2011 January 08 Saturday
Euro Nations Seizing Private Pensions

Following in the footsteps of Hungary takes from the prudent savers to give to the spendthrifts.

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.

Following in the footsteps of the perfidious Cristina Kirchner of Argentina an assortment of European countries is draining pension money to pay for current deficits. Poland, France, and Ireland are all, in a variety of ways, taking from either individual retirees or large retirement funds.

Even though the US government has crossed the Bernholz warming limit on deficit spending and huge deficits stretch out for years I do not expect the US government will seize personal retirement accounts. More likely it will reduce the size of tax deductions for contributions to such accounts. So you are better off putting as much into such accounts until retirement account contribution limits get lowered.

What I want to know: Once the US sovereign debt crisis develops to an acute crisis stage will most of the account balancing be done by tax increases, spending cuts, or inflation?

Share |      By Randall Parker at 2011 January 08 03:20 PM  Economics Predation

bbartlog said at January 8, 2011 5:45 PM:

You already have an answer. Just because we don't see the inflation yet doesn't mean that the choice has not already been made.

Buried said at January 8, 2011 6:25 PM:

You're better off buying precious metals and hiding them.

Black Death said at January 9, 2011 11:22 AM:

I agree - inflation it will be. Taxpayers will not vote for politicians who increase their taxes, and benefits recipients will vote against those who try to reduce their benefits. And when it comes, politicians will try to pretend it's some sort of natural disaster, like a hurricane or earthquake, not something they can be blamed for.

Daniel said at January 9, 2011 5:09 PM:

I vote inflation. It's the easiest to get away with.

Dave in Seattle said at January 10, 2011 1:42 PM:

France and Ireland also took private pensions, France to bail out the welfare system and Ireland the banks. Deferred tax accounts might not make sense if future tax rates are going to be higher. I expect more and more people will convert cash into easily-hidden assets.

Randall Parker said at January 10, 2011 9:05 PM:


One should save both in tax-deferred and regular accounts. Diversify risk. Never know what a government will do in a desperate situation. The tax-deferred accounts allow one to avoid capital gains taxes if inflation gets really high and starts generating large nominal dollar gains on investments.

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