For the past few years, the Chavez Government has been paying anyone that has worked a minimum of 5 years in their lifetime a Social Security pension equals to minimum salary plus four months of bonus per year. At current minimum salary and assuming the official rate of exchange we are talking about Bs. 1,200 (US$ 279 a month) per pensioner, but each pensioner receives Bs. 19,200 per year, equivalent to US$ 4,465 per year. besides the 5 years of employment, you get a pension when you turn 55, if you are a woman, or 60 years old, if you are male.Additionally, survivors are also eligible to receive 100% of the pension of the deceased.
The Chavez Government and the opposition seem to be in a battle to outdo each other in offering even more benefits. Last year, Chavez lowered the minimum number of payments required for nine months, so that more people could receive the benefit. The opposition in turn, made a proposal during the first week of the new National Assembly, asking that pensioners also receive a 10% increase given to them as food stamps, a benefit that most formal workers receive in Venezuela.
At this point, I have to clarify that these pensions don’t come from a “fund”, Venezuela’s Social Security administration has gone broke at least twice in my lifetime. People pay monthly proportionally to their salary, but there is a cap, the cap is around the payment for a yearly pension, but only those making more than 5 minimum salaries a year pay that much.
What I have never been able to figure out is whether the country can afford this. And as far as I have been able to figure out, ever since the old Economic Committee of the National Assembly disappeared, such calculations are not even made. So, both the Government and the opposition are playing populism without having a clue as to whether this makes sense or not.
So, I decided a few weeks ago to throw some numbers and see if this makes any sense.
My starting pint was the INE website, where I found data on how many Venezuelans are above 55 (for females) and 60 for males. This data can be found here, except that for some weird reason, the 55 to 59 group is missing from the table, so I had to do some extrapolation. The result is that there are 1.2 million women eligible by age to this pension, while 716,000 men qualify. That is over 1.9 million Venezuelans. If all of them qualified, the cost would be US$ 8.6 billion a year to pay all of the pensions.
The next step was to figure out how many of those people, given the low five year requirement and the fact that the pension can be inherited by widows and widowers, as well as underage children, which must be a small group, my guess was that around 50% of that population was eligible and collects that pension. Imagine my surprise when I found out that it is 83% of those eligible that receive the pension!
Well, at that rate, it costs the Venezuelan Government US$ 7.145 billion per year to sustain the pension system. I don’t know how much of this comes directly from those that contribute today to the system, but it sounds high to me. Very high. Because this year’s budget at Bs. 4.3 per US$ is US$ 47 billion, so we are talking about 15% of the budget going for pensions. And this number will simply increase every year as more people get older, unless the Social Security system is funded, a project that Chavez killed when he first became President in 1999.
But the opposition is no less irresponsible when it proposes that pensions should be increased. Without knowing whether the system makes any sense, asking for an increase about the minimum salary is not a very responsible position. Unless both the Government and the opposition begin calculating costs and looking into the future, the country’s finances will always be doomed under the management of irresponsible politicians.
And this does not even consider an even more complex question: Is it fair?
The Devil's Excrement 
February 7, 2011 at 11:30 am
loroferoz,
A) I disagree. I think most people in Venezuela do not deal with banks, especially not the most needy people. But, beyond that, whether the user or the bank fills out the paperwork, it’s still a waste. Even minutes per person per day in work and travel adds up to tens of thousands of work-hours per year which must be paid for by increased pricing. It’s waste.
B) Giving someone cash that belongs to them is not giving them an allowance.
C) Shares and bonds are not about adulthood, and certainly not about life. If we have a simpler way of distributing cash without shares and bonds, why would you choose the more complex ways?
D) If I start a business that takes water from someone’s pond, and through much work and technology I create ice cubes and sell them, I don’t expect the owner of the pond to make a profit from the ice cubes unless he becomes a partner. I expect him to charge me for the water, but the business of pumping the water to my factory and the processing to converting it into ice cubes and the selling them, that is none of his business. The same for the oil business. What the Venezuelans have a right to is a share of the oil pumped out of the underground ponds, not to the business of pumping, processing and selling of it or its byproducts. So, Venezuelans don’t need to know anything about the business, just about the pricing of the crude oil. As for justice, the oil underground belongs to all Venezuelans, regardless of their knowledge level. That’s why I made the inheritance analogy. If a rich person leaves all his money to his four children, even the baby has rights to the same amount as the siblings who may be businessmen.
E) It’s not too much to ask from a government that represents its people to not complicate their lives more than necessary. That’s inconsiderate.
—
February 4, 2011 at 5:08 pm
Less than half of all Venezuelans have a bank account, I have not since the data recently, but I would dare say less than 40% do.
