The government should provide everyone with a defined benefit scheme, not just public servants.

[galway_blow_in]

if you see what was recommended by the citizens assembly at the weekend in relation to benefits for elderly people ( more money ) , i wouldnt hold out much hope for any radical reform in this area , the retired are the most powerful political force in this country with several salary drawing lobby groups to represent their interests , while public servants did see cuts from 2008 on , pensioners saw no cuts at all bar trivial reductions in fuel allowances during summer months etc

minister doherty wasnt a week in her new job when she called for the state pension to be increased to 300 euro per week , this situation is going to get worse before it gets better

 

[Duke of Marmalade]

cremeegg said:
In what sense are long term rates "wholly artificial"

If you said unusually low, I would understand, but "wholly artificial"?



Interest rates are always the product of central banks' response to the economic circumstances. QE is a tool available to central banks that is not often used. The events of 2008 were real, the present low interest rates are the central banks response to that.

Current interest rates are extreme, and due to the use of extreme tools, QE, but they are not artificial. Rates are where CBs think they should be. Same as always.

I think we are talking semantics here. It is true that financial institutions are investing over 30 years at 2% p.a. but this is largely driven by regulatory considerations rather than a true belief that this is the correct "economic" return. DC retirees I know (not one myself) manage their ARF to target a return of 6%p.a.

 

[cremeegg]

It seems to me that low rates are around for the foreseeable future.

They may become unmoored from economic growth. Returns to financial capital (as opposed to intellectual capital) may be less in the future than we are used to.

Large scale financial investment, to build car factories and the like, is not required by many new growth industries.

It takes a lot of financial capital to build a million new cars, not so much to produce the equivalent value in new software.

Increasingly start ups do not need or want the public markets. Investors in the public markets will find it increasingly difficult to get access to good returns.

Airbnb and its like don't need the money, and don't want the scrutiny. I cannot see anybody providing 6% to external investors in the medium term.

 

[Dan Murray]

DC retirees I know (not one myself) manage their ARF to target a return of 6%p.a.

No country* for old men**

* asset allocation
** (Wo)men

Comments
The point being, well, that this seems like going from one extreme to t'other - as in, comparing really conservative annuities with really aggressive investments. You must have some thrill seeking pals.

I was thinking whether Sarenco could cope with a 6% return objective for his ARF. I decided that he possibly could on the basis that he'd know his retirement would be short lived due to incessant anxiety about sequence of return and related risks. (Apologies in advance, Sarenco!)

Questions
What asset allocation are your return/thrill seeking pals adopting?
To what extent do you think that they are aware of the risks?
For those of them that have significant others, are the SOs similarly relaxed about such bravery?

Remember...........and we don't know when...........but at some stage......

There will be blood.

 

[Duke of Marmalade]

Dan this guy certainly knows his financial onions. I believe he follows a high dividend strategy. Maybe 6% is OTT but 4% is not unreasonable. But for an ordinary individual not very financially aware targeting 4% could be a rough ride indeed.

 

[Duke of Marmalade]

Actually Boss this is not so novel at all. I seem to recall the UK ran a scheme called State Earnings Related Pension (SERP), they probably still have something similar. I think it only went up to fairly modest incomes. There is an argument it should go at least as high as the top public service pay.

I recall that companies could actually contract out of SERP so long as they provided equivalent benefits. In those days companies could even hope to make profits from surpluses in their DB schemes and many did contract out. These days, given the weird financial dynamics, I presume there would be little appetite to contract out.

 

[cremeegg]

Duke most of your posts are well worth reading but this one has two clangers.

Maybe 6% is OTT but 4% is not unreasonable.

There is a huge difference between 4% return and 6% return. A 50% difference in fact.

Dan this guy certainly knows his financial onions. I believe he follows a high dividend strategy. But for an ordinary individual not very financially aware targeting 4% could be a rough ride indeed.

Investors who "know their onions" are no more likely to beat the market than the "not very financially aware" among us.

 

[Dan Murray]

Dan this guy certainly knows his financial onions. I believe he follows a high dividend strategy.

Superb. Marshmallow for me [......this guy (singular) - when what I was questioning was the inference that retirees (plural or generally) can nonchalantly obtain heroic returns] and another marshmallow for Sarenco [........the unbeatable and unparalleled high dividend approach]. Definite bonus points!

In those days companies could even hope to make profits from surpluses in their DB schemes and many did contract out.

Where there is an asset/liability mismatch, there is almost invariably the possibility of a profit/surplus (relative to the current status). There is also the potential for loss/deficit. Folks taking excessive risk in pension plans is neither an exclusively historic nor a SERPS related thing - (6% ARFs - ouch). Pension schemes in Ireland enjoyed massive surpluses at the turn of the century. Standard actuarial advice, in my industry, was to enhance benefits in "the war for talent". This was like pushing an open door to local senior management who tended to benefit disproportionately from such enhancements. Instead of increasing liabilities, smart advice and behaviour would have been to de-risk assets. Really smart advice would have been to decrease liabilities. I took decisions then that were based on a poor understanding of the risks. The irony that I am being now rewarded for those bad decisions (via an enhanced pension) does not escape me.

These days, given the weird financial dynamics, I presume there would be little appetite to contract out.

.....or maybe just because contracting out is no more

 

[Nermal]

DC retirees I know (not one myself) manage their ARF to target a return of 6%p.a.

Hope they're not withdrawing on that basis.

I have seen sound arguments that the current interest rate environment is the normal one, and the last 50/60 years was quite exceptional.

I'd say the opposite: DB pensions should all be wound up and prohibited in future. They're pyramid schemes.

 

[jjm]

Even though I use the term on askaboutmoney public servants Defined Benefit That is not correct there is no Defined benefit fund ,
no

Hope they're not withdrawing on that basis.

I have seen sound arguments that the current interest rate environment is the normal one, and the last 50/60 years was quite exceptional.

I'd say the opposite: DB pensions should all be wound up and prohibited in future. They're pyramid schemes.