Stealing Pensions

July 31, 2012

Free Market Foundation

In Hungary, Poland, Bulgaria, Ireland and France, big government, a demographic death spiral and weak tax revenues have left fiscal coffers in trouble. Unwilling to stand up to voters or rioters most governments have little taste for doing the right thing: cutting their budgets. So, they’re going after pensions to make up for shortfalls, says Investor’s Business Daily (IBD).

In November, Hungary’s parliament ordered its nationals to fork over $14 billion in private pensions to the state, effectively nullifying the country’s 1997 pension reform.

Bulgaria’s parliament named its price first $300 million and told workers to pay that from private savings or else.

Poland’s parliament cut contributions to private accounts by a third, diverting that money to the public system at a cost of $2.3 billion a year.

France and Ireland were less heavy-handed, but also aimed to avoid austerity. Both siphoned public savings set aside for future years of pension payouts to the spending spigot. In Ireland’s case, they spent money citizens contributed for retirements to bailout banks, while in France’s case, to pay for underfunded current pensions. All of these moves amount to short-term fixes for deep structural problems that call for governments to cut spending, says IBD.

There are two reasons nations do this, according to Johns Hopkins University economist Steve Hanke:

One, politicians’ urge to redistribute wealth, taking it from the deserving to give to the undeserving.

Two, the notion that the public sector can manage assets more efficiently than the private.

Hanke scoffs at both, noting the success of Chile’s private pensions, which in 30 years yielded an average 9.23 per cent. With similar problems for Social Security looming in 2015, it behoves the United States to watch this mess and to avoid repeating it, says IBD.

Source: Stealing Pensions, Investor’s Business Daily, January 5, 2011.

For text: http://www.investors.com/NewsAndAnalysis/Article/558944/201101051906/Stealing-Pensions.aspx

For more on International Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=26

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 18 January 2011