One thing that I don’t know about when switching to individual/high equity pension is what the endgame is.
This might already be happening in the US, but so many people rely on equity returns in their 401k that at some point it won’t be allowed to go down (for the new generation stock market only goes up, equity hasn’t been very volatile maybe partly due to this sentiment). So might also end up in some unsustainable situation with the mother of all bubbles, I really don’t know how that might end.
was listening to a podcast that nowadays markets trade mainly based on flows and not based on fundamentals.
This means passive investing will keep pushing prices up and up without any real correction until the market becomes over inflated and it collapses. Normally it would happen during times of net outflows rather than net inflows. This seems to be related to what you are saying.
Passively adding money to stocks every month without thinking is clear case of fueling market bubble. So very high equity allocations in pension funds is also not the right solution. It might end up in disaster too big to correct.
From an individual perspective, there’s probably no better strategy. If most pensions are funded through equity, everyone will be screwed when it burst anyway and governments will have to step in (or we descend into some massive crisis).
So, I am the first one to admit to fueling the (or at least contributing to) … ahem, hyperboles? … and not to single out anyone, but it seems like sometimes this forum seems even more efficient at amplifying at least questionable narratives than even the financial media or the general media manages to do?
If you read through this topic, you almost have to conclude that essentially AHV is doomed and pillar 2 is essentially doomed, too.
Anything but moving away from Switzerland seems like an ill thought.
This is because a player in the industry with interests in getting more clients – “show me the incentives, I’ll show you the outcome”[CM] – wrote an “article” that was widely quoted by the media (pick your political leaning, but most of the media is IMO left of youme).
And people here still discussed it so widely and extensively I’m … well, surprised.
Or maybe not.
Anyway, as I am so successfully well on my way of making more friends on this forum, maybe don’t take for granted every article linked here? Especially if its original source is an article by a commercial company? IMO even less so if it is cited by state media like swissinfo.
6.8% is too high if the life expectancy at retirement age is 20+ years.
From now general thoughts, you below isn’t cubanpete, but a general you.
Personally, I see the problem in the good idea of the second pillar being eroded → too conservative pension funds and having to pay for more and more boomers retiring and having too high a conversion rate and living too long. It isn’t really a good capital strategy anymore. It is becoming more and more Umlageverfahren. As evidenced by them wanting to tax more lump sums (i.e. opting out of the system, but why would they want to stop you from doing that if it is capital based and not Umlage based? Because it is more and more Umlage).
Therefore, I would move towards more individual power in the second pillar. And sorry, but if you bring up the argument some people need to be forced to save for retirement, sorry, but screw them.
I think most forum members already live by this. We are independent thinkers plotting a sightly fringe-y way to the future.
As for your vision of a system collapse: There is always something after a collapse. Human societies are built to adapt to change and rarely just vanish. We can buid up resilience, regardless of where we live.
As a data-oriented individual, I love a good data source. I take it from whomever can produce it, as I’ve sat in my little hole watching the conversion rate of my main pension fund provider trickle down from 7.2% in 1985 to 4.865% in 2025. This looks like -32% to me and there is not yet an end to this reduction in sight.
Which part of 6.8% per year being too high for 20+ life expectancy years at retirement is too hard to understand?
The rest is deduction, the funds have to pay for this, so how do they do this, they pay out less interest to current AGH holders.
The fact that it does not have to be this way is evidenced by some funds that do return more, my personal one averages around 5% over the last 7 years for which I managed to get data. I believe UBS or Swiss Re have had really high interest payments over the last years, too.
Then when you look at history of conversion rates, they have come down. Because they must. They just don’t as fast as they should because for obvious reasons there is opposition to this. But the fact they have come down, is proof that yearly pensions are facing downward pressure. You’d need to increase AGH to counteract this just to stay even.
I don’t understand your point about not being a boomer. I was talking about the demographic that were a lot of kids and is now living longer than ever while countries are now having fewer kids. Not a specific person (i.e. you).
I read it as a collapse of the pension system rather than social collapse e.g. the pension funds run out of funds or cannot meet payment demands at 6.8% without very obviously destroying the pensions for future retirees.
One aspect that helps is that they have to pay 6.8% only on the mandatory capital. Many pension funds have significantly reduced the conversion rate on the extra-mandatory capital to roughly compensate the unrealistic 6.8% on the mandatory capital. At least some pension funds can completely avoid redistribution between employees and retirees that way. As not all retirees have a lot of extra-mandatory capital, there still has to be redistribution among retirees, but I would still say that the situation has improved.
This is a joke. The situation has not changed a bit. Just that new retirees get now officially less, but the old ones still get the same. Just bookkeeping.
Good pension funds started the lowering of the conversion rate many years ago such that there shouldn’t be all that many retirees anymore with excessive pension payments on extra-mandatory capital. Inflation also helps a bit as there is no mandatory inflation adjustment.
Other pension funds started lowering the conversion rate too late or didn’t lower the conversion rates enough, or they may have too many retirees without significant extra-mandatory capital. If you’re in one of those pension funds, the situation may indeed still be very bad.
And it’s mainly the SP’s fault that the reform was rejected. The reform wouldn’t have fixed everything, far from it, but it would at least have been a small step towards a more sustainable future.
Story of the world isn’t it? We had an enlightened prime minister in Greece in the mid 90s-00s who asked the finance minister to commission a comprehensive review and forecasting of public pensions and insurance. It modelled several scenarios including births/death, immigration and integration, public expenditure, healthcare…it was a monster but apparently very well done (involving McKinsey, KPMG and other bigshots, who knows what it cost).
When the work was done and published there was such cataclysmic backlash against it, and on the minister personally (he got death threats), that he shelved it and resigned. 25 years later a revisit showed that if applied it’d have prevented a good part of the 2010-2012 meltdown and shielded the public pension AND healthcare systems for several more decades to come. But no, the current and soon-to-be pensioners of the 90s were worried of losing $5/month, when it showed that it’d cost their kids years of extra work, and only to result in a lower pension.
Pensions/insurance is such a hot potato issue politically that nobody dares touch it, so they kick it down the road (and as Phil wrote) eventually they WILL run out of road
The few ones I know did, and at the same time contributions increased. Mostly funded by the employer, partly by the employee. The claim was that the payout would thus stay the same for most.
Is that so uncommon? These articles don’t mention such measures.
And at least in this forum, most people seem to have own investments, and aim to transfer their 2nd pillar to vested benefit where you can set your own strategy when retiring early. So withdrawal rates or share of previous income shouldn’t be a big concern?
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