| Retirement funds hit the limits Turn around and there's another one. Pension guarantees have been springing up all over the place. Governments the world over want people to provide for their own retirement either through personal pensions or, more typically, through company schemes. Underfunding of company schemes is being discussed with greater urgency in Europe, where demographic trends portend worsening dependency ratios, and in many emerging markets. What happens if companies fail, breaking their promises to pay pensions to retired workers? Several countries have insurance schemes - some private, some state-run - to back up pension funds. But is there a financial disaster in the fine print? No less than seven studies are in progress or have recently been completed about creating a guarantee fund in the UK to top up poorly funded company retirement schemes. The European Commission recently issued a report: "Rebuilding pension". Recently, Poland and Hungary have put in guarantees, like those in Chile, to back up their new individual social security investment accounts. Some international advisers have even been telling countries that social-security reform is impossible without guarantees from the state. But poorly designed guarantees can defeat the purposes of reform and distort local capital markets. |