Transcript Social Security & Pension Funds West Africa 2013

WORKERS FREED!
Social Security & Pension Funds West Africa 2013
Accra, Ghana
27 & 29th November 2013
Presented by Carlos A. Gomez
Warrior King
Ghana Vision 2020
Thus, Bismark
destroyed the key
human link between
effort and reward
Today, workers
citizens support the
heavy weight of
unfunded state
obligations
In 1889, German Chancellor Otto
von Bismark, created the pay-asyou-go pension system
…A State sponsored
Ponzi scheme
In Bismark´s times, life expectancy was 48 years and retirement age 70, set arbitrarily by Bismark himself
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EU 25: LIFE EXPECTANCY INCREASES & FERTLITY RATE DROPS
Life Expectancy
years
Fertlity rate
European
trends are
similar to the
rest of the
World
* 2.1 is the replacement rate just to maintain population constant
Source: European Commission, Oct 11, 2011
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In 60 years,
active workers
to pensioner
ratio fell
dramatically.
And it will
continue to
fall…
…adding still
more state
unfunded
obligations on
workers of the
world
Source: 2010 OASDI (Old Age Survivors & Disability Insurance) Trustee Report, Social Security administration, USA
4
EUROPE GOVERNMENTS: UNFUNDED OBLIGATIONS* (% of GDP)
Real Debt of
Europe
The average EU country
needs to have over 4 times
(434 %) its current GDP in
the bank today, earning
interest, to fund current
policies indefinitely
*Difference between the projected cost of continuing current
government programs (official + pensions + health + welfare)
and net expected tax revenues
Greece
875%
France
549%
Portugal
492%
United Kingdom
442%
Germany
418%
Ireland
405%
Italy
364%
Spain
244%
EU 25 Benchmark
434%
Source: Measuring the Unfunded Obligations of European Countries, Jagadeesh Gokhale, National Center for Policy Analysis , 2009
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Achievements of Private Pension Funds in Chile
In 32 years (1981-2013), the results are:
Annual real return for Chilean workers retirement accounts was 8.7%
Assets reached $ 170 Billion, 70% of GDP
8.7%
7.2%
Chile PRAs Real
S&P 500 Nominal
Source: Central Bank of Chile; S&P; Superintendency of Pension Fund Management
CHILE : WORKERS WEALTH ACCUMULATED 70% GDP
(US$ MILLIONS)
170.000
160.000
150.000
140.000
130.000
120.000
110.000
100.000
90.000
80.000
70.000
60.000
50.000
40.000
30.000
20.000
10.000
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Largest wealth creation for Chilean workers in the History of Chile
Wealth Composition:
• Contributions: 25%
• Returns: 75%
World Economic Freedom
Most free
2nd Quartile
3rd Quartile
Least free
Source: Economic Freedom of the World, 2011 Report, Fraser Institute, 141 countries measured
CHILE TOP 7 IN
WORLD ECONOMIC FREEDOM
Source: Economic Freedom of the World, 2011 Report, Fraser Institute, 141 countries measured
CHILE 1981: CHANGE THE PARADIGM!
• Every worker has a mandatory personal
retirement account
• Saves 10% (substituted a payroll tax) of his
monthly wage and
• Benefit from the extraordinary power of
compound interest
• At retirement: annuity for life, programmed
withdrawal, or mix
• “Retirement” is redefined to enhance personal
choices (age, benefit level, inheritance)
• System managed by competitive private management funds companies
• Workers choose among 5 mutual funds, with highly diversified portfolios
• Workers funds invested in 14,000 companies around the world
• Role of government: market-friendly
regulation, technical supervision, and safety
net paid with general tax revenues
• Zero payroll tax
THE TRANSITION: IT CAN BE DONE!
Fairness:
Guarantee current retirees benefits (“protect your
grandmother’s check”)
Choice:
Voluntary opt out, with “recognition bond”
Responsibility: Close door of bankrupt system to new entrants
Fiscal challenge: No “economic cost” and need to devise a long
term plan to finance transition
Leadership:
Moral courage and use of social media (facebook,
twitter) and traditional channels to speak the truth to
citizens and explain this ‘common sense’ solution
CHILE 1981-2013: KEY RESULTS
• Empowered workers: 8.7% annual average
real return for 32 years, multiple choices (incl.
retirement age), ownership of capital,
inheritance
• Strengthen the economy: capital pool
(US$ 170 billion; 70% of GDP), less
unemployment, fiscal responsibility, and faster
growth
• Stabilize society: workers turned into small
capitalists; political/cultural change and
stability
• Increase freedom: Chile ranks N° 7 in
Economic Freedom of the World Report
ECONOMIC DRIVERS FOR PENSION
FUNDS
• Economic Growth:
• Zero import tariffs: buy at the lowest prices in world markets
• Flat tax income rate
• “Popular capitalism”: Privatize state-owned companies
– 10% shares to all citizens
– 41% shares bought by Pension Funds, Insurance Companies
and private citizens, both local and foreign
• Government to focus on the most poor:
• Vouchers for education & health
• Guarantor of Equal Opportunity. Equality is Unjust
• Low inflation & fiscal balance
• Fund Management Companies:
• Strict separation between the Fund & Owners of the Management
Fund Company
• Owners of the Management Fund Company required by law to
invest at least 10% of their capital in the Fund exactly in the same
investments of the workers’s funds
INVESTMENT OPTIONS: 2014 &
BEYOND
• Badly needed infrastructure projects:
• Private concessions
• Housing (government subsidies for the poor)
• Power
• Technology & Telecommunications
• Digital economy
• Shares & Bonds: diversification is the key
• By industry
• By asset class
• By country
• Education & Health
ATLAS FREED
• Latin America: 10 (largest: Mexico)
• CEE:
14 (largest: Poland)
• Developed:
Australia & Sweden
• Asia:
Hong Kong & India (only gov)
• Africa:
Nigeria. Ghana next?
• Middle East:
Egypt (2012)
• W. Europe:
Only parametric reforms
• The Race:
USA or China first?
30 YEARS, 30 COUNTRIES
WORKERS
FREED!