Tuesday, March 4, 2014

New issue brief: “The U.K.'s Ambitious New Retirement Savings Initiative”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“The U.K.'s Ambitious New Retirement Savings Initiative”

By Steven A. Sass

The brief’s key findings are:

  • The United Kingdom is rolling out a low-cost retirement system for workers who lack pension coverage.
  • The new system has three core elements:
    • Employers auto-enroll their workers at a 4-percent contribution rate, matched by the employer and government combined.
    • A new non-profit provides the infrastructure to keep costs low.
    • The plans' target date funds start young workers with low-risk investments to avoid losses that could discourage saving. 
  • The U.S.'s new "myRA" program includes two similar design features - low-risk investments and government infrastructure - but it lacks auto-enrollment.
This brief is available here.


Anonymous said...
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WilliamLarsen said...

4% in a low risk sounds like bounds. I for one do not like bonds due to the fact some day they will have to be paid back. The US Treasury is the largest bond issuer and so far has never missed a payment. The problem I have with US Treasuries is that they pay zilch because of quantitative easing. If these rates were truly market rates, we would see higher returns, therefore much larger interest payments increasing the deficits which is already entering its 57 continous year. I equate it to the movie "Trading Places" where Akroyd and Murphy decide to "sell."

Using government revenues to match these new accounts for young people means they borrow money to do so. Is this a zero net gain?

Third, auto enrollment may be a good thing. Is there an ability to output manually?

To me the best option if we were to do this in the US is to simply move those under age 35 from Social Security to private accounts. Take the full 10.6% OASI payroll tax and let young people decide. Better to have many different people making money decisions than one large entity where all your eggs are in one basket.

Of course this creates a problem for the current social security program. At age 35, most workers would be no longer paying OASI Taxes after 40 years. By that time SSA states the OASI trust fund will be exhausted. I guess benefits would be zero or effectively zero.

Is there a painless solution to a ponzi scheme, NO?

Who is responsible for this mess? the greatest generation that created it and/or those who continue to promote it? Certainly those who cannot vote are not responsible.