European nations begin seizing private pensions

[shiny!]

From the Christian Science Monitor via Drudge:

http://www.csmonitor.com/Business/Th...ivate-pensions

Excerpts: (Bolded font is mine)

The most striking example is Hungary, where last month the government made the citizens an offer they could not refuse. They could either remit their individual retirement savings to the state, or lose the right to the basic state pension (but still have an obligation to pay contributions for it). In this extortionate way, the government wants to gain control over $14bn of individual retirement savings.

The Bulgarian government has come up with a similar idea. $300m of private early retirement savings was supposed to be transferred to the state pension scheme. The government gave way after trade unions protested and finally only about 20% of the original plans were implemented.

A slightly less drastic situation is developing in Poland. The government wants to transfer of 1/3 of future contributions from individual retirement accounts to the state-run social security system. Since this system does not back its liabilities with stocks or even bonds, the money taken away from the savers will go directly to the state treasury and savers will lose about $2.3bn a year. The Polish government is more generous than the Hungarian one, but only because it wants to seize just 1/3 of the future savings and also allows the citizens to keep the money accumulated so far.

The fourth example is Ireland. In 2001, the National Pension Reserve Fund was brought into existence for the purpose of supporting pensions of the Irish people in the years 2025-2050. The scheme was also supposed to provide for the pensions of some public sector employees (mainly university staff). However, in March 2009, the Irish government earmarked €4bn from this fund for rescuing banks. In November 2010, the remaining savings of €2.5bn was seized to support the bailout of the rest of the country.

The final example is France. In November, the French parliament decided to earmark €33bn from the national reserve pension fund FRR to reduce the short-term pension scheme deficit. In this way, the retirement savings intended for the years 2020-2040 will be used earlier, that is in the years 2011-2024, and the government will spend the saved up resources on other purposes...

... *These figures do not include the costs of higher taxes, price inflation and low interest rates, which additionally devaluate retirement savings.

The whole thing is outrageous and a tragedy, but the part about Ireland, people's savings stolen to be given to the Banks, is absolutely obscene!

What are the chances of this trend spreading to the U.S.? How would it be presented to the people and what would be the fallout? Opinions?

[jk]

Re: European nations begin seizing private pensions

i saw reference to this article at jesse's site last night, and thought about it a bit. the same question has come up several time over the last few years in these forums: under what circumstances might the u.s. gov't take control of private pensions? the usual scenarios have been either direct seizure or forcing pensions to allocate a specified percentage to tbonds. i think such action is less likely here than in europe, because of likely opposition from both the republican party and from important segments of the finance industry. those assets are currently being managed by various FIRE institutions. they generate transaction fees as well as management fees and consulting fees. so it would come down to which banks are on which side of the issue.

[don]

Re: European nations begin seizing private pensions

For most Americans, SS is their pension. That's been nibbled on, mainly through zero inflation claims, but its time may be coming.

Private pensions have been mugged. Repeatedly. FIRE has gobbled up huge chunks of pension funds maneuvered into catastrophic investments. Stupid or corrupt pension managers play their part. The 401k fraud has done plenty of damage as well. Over the last few years large corporations revealed they had not been making their contributions to their contractual pension obligations. In most cases this was dismissed in a bankruptcy re-organization court that dumped the pension on the pennies-on-the-dollar federal pension insurance payout.

It doesn't appear pension seizures are necessary in the US. That's being accomplished through means that keeps FIRE in the fee and investment position. The Eastern European pension shenanigans seem quaintly old school in comparison.

[vinoveri]

Re: European nations begin seizing private pensions

i saw reference to this article at jesse's site last night, and thought about it a bit. the same question has come up several time over the last few years in these forums: under what circumstances might the u.s. gov't take control of private pensions? the usual scenarios have been either direct seizure or forcing pensions to allocate a specified percentage to tbonds. i think such action is less likely here than in europe, because of likely opposition from both the republican party and from important segments of the finance industry. those assets are currently being managed by various FIRE institutions. they generate transaction fees as well as management fees and consulting fees. so it would come down to which banks are on which side of the issue.

How about the Feds seize the assets and continue to let the "investment" banks and finance sector in general manage the assets. This would seem to be the best of both worlds and be the logical progression of corporatism/fascim. The financial equity//bond markets can then be "managed" more overtly

[unlucky]

Re: European nations begin seizing private pensions

The part about Ireland's pension fund, at least, is misleading.

The Irish fund is not private. It is a sovereign wealth fund that was to be used to pay Ireland's state pension liabilities in the future. It will be consumed now instead to support the EU/IMF bail-out.

[thriftyandboringinohio]

Re: European nations begin seizing private pensions

The part about Ireland's pension fund, at least, is misleading.

The Irish fund is not private. It is a sovereign wealth fund that was to be used to pay Ireland's state pension liabilities in the future. It will be consumed now instead to support the EU/IMF bail-out.

I didn't find it misleading. The Irish agreed to use public money to pay pensions to individual Irish people. Now the money will go instead to large banks, and the pensioners will get none of it, despite being collected from them as taxes (now or in the future).

The distinction between private funds and sovereign funds seems trivial here. There is no source of Irish sovereign funds other than the private money of the Irish people paid as taxes. Even though the euros will spend a few brief moments on the books of the government, the euros were first wages in the pocket of an Irishman and ended up in the pocket of some banker as payment-in-full for a foolish loan. The bait was public spending to directly pay pensions; the switch gives the money instead to banks. By any reasonable standard, pensions were siezed and given to the banks.

[Master Shake]

Re: European nations begin seizing private pensions

I think a more likely form of "seizure" will be means testing of SS benefits. Those of us who lived frugally and saved for our own retirements will be penalized by having our SS benefits reduced.