February 4, 2011 at 4:57 pm
The paperwork can be filled up by whatever bank they happen to have their savings account with. And most people in Venezuela have one, including an ATM card.
“You and I have no right to be conditioning what is rightfully theirs. Give them their cash. Stop seeing this as an opportunity to force them to educate themselves. You and I are not their parents. Respect them for what they are, adults.”
Precisely, giving cash is giving allowances.
Shares and bonds are the instruments of adults. Saving instruments. Life is complicated and there are no ways around it’s complexity.
I won’t deny that cash can help me make do and reach the end of the month. It’s useful. But it does not grow on trees. And even trees have to be tended to.
Oil wealth IS NOT inheritance, it’s wealth created daily with great effort, by way of an enormous amount of knowledge and business savvy. No knowledge, not a drop of oil, not a cent.
If real “justice” were served, it should belong to to those who know what to do about it and are prepared to invest on it. We Venezuelans have some wrongheaded ideas about oil, and it’s quite probable that events will straighten us in a really painful manner.
It’s not too much to ask, that Venezuelans get to have a little complication in their lives for wealth they did nothing to create.
February 4, 2011 at 10:40 am
The articles provide much that is far from “granting foreign aid or getting cash from State treasuries”. You must be reading into the articles with your own set of shades. The articles are about cash distribution. The examples they provide are from all over the world with all kinds of variations. The result point to success.
I understand your postion of what you want for PDVSA, but unless you make it an independent branch of government, corruption will rear its ugly head, and even then…
I believe bonds would be a better answer than shares, and still I think they fall short. It’s not fair to require bond knowledge to reap the most benefits from bonds when those who you want to help the most are the ones with least knowledge. Also, we go back to the original question: if getting value to those who need it is the goal, why go a roundabout way, when there is a simpler way? And as the elections approach, why choose a method that is less likely to win an election? Think also about implementation. A poor person from a small town in the interior is going to have paperwork to do regarding shares and bonds?! Or when someone dies, what about the process around the unpaid portions of shares or bonds and their registration. It’s just complicating peoples lives. Think about the life of poor people and come up with solutions that make their life simpler not more complicated. Cash distribution is the simplest.
We can look at this as inheritance money. Venezuela has left an inheritance to all its present and future citizens. But it’s not leaving its oil revenues to some flunky pre-teen. It’s leaving it to adults. You and I have no right to be conditioning what is rightfully theirs. Give them their cash. Stop seeing this as an opportunity to force them to educate themselves. You and I are not their parents. Respect them for what they are, adults.
A) expectation of the rest of the oil industry would be irrelevant if they are getting their share from the oil extracted from the ground.
B) the amount robbed from the past is exactly what would attract most poor to cash distribution; it’s very difficult to rob from them with direct cash distribution. Robbing is a big reason to shy away from shares and bonds, both of which can hold big surprises.
C) They just need to know there is oil underground and that they get a percentage of every liter that gets pumped out from under. I think that makes it very easy not just for any citizen to function in Venezuela, but for *every* citizen to function: no one under the poverty line!
1) Cash distribution works, and, according to the articles, works “better than the alternatives”, which we need. 2) It is simpler to implement, therefore less likely to fail, which we need. 3) It wins votes over more easily, which we need. 4) And even if the election is rigged, the demand for their cash is the last thing chavez wants in his followers minds, which we also need, long term.
Look no further. Cash distribution is the answer.
—
February 4, 2011 at 10:01 am
I read the articles. Only that I believe this is a different situation altogether than granting foreign aid or getting cash from State treasuries.
I hope I have made it clear that I want PDVSA to become LESS TO NOT dependent on the central government, and more dependent on a set of internal bylaws, or on clearly defined laws for it’s operation.
“Why wouldn’t direct cash distribution from the central bank work for you? ”
It can work. It can be done by issuing government (or other kinds of) bonds to citizens. It has been done before with workers’ claims for “prestaciones sociales, antiguedad and liquidaciones” (SS, severance payments and others) refunds. They get them and decide to either let them accrue interest, or sell them outright, and of course, who is to broker them. Bonds lend themselves easily to saving and investing. Bonds can be tied to PDVSA’s performance and be issued periodically. They also rouse the interest of citizens in the financial health of their country, institutions and oil business, given that they will hold debt from them.
Maybe bonds are a better answer.
“But that brings me back to concept. Why should we be forcing Venezuelans into the oil extraction, distillation, distribution business? What is ours is the oil, not the things that others do with it. Oil business may very well be a good business, but why should it be that every Venezