Posts Tagged ‘financial institutions’
Pro and Cons About Public Pension Program
The cuts in public pension system are motivated by pressure from the financial institutions that hope in this way to increase contributions to private pension plans. And is that in Spain complain that many workers do fewer inputs than in other countries, so the strategy used to generate mistrust on the public to seek greater security with the addition of a private plan.
The deductibility of contributions made to private plans is the bait set by the government to encourage investment in these plans. In the same way that once fed the housing bubble to buy allowances, public money is used to encourage investments that only favor banks, savings banks and insurance companies.
The operation of a private pension plan is like any investment product, it makes a contribution to get a return and later recover the initial investment plus (or minus) the profitability and less the fees charged by the entity. In this case, the proviso is that you can not recover the investment until the worker retires (with some exceptions such as serious illness or long-term unemployment), so that capital is immobilized for a long period of time, which is a significant disadvantage compared to other investment products.
The supposed advantage is the deductibility of contributions in the statement of income, although this advantage is mostly for higher incomes that are the most can be tax deductible. Certainly while making contributions are not taxed and also get relief, however, the payback time is to pay taxes on all capital contributed and not only the interest generated (as with other investments) . Rather than pay the tax on capital income is taxed as work performance (income tax). Therefore, the theoretical advantage of the tax relief is not in practice, but a delay in payment of taxes.
Contributions to a private plan are investments that are made so they can generate profits or losses, so the risk is absent in the public system here is very present. Although banks “sell” their pension plans as “safe” and “guaranteed” the truth is that the returns are often negative, ie a loss. But having losses is not the only risk of a private pension plan because the risk of failure is real and can make us run out of our contributions (in fact, investments).
Another huge drawback is the large amount of commissions to be paid for administrative costs makes lower incomes and smaller contributions do have to pay a higher percentage of these concepts. This makes the return on investment is much lower.
Therefore, it can only be “profitable” to contribute to a private pension plan to a person with high income, while the vast majority of workers is much more profitable to us as to enhance the public system and money we can save to have deposited in other investment products (such as deposits or treasury bills) that are safe and that we can retrieve when needed.
The capitalization of public pensions
Financial institutions would like a capital reserve fund, currently encrypted at 62,500 million euros, more than 5% of the GDP of Spain. Around 90% of this fund is invested in Spanish public debt, which means that the Spanish workers’ savings are being invested in financing the development of Spain which in turn positively affects the workers themselves. Furthermore, it is a much safer investment than stock market speculation practiced by private fund managers.
Financial institutions would like to manage but in order to collect funds for this important commission. They argue that private management would generate a higher return in this volume of money, ie, be devoted to speculate with the money bag so that the savings of workers instead of helping the country’s development fund would be dedicated to the same that pressure to cut their rights. In addition, this investment would be less safe, in fact, in recent years many private equity returns have been negative. Read the rest of this entry »