Whether pension plans are based on defined benefits, defined contributions or a mixture thereof, in order to deliver, they all depend on the economy being healthy.
Sir, I refer to Martin Wolf’s “The case for an alternative pensions model” April 6.
For decades I have sustained that the best pension plan that exists, is to have loving children working in a functional and reasonably healthy economy. And that long before Venezuela proved how good pension plans could come rapidly to absolute naught by irresponsible governments.
If the economy is in shambles when pension fund assets have to be converted into purchasing capacity, it does not matter whether these are based on defined benefits, defined contributions or a mixture of these.
With risk weighted capital requirements for banks that favor an over-indebtedness resulting from financing the "safer" present consumption, like houses, over the financing of riskier future production, like entrepreneurs, there will be no economy capable to deliver even a fraction of what is currently expected from pensions.
Wolf refers to the importance to sharing “the risks among a very large group of people…across generations”. Indeed but those now young will tomorrow ask Wolf and his generation… why did you not allow banks to share in the risk taking needed for us to have a future?” and they might with justification give their elders the finger.
Currently, having already to live in the basements of their parents houses because of the lack of jobs, the minimum the young today will hold tomorrow is: “Mom, dad, you move downstairs, its our turn to live upstairs!”
PS. Yes, I am obsessive about the distortions that the risk weighted capital requirements for banks cause in the allocation of bank credit to the real economy, but Martin Wolf, for less worthy reasons, is even more obsessive when ignoring it.
@PerKurowski
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