[coolhand]

Re: European nations begin seizing private pensions

i saw reference to this article at jesse's site last night, and thought about it a bit. the same question has come up several time over the last few years in these forums: under what circumstances might the u.s. gov't take control of private pensions? the usual scenarios have been either direct seizure or forcing pensions to allocate a specified percentage to tbonds. i think such action is less likely here than in europe, because of likely opposition from both the republican party and from important segments of the finance industry. those assets are currently being managed by various FIRE institutions. they generate transaction fees as well as management fees and consulting fees. so it would come down to which banks are on which side of the issue.

I see this as a real risk in coming yrs. But they wouldn't seize private pensions. I believe all the $'s in 401k's & IRA's. If the gov't needed buyers for UST's at some point, what is to keep them from seizing 401k & IRA's & putting UST's in them in the guise of "safety of principal for American retirements."

[seanm123]

Re: European nations begin seizing private pensions

- So you think they are going to go after 401k and IRA money in the USA and leave the individual investment accounts, Hedge Fund accounts etc alone? If anything the State run pension funds would be ripe for government takeover. After all most State and Local government employees do not pay into Social Security. The States offer an IRS approved retirement plan to these employees in lieu of Social Security participation. Sate and Local government employees about 17 + million workers do not contribute 6.2% of payroll to Social Security as do private sector employers. Some of the State run funds are also way underfunded and possibly insolvent in a few years, they could eventually end up bailed out under the Federal Pension Benefit Guaranty Corporation as another ward of the Federal Government. It would not take much for Congress to want to roll all of that pension money into IOUs stored in the social security trust fund cabinet.

[flintlock]

Re: European nations begin seizing private pensions

This is why I hesitated to convert to Roth IRA years ago. Why pay the taxes now when they can just screw you in the end anyway? I don't trust them. I was predicting some sort of retirement fund takeover/conversion several years ago. They'll couch it in some gentle terms, but it will still be a lube job on the savers of America. Here's another prediction. All you people anticipating your "TAX FREE" Roth IRA payouts, watch for "means testing" on that also.

[unlucky]

Re: European nations begin seizing private pensions

I didn't find it misleading. The Irish agreed to use public money to pay pensions to individual Irish people. Now the money will go instead to large banks, and the pensioners will get none of it, despite being collected from them as taxes (now or in the future).

The distinction between private funds and sovereign funds seems trivial here. There is no source of Irish sovereign funds other than the private money of the Irish people paid as taxes. Even though the euros will spend a few brief moments on the books of the government, the euros were first wages in the pocket of an Irishman and ended up in the pocket of some banker as payment-in-full for a foolish loan. The bait was public spending to directly pay pensions; the switch gives the money instead to banks. By any reasonable standard, pensions were siezed and given to the banks.

There is logic in your point of view but I think nevertheless there is an important distinction here. At all times the state first confiscates the resources of private citizens and then squanders them. The Irish case is an example of squandering resources that were previously confiscated, but the article presents it as an example of newly confiscated private pension funds.

There's a difference since everyone expects governments to squander resources, but everyone also hopes to protect their own wealth from confiscation.

[goodrich4bk]

Re: European nations begin seizing private pensions

What are the chances of this trend spreading to the U.S.? How would it be presented to the people and what would be the fallout? Opinions?

It already happened. In the Dem/Rep compromise recommended by the Greenspan Commission in 1994, the government "seized" your paycheck by requiring you to pay more in SS taxes than were then needed to fund SS obligations, spent those extra taxes on SS benefits and other current government programs, and gave you, through the SSA, a non-marketable treasury note in return.

What's the difference between that and what you describe above?

[shiny!]

Re: European nations begin seizing private pensions

It already happened. In the Dem/Rep compromise recommended by the Greenspan Commission in 1994, the government "seized" your paycheck by requiring you to pay more in SS taxes than were then needed to fund SS obligations, spent those extra taxes on SS benefits and other current government programs, and gave you, through the SSA, a non-marketable treasury note in return.

What's the difference between that and what you describe above?

Don't you think the implementation of that is a little more subtle than sending everyone a letter saying that the Gov't is flat-out confiscating their Roth IRAs and 401Ks? Do you think that we will ever see overt, in-your-face confiscation of retirement funds by the government?

[LargoWinch]

Re: European nations begin seizing private pensions

On a smaller scale, NJ wants to seize your unused gift cards...

New Jersey Wants to Seize Your Unused Gift Cards

They will do anything but cut expenditures and the size of the governments, unfortunately the host will soon die of inflation, thus $80 million in Best Buy cards won't matter much.

[goodrich4bk]

Re: European nations begin seizing private pensions

Don't you think the implementation of that is a little more subtle than sending everyone a letter saying that the Gov't is flat-out confiscating their Roth IRAs and 401Ks? Do you think that we will ever see overt, in-your-face confiscation of retirement funds by the government?

All of these schemes have one thing in common: cash is spent now and is replaced with a promise to pay in the future. It really doesn't matter how the seizure is implemented. For example, in Ireland the ECU required that the government, in exchange for the bailout loans, contribute about $20 billion of pension assets. I'm not familiar with the details, but presumably these assets were liquidated and the cash was used to refi Ireland's sovereign debt. The pensions now hold Ireland sovereign debt instead of whatever they held before. The same result occurs if the government simply requires pensions to purchase only sovereign debt.

In the U.S., we have the protection of the Fifth Amendment. This is what protects secured creditors from the cancellation of their rights in a borrower's bankruptcy. The government can pass no law that takes private property without "just compensation". Of course, if the government were to take my 401(k), sell its holdings and replace it with treasury notes, it could argue that I've been "justly compensated" by the face value of those notes. But I really can't imagine any government do that because how would they find sufficient buyers for all of those assets?