Posts Tagged ‘profitability’
The Private Pension System
The public and private pension systems, solidarity against the “capitalization.” Besides the public pension system, in Spain there are private pension schemes, with very different operation. The public system is based on compulsory contributions from employers and employees in terms of wages, so that these quotations is entitled to a future pension. A higher wage, higher and higher pension contributions in the future. However, the amount received is not the same as provided, may be smaller (for example, a worker who dies with 64 years will have been all his life and will have enjoyed quoting your pension) or higher (imagine a person living 100 years). This is because the system is based on “solidarity” so that a worker is assured that you will always have social security coverage. For example, a worker at two years of working contracts a disease that makes you unable to work shall be entitled to a pension for life despite not having contributed little.
By contrast, the private pension system is based on the capital contributed and is but a product of financial savings. The money provided by a worker during his working life, adding (or subtracting) the profitability, will be exactly the amount you will be entitled, either at once or monthly. In this case, if a worker has admitted to 60 000 euros over its life, shall be entitled to that amount regardless of whether they live to 80 or even 95 years, so the more alive you can enjoy a lower amount. And, of course, the above example worker gets an inability to work in his youth is completely forsaken by the private system.
The public system has a redistributive to reduce (not eliminate) the wage gap. By contrast, the private system leaves intact those inequalities.
The Big Business of Banks
Private pension plans: the big business of banks
The existence of private pension plans allow financial institutions and insurance companies make huge gains, as it is a safe business for them. The contributions are being made to a pension fund that invests in search of profitability. The person who made the contribution can not get their money until retirement (with some exceptions, such as serious illness or long-term unemployment), which guarantees the fund management company managing the money over a long period of time.
Financial institutions and insurance companies make huge profits because of high fees charged by management. According to Zubiri (2003: 75), in Spain the cost of administering individual pension plans as a percentage of total contributions, reached 37.3%, the highest in the EU. In addition, because the costs of maintaining a pension account are largely fixed, fall most heavily on smaller accounts, which have less income.