The illusion of safe pensions and the reality of financial markets

The current social debate about financial security in old age is characterized by great uncertainties, contradictory promises of the financial industry and 1 general insecurity of the population. Many employees blindly rely on the glossy brochures of the various providers and have no idea of the enormous risks behind the seemingly secure contractshowever, a close look at the mechanisms of global capital markets reveals the system that protects the profit of institutions rather than the existence of savers. The following explanations comprehensively illuminate this fatal discrepancy between the advertised security and the actual market dynamics.

The discrepancy between expectation and guarantee

The financial figures listed on the current securities account statement of Jan Springer, the employee of the metal industry, seem quite appealing at first glance. Instead of relying on state-sponsored individual contracts, the 30-year-old employee chose the path of company provision exactly 5 years ago. Through his employer, 2,150 euros flow annually intothe corresponding pot, which corresponds to exactly 4 percent of his annual gross salary. In December 2012, the account shows the individual pension capital of 12,200 euros, which initially indicates a very successful investment strategy.

The legal obligation to return as deceptive collateral

However, the reported minimum performance of 10,750 euros is noticeably lower than the actual total value and reveals the true conditions. This amount is simply the money deposited so far, which the provider must guarantee by law. At the start of retirement, savers finally have the legal right to the full return of their paid contributions.If you only receive the sums paid back when you reach retirement age, you have actually made massive losses, taking inflation into account.

The dependence on speculative market successes

Consequently, insured persons must rely on their provider to carry out successful speculation on the markets with the entrusted capital. So far, the chosen pot has been able to generate 1,450 euros in increases in value for the employee in the 5 investment years. Decisive for such pension products is always the gap between the guaranteed payout and thepossible total pension. This range varies enormously and depends on the cost structure, investment luck and optional supplementary agreements.

The impenetrable thicket of financial products

Consumers are confronted with offers that are difficult to oversee and almost impenetrable additional regulations. All these factors make the objective comparison of the individual offers almost impossible for the layman. The gap between the accumulated capital and the minimum performance plays a central role in all products 1. This differentiation is the fundamental principle ofspeculation-based investments and is particularly important in the case of long investment horizons.

The questionability of absolute security promises

Absolute security can never be spoken of in the financial markets anyway, as expectations and hopes are always at play here. The legislature has deliberately tied down the guarantee obligation to return the contributions in order not to frighten the customers. However, in the event of the most severe collapse of international capital markets, even this capital preservation guarantee wouldnot redeemable. Such political promises often prove worthless in real crisis situations, as historical bank collapses have impressively proven.

The strategies of the financial industry and the principle of stock market hope

The financial industry largely ignores these risks and continues to rely on functioning exchanges that promise high returns in the long term. Dynamic young people are suggested that regular saving leads directly to 1 worry-free retirement period. The so-called bliss in old age is always proportional to the risk taken. Those who demand higher returns will receivefund-based products, while conservative individuals get conventional insurance.

The disguised representation of guarantees and risks

Considering the example of the 30-year-old sole earner with 2 children, who invests 1,800 euros annually, the problem becomes clear. The resulting offers diverge widely, but this is cleverly disguised in colourful advertising brochures. In most cases, the high expected value is printed in bold, while the disappointing guaranteed value appears in shameful lowercase.If there are severe setbacks on the stock exchanges, the guaranteed pension is significantly lower for unit-linked models than for conservative variants.

The constant balancing between return and risk

No matter what form of state-sponsored or occupational pension provision is involved, the investor must always balance return and risk. The stock exchange-fixed form of investment will always perform better in the position of hope, but will be worse in the position of security. The pension fund of our example employee is one of the riskier variants. Itis the special fund outsourced by employees to finance the company pension scheme.

The global dimension and volatility of markets

In Germany, this form of occupational pension has only existed since 2002. Worldwide, such pension funds hold values of an estimated $20,000,000,000,000. This gigantic sum corresponds to about 8 times the German economic output. With their high volume and the compulsion to maximise returns, these funds contribute massively to the susceptibility of theStock exchange systems.

The targeted generation of fear as a business model

These funds, however, are just one component in the deliberate fear-mongering surrounding the supposed necessity of private retirement savings. This fear-mongering machine uses the term “pension gap,” which generates 100,000 hits in search engines. Most of these entries are directly linked to offers from the financial industry to close this gap. Historically, this is reminiscent of…The indulgence trade, in which the church collected enormous sums of money through the guilty conscience of the people.

The modern version of the historical indulgence trade

Those who provide for themselves privately today also ease their conscience, with the financial industry now taking the profits. It is the traditional business model in which people are made afraid of the future. The apparent magic solution is then presented in the form of various pension contracts. In addition, the state, as a donor, is provided with allowances andTax relief.

The real threat of old-age poverty

A bitter side effect of this whole affair is the fact that the problem of old-age poverty is very real. This problem not only affects southern European states, but also the local population. According to calculations by the Ministry of Labour, employees with a gross salary of 2,500 euros and 35 years of full-time work from 2030 will only receive basic benefits. Morethan one-third of all full-time employees earn less than this critical threshold.

The failure of private provision for low-income earners

The reciprocal recipe of market-economy hardliners is always private pension provision. This proposal is downright cynical, as low-income earners can hardly afford adequate own contributions despite state subsidies. Even if these people make savings contributions, private provision is of no use to them in the event of later basic benefits. The state basic security isstrictly reduced by the private retirement pension, which completely negates the savings effect.