The question that Economic Collapse News asked Wednesday was: could the government confiscate your private pension? Well, it seems the government can and has, at least according to details released over the past week in Poland.
Reuters first published an article last week detailing the announcement made by Polish Prime Minister Donald Tusk recently in which he confirmed that the government would transfer the government pension system and all bond investments in privately-owned pension funds within the state-guaranteed system to ZUS. In other words, the government is confiscating – or nationalizing – bonds held in private investment accounts.
The prime minister conceded that the current system is “very costly” and noted that the decision will be the best thing for the future of its pensions.
Finance Minister Jacek Rostowski told reporters that the purpose of the move is to reduce its debt to GDP ratio by eight percent. This would allow the government to generate new debt by tapping into lenders in international markets.
In recent years, especially since the economic downturn in 2007 and 2008, governments in Europe have attempted to – and even succeeded on a lot of the occasions – take money from the public and private pensions to pay down the enormous debt levels or to bail out troubled financial institutions.
Ireland had taken approximately $5.3 billion from its Pension Reserve fund to save its banks. More than one year later, the federal government took an additional roughly $3.3 billion to bail out the rest of the country.
During the fall of 2010, the French parliament had agreed to earmark about $43 billion from its national reserve pension fund to pay down the short-term pension plan deficit. As of Aug. 2013, France is still facing a $26.69 billion budget deficit in its pension plan.
Earlier this year, in exchange for an international bailout, Cyprus agreed to shut down its second largest financial institution and take around 40 percent of uninsured deposits in the Bank of Cyprus – insured deposits of less than 100,000 euros were not affected by the so-called haircut by the Cyprus government.
U.S. (fragile) Social Security System
Late last year, the Government Accountability Office (GAO) published a report titled “The Federal Government’s Long-Term Fiscal Outlook” that included a look at the financial picture of Medicare and Social Security. It essentially concluded that it is facing and will continue to be dealing with a tremendous gap between revenues and spending as a growing number of Baby Boomers hit their retirement years.
“Addressing the long-term fiscal challenge will likely require difficult choices affecting both revenue and spending,” wrote the GAO. “In addition, the need to act soon to develop a plan for addressing the long-term fiscal imbalance must be balanced with concerns about the near-term of policy decisions.”
The United States is currently facing approximately $121 trillion in unfunded liabilities and expenditures: Social Security liability of $16.04 trillion, Medicare liability of $84.4 trillion and Prescription Drug liability of $21.23 trillion. (It should be noted, however, that these figures are as of December 2012 and could actually be higher than the stated figures.)
It has been reported that the federal government presently borrows $40 billion to cover Social Security costs. It is believed that these numbers will surely increase once the funds, principal and interest are completely dried up. The U.S. government spends the revenues that come in for Social Security and replaces it with (worthless) Treasuries.
Right now, it is projected by the Congressional Budget Office (CBO) that the Old-Aged and Survivors and Disability Insurance (OASDI) trust funds will be exhausted by 2038 and the Disability Insurance by 2016 – the Social Security Administration (laughably) argues that it will not reach the state of insolvency.
With the national debt substantially rising each year – estimates show it will reach $25 trillion in the year 2023, which is the same year Social Security costs will reach $3.2 trillion – it is certainly likely that dramatic action will have to be taken by Washington, which could include confiscation of private pensions or even deposits.
In addition to the astronomical debt levels, the U.S. will also have to deal with rising interest rates. Based on a report published by the U.S. Senate Committee on the Budget – using the current figures – annual interest payments will total $763 billion. Again, this is based on present interest rate levels, which means that once they increase then it could surpass $1 trillion each year.
During the presidential campaign, Texas Republican Governor Rick Perry was criticized for labeling Social Security as a ponzi scheme.
“People who are on Social Security today, men and women who are receiving those benefits today, are individuals at my age that are in line pretty quick to get them, they don't need to worry about anything,” stated Perry during a debate at the Reagan Library.
“But I think the Republican candidates are talking about ways to transition this program, and it is a monstrous lie. It is a Ponzi scheme to tell our kids that are 25 or 30 years old today, you're paying into a program that's going to be there. Anybody that's for the status quo with Social Security today is involved with a monstrous lie to our kids, and it's not right."
Think about it: a ponzi scheme is based on creating returns for older investors by garnering new investors – ponzi schemes at least promise high returns while the government at least admits it cannot. The Social Security sends monthly checks to retirees based on funds from younger workers. Dollar Vigilante argues that the Social Security system is worse than a ponzi scheme because at least you have the option to take part or not, while Americans are forced to participate in the government system.
It doesn’t seem very likely that the federal government will abolish Social Security. So what can Washington’s esteemed representatives do to save it? Well, it could raise the retirement eligibility age, establish private retirement accounts and even permit Americans to opt out of the system entirely.
Unfortunately, this is politically unfeasible.