Global Pension Crisis: Unfunded Liabilities and How We Can Fill the Gap

CHAPTER 9

Power Tools for Pensions

We have now spent a fair bit of time outlining the problems that create the global pension crisis. It should be vividly clear that they are real, they are pressing, and they will not go away by themselves or with simple policy tweaks. We have focused on explaining the importance of investment techniques in attacking this problem. In fact, in the simplistic assets and liabilities sense, how you organize your assets is virtually all you can do to address the immediate problem. Naturally, that assumes that you are not inclined to be revisionist when it comes to liability obligations. I was recently asked about corruption and fraud in pension fund liabilities and it is clear that, in particular, public funds suffer from this to some degree in the manner in which long-standing employees are allowed to manipulate the system in their final years of employment to take advantage and maximize their retirement payout. This can be egregious in the form of fake jobs and receiving multiple pensions and it can be more subtle in padding the last few years of compensation (either with raises or, more often, overtime) in order to average up the retirement payout. I will admit that this exacerbates the problem, but I do not believe that it represents more than 10 percent in well-regulated schemes and perhaps 20 percent in more corrupt administrations.

The point is that, unless you are prepared to literally break the social contract made perhaps as long ago as 40 ...