While for me personally I think it would be great, for society it’s less clear.
You’d need a good default option, the vast majority of people have no clue (in fact when a 1e is introduced, a lot of people pick an option that’s more conservative than their base plan… so the 1e might benefit the savy investors but be worth for the average employee).
For most people a reasonable amount of pension given as annuity is good, but for that you need to ensure stability (you need decades of investment horizon) and take some amount of risk.
FWIW I was surprised that the amount of redistribution in my current pension fund was so low (in fact it fluctuates between being in favor of retirees to being in favor of employees, depending on fund returns), the low performance of a fund is often more due to lack of risk taking (low amount of equity) rather than redistribution across generations (probably by 1 order of magnitude).
What you really want is more risk taking by the funds, and they should be able to afford it (given long time horizon) as long as the legislative environment is stable (and allows them). Then the employee should go an explain to their employers why they should switch pillars to something with e.g. more equity.
I always wondered why this is the naming of it.
If it’s part of 2nd pillar, why not call it 2b/e/x?
(And 1e is definitely not “state controlled”, like 1st pillar is)
That hasn’t been my experience. My last employers were happy to provide me with all the necessary information about my pension fund. However, if I interview with a company and they start stuttering when talking about my pension fund, they’re already out of the running for me.
Talk to the ones responsible for PF decisions at your employer and you will find out, they have no clue and just listen to whatever their “expert” PF investment consultants tell them (was my experience). Also paper gains on real-estate are good for the degree of coverage but bad for paying out the pensions since no cash-flow is generated. That’s why a good PF should have between 40 and 50% in stocks.
I am an employee representative at my company (I was elected after they had made their choice pretty much), and while I wouldn’t say no clue, performance wasn’t the primary concern for sure and it was primarily driven by the consultant indeed.
Also, the problem is that it’s kinda of a package deal: the same pension fund does not offer multiple strategies (as far as I know), and as a customer you have essentially no say on it. One fund might have better performance/strategy, but worse UX, more expensive/worse risk coverage and so on.
My goal is to push for this comes next renewal, but there are many variables so it’s not easy, plus you’re not the one directly in contact with the PF.
I have asked our HRs about it, and they don’t talk about it by default, but will happily tell you the details if asked. About a low single digit % of candidates ask.
The reason they gave me is that it mostly confuses candidates.
In our case we have a lot of foreign candidates, and they’re totally lost about the 2nd pillar.
Even the locals get lost once you get into the details like how the employer contribution isn’t amazing, but we have a great insured salary with no coordination deduction and bonus included so it kinda compensate.
Just to be sure
We are talking about Pension fund asset allocation or Pension fund contributions plan (which shows how much employee will contribute and how much employer will ) ?
Former is normally never discussed but need to be asked.
Latter is typically offered as part of compensation contract. If my new employer will not tell me how much they contribute to the pension plan, then it’s not possible to compare the compensation offer with the current employer.
The latter. It’s most likely part of the written contract/offer somewhere (can’t remember, and if not they will tell you if asked so you can compare), but they don’t specifically bring it up orally when discussing the compensation package.
In a way, it kinda makes sense because the % by themselves don’t tell the whole story.
Let’s say the employee has a salary of 100k + 10k bonus salary.
An employer contributing say 4% (for under 35) with the whole salary insured is better than an employer contributing 6% with the minimum insured salary (110k * 0.04 → 4.4k, 64k * 0.06 → 3.8k).
I guess in principle it’s good that they’re closing loopholes and grey areas? But this just cements the (really bad) status quo. The 2nd pillar needs massive reforms or it will fall off a cliff in the intermediate term.
Also it’s hilarious that this loophole was apparently no big issue for decades, but now that the boomers are retired and cashed out their money we have to immediately close this loophole and increase taxes on pension fund withdrawals? Funny how that works.
As explained above, the change is because they plan on allowing keeping 1e funds in vested benefits accounts for up to two years(it’s part of the same proposal). That’s it, no conspiracy.
I think there is a bit of misinformation and some data would help calm people. My comment is not a response to @parroti but a general observation.
Everyone assumes that there is a massive transfer of wealth from young to old
Most likely not everyone knows that government regulated conversion rate is only applicable to BVG mandatory portion
Some (not all) pension funds are providing only 1.25% interest due to whatever reason and this gives an impression that this is simply due to pension fund being drained by pensioners
There is also a portion of people who assume that good return is 7% per annum. They don’t seem to understand that pension funds (and they need to guarantee capital protection every year) are not hedge funds who can incur 20% loss in bear market
People should first check the following to get facts applicable to them
Last 5 year interest credit to their pension fund accounts (let’s say X%)
Last 5 year performance of their pension fund (Let’s say R%) . This is normally visible in fund performance and is different than interest credited
If difference between #1 and #2 is very big, then most likely they are negatively impacted by generational wealth transfer
If difference is minimal, but X% is very low , then most likely this is because of lower risk asset allocation of pension fund and has no impact of young being looted by old.
P.S -: I am not a baby boomer. Most likely I am millennial. But I don’t understand if people realise that boomers are wealthiest generation because they lived through peace & booming markets and economic growth. And not by stealing from millennials like me We don’t need to hate them.
The loophole is an issue since Finpension started to kind of promote and advertise it. They do not realy promote it, as they always say what the law was… but at the same time, they give people ideas. This is a trend that started 5-10 years ago, and its about time to reverse it.
I think it makes sense to stop where the funds are part of a pension fund where there is some solidarity. In some cases, the whole amounts belong to the pension holder, so in a way, it doesn’t really matter.
I think it is better to address the underlying issue: people want to take more control over their pension pot. I think it might be better for the individual pots to have some freedom and allow people to transfer these to their chosen (approved) pension provider.
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