I want to start this off with a excerpt from an article about private pension plans. Highlights added by this author.
Regarding private pension plans:
A defined contribution (DC) scheme can be either an occupation scheme provided by an employer, where contributions are made by the employer and the individual, or a private scheme where contributions are made by the individual only. However, the risk of investment is always borne by the individual.
Typically, individuals will invest in a mixture of secure and more risky investments with the hope that they will receive year-on-year returns, building a pension fund which can be used to purchase an annual annuity on their retirement. However, the financial crisis has had a dramatic impact on the stock exchange and the value of securities. Many DC scheme funds have dropped in value, thereby reducing funds available for the purchase of an annuity, and leading to press coverage that pension funds are one of the many casualties of the credit crunch.
In combination with reducing fund values, individuals are finding it harder to maintain contributions into their DC schemes due to financial pressures and job losses. Research carried out by Prudential last year found that voluntary contributions into DC schemes have almost halved , which will contribute to depressed DC pension funds on retirement. Furthermore, the Budget earlier this year announced that tax relief on pension contributions for high earners will be reduced from 2011 - which will also contribute to the reduction in funds contributed into DC pension schemes.
For DC members retiring in the next couple of years, there will be limited opportunities for them to recover from recent negative returns and, on retirement, individuals will receive a lower annual pension. Prudential's research tells us that those retiring in 2009 can expect to receive less than those who retired in 2008 . This situation will also lead to individuals delaying retirement to try and recoup lost fund values.
For DC members retiring in the future their fund value is still uncertain and will be largely driven by the investments of their scheme, the future performance of the economy and any contributions they are able to make. Regardless of the type of pension scheme an individual is a member of, they will be impacted - the extent of this impact will depend on the recovery of the economy, with DC members retiring in the short term hit the hardest.
Source: RGL Forensics,- Advertisement -
Think of Social Security as a form of a pension fund. When you work you pay into it from payroll deductions. This money is in a separate fund that the government cannot spend for other things so it remains safe for your retirement. It is not tied to the state of our economy. If you retire this year in the middle of a recession your check will be the same as if it were a boom year. It is tied to your historic earnings plus occasional cost of living increases. You can count on it being there when you need it*.
There are those on the right and the far right who think Social Security should be wiped out or privatized or some combination of the two. Most of their arguments pro this approach are based on misinformation and in some cases, outright lies to the public.
Our present Social Security system has over $2 Trillion in assets and can continue to pay out 100% of it's obligations until at least 2037. Opponents of SS like to claim this means the system is or will be bankrupt then. That is not the case. It is true that some changes are needed to assure full coverage beyond that time but most experts agree that simply increasing the cap on taxable income could solve the problem with no other changes being made. The system we have has worked since 1935 when it was enacted in the wake of the Great Depression.
It's purpose was to provide a safety net in the form of a insurance policy nearly all workers are required to purchase while employed. The protection of the elderly and sick from the ravages of poverty is the goal. After the depression, people of conscience were appalled at seeing elderly men and women in rags, begging on the streets to survive. They concluded that our nation needed to protect it's citizens from such a disgraceful existence when faced with economic difficulties. Our Social Security system is just that insurance. It is yours, you pay for it and you should always be able to count on it.
Why many on the right want to eliminate or privatize it has many arguments. Some are just of the mind that government should not do anything for it's people but fight wars. Others may have a more "profit minded" angle. These "free market" opponents to SS would have you purchase your retirement insurance from private companies and take the government out of the picture. Fact is that prior to 1935 this is pretty much the option you had. You could invest money on a regular basis in stocks or bonds and sock those away for your future retirement. This assumes you had any extra cash to invest which most workers of the day did not have.- Advertisement -
As to the other fallacy in this argument I refer you back to the excerpt above regarding pensions funds. Had you made such retirement investments back in 1929, by the time you were ready to retire most or all of those investments might well have been wiped out in the Depression, leaving you with nothing. A return to such a system, when you consider what happened to many pension funds over the past couple of years, exposes the danger of reliance on a private for-profit retirement system as your only source of income in your older years.
This "privatization" scheme, for it is just that, a scheme, would boost the profits of the same insurance and banking industry we just paid a trillion dollars to bail out. Much of what they lost included private pension funds they managed then gambled away. We know those on the right think that the "free market" is the end-all and be-all of our society but they are wrong. Our society is it's people, not it's corporations and government is obligated to do the bidding of and for us, the people.
No free market solution will guarantee you get a check when you retire regardless of how much you give them to save for you. Social Security is designed to do just that. Collect your premiums then assure you that you will have an income to live out your days in later life. If you put all your eggs in a "free market" and that market collapses, your eggs are gone and you go hungry for the remainder of your life.
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