the productivity increase results in increased real wages, and the pensions are indexed to wages (rather than just inflation), which increases the payout of the pensions and thus their call on the goods and services created by those that are still working. OTOH I don't think most ordinary pensions are indexed to average wage/salary, total compensation, personal income or anything similar, usually its inflation.
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