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Townhall
Finance...
Public
Pensions Fail Simple Math
by John
Ransom
There is a
dirty secret about state entitlements that liberals don’t want you to
know. The
collection of a state pension increases the chances that a pensioner
will live
in poverty. That’s because money put aside for state-guaranteed
benefits can
not be safely invested at rates that provide for more than a modest
retirement
unless the state subsidizes retirement benefits through taxes or if
retirement
savings are invested in riskier, higher yielding investments. Since
governments
are loath to raise taxes to subsidize a riskless retirement, benefits
are
eventually reduced. It works that way in London and Moscow as well as
Madison
and Sacramento.
In Moscow,
public pensions and social programs helped bankrupt the Soviet Union in
the
1980s while “transfer to pension status greatly increase[d] the
likelihood of
poverty,” according to Mervyn Matthews’ Poverty in the Soviet Union
(Cambridge
Press, 1986). In London, the former Labour Minister John Hutton’s
Independent
Public Services Pension Commission has recommended changes that would
calculate
pension benefits on lifetime earnings rather than current salary, in
line with
recommendations for pension reform from the Office for Economic
Co-operation
and Development (OECD). Trade unions in U.K. say that such changes will
lead to
“increased pensioner poverty.” In
Madison, WI public retirement applications have risen 73 percent
according to
the Wall Street Journal as workers try to lock in higher retirement
benefits
that will likely shrink for those public employees retiring in the
future.
Increasingly
state governments in the US are facing budget shortfalls over
entitlements paid
to public servants and those on the public dole. And like the Social
Security
program, the shortfalls have been wholly predictable as government
makes bigger
and bigger promises to a select number of citizens who then take up a
bigger
share of the public pie.
Behind the
rhetoric and the rants about state entitlement programs is one simple
question:
Who wants to pay for expanded public retirement and health care
entitlements?
Read the
rest of the article at Townhall Finance
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