Pension funds--85% will go bust within 30 years

How does gold come into play?

Today’s AM fix was USD 1,311.50, EUR 950.43 & GBP 784.06 per ounce.
Yesterday’s AM fix was USD 1,324.50, EUR 958.05 & GBP 792.21 per ounce.

  • Gold rose $8.90 or 0.68% yesterday, closing at $1,326.70/oz. 
  • Silver rose $0.04 or 0.2% yesterday to $19.99/oz.
  • Gold fell from a three week high today on speculation that very tentative signs of an improving U.S. economy will curb demand for the safe haven. A report yesterday showed U.S. retail sales increased more in March than economists forecast.  

Gold in U.S. Dollars,  January 2009 to April 15, 2014  (Thomson Reuters)

Palladium declined from the highest price since August 2011. Palladium fell nearly 2% today, after climbing the previous five sessions. Increasing tensions in Ukraine sparked concern that more sanctions will curb raw material supplies from Russia, the largest palladium producer and one of the largest gas exporters.

The worsening geopolitical tensions between Putin’s Kremlin and many governments in the West should support gold and could lead to gold challenging the important psychological level of resistance at $1,400/oz.

Last year, gold slid 14 percent in the two sessions through April 15, the biggest two-day slump in three decades and marking bullion’s entry into a bear market. Bullion has rebounded 9.1 percent this year.  

Gold in U.S. Dollars, 20 years form January 1994 to April 15, 2014 (Thomson Reuters)

 

Pension funds--85% will go bust within 30 years

The “pensions timebomb” keeps on ticking and as societies we become less prepared by the day.

Yet another report shows that the U.S. public pension system is in dire straits. This one comes from renowned hedge fund manager Bridgewater Associates.

The study estimates that public pension funds will earn an annual return of 4% or less in coming years due to near zero percent interest rates and financial repression. That, in turn, would cause bankruptcy for 85% of the pension funds within 30 years, the study warns.

Public pension plans now have only $3 trillion in assets to invest so that they can pay out $10 trillion of retirement benefits in coming decades, according to Bridgewater. The funds would need an annual investment return of about 9% to meet those obligations, the report says.

Many pension plans assume they will earn 7% to 8% annual returns, an assumption which is far too high. But even in the best case scenario of the pension plans achieving those returns, they will face a 20% shortfall, Bridgewater notes.

Bridgewater looked at a range of different market conditions, and in 80% of the scenarios, the pension funds become insolvent within 50 years.

A report issued earlier this year by the Rockefeller Institute of Government says state and local government pension systems have very significant problems.

"Bad incentives and inadequate rules allowed public sector pension underfunding to develop," the study says. "They mask the true costs of pension benefits and encourage underfunding, under-contributing, and excessive risk-taking, trapping pension administrators and government funders in potentially destructive myths and misunderstanding."

It is likely that many pension funds will go bust in the medium term and this may be a crisis that looms large sooner than the Bridgewater research suggests.

Pension funds traditional mix of equities and bonds may underperform in the coming years as many stock markets appear overvalued after liquidity-driven surges in recent years and bonds offer all time record low yields and are at all time record highs in price and can only fall in value in the coming years.

Pensions allocations to gold are exceptionally low internationally and yet gold has an important role to play in preserving and growing pension wealth over the long term.

Pension funds’ overexposure solely to paper assets and lack of diversification has cost pension holders dearly in recent years. This will almost certainly continue in the coming years.

 

ALSO SEE:

Gold stocks offer refuge from major market crash

Originally published on Resource Investor. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Comments
comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome