It was my heresay understanding that before Andreas Papandreou, Greek pensions were defined contribution, and became defined benefit afterwards. Is anyone able to provide more definitive information? In the USA, SOcial Security is defined benefit (inflation adjusted), which is precisely why it is insolvent. Many USA corporations have been trying to move their pensions from defined benefit to defined contribution. This would explain the short retirements of some professions. Here in the USA it is not so strange for defined contribution pensions to be vested after ten or fifteen years, especially as people rarely stay with the same profession or employer their entire life.
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A
ADR
What is a defined contribution pension plan?
And you are wrong about the Greek pension plans.
Social Security is not insolvent and it is not going to be anytime soon.
D
David Woolley
This was posted to uk.finance. Except that the UK situation, for private pensions, seems similar to that in the US, what is the relevance to the UK?
It's sometimes called "money purchase". It is where you pay a set amount, which is then invested. When you retire, the investment is used to buy an annuity. The pension depends on how successful the investment was, and the annuity rates at retirement.
They remove the risk from the employer, but make the unreasonable assumption that all the employees are experts in financial management, particularly the younger ones.
With defined benefit, the cost to the employer is not raised by frequent job moves. In fact, it is generally reduced, as the pension is frozen at the move. Even if there is inflation linking, in the long term, investment should outperform inflation. In the UK, they also tended to be final salary based, but based on the salary at the time that the job changed, so there was a further disadvantage to the employee if they moved jobs before they reached their best paid position.
So, job changers subsidised those who stayed for life. This also encourages ageism, as the real cost of employing an older worker is higher, because you have less time for the pension fund investment to grow.
Social service provided pensions tend to cover those who are not financial experts and those whose financial planning has gone wrong, so needs to be closer to defined benefits. (The UK state pension is actually quite complex, and, in principle only really applies to people who either also have a private pension, or have no recourse to "state funds". That's because there is a means tested benefit that raises retirement income to greater than the state pension for most or all people. Being means tested, many who are entitled to it do not claim it, and those with adequate private pensions do not benefit.)
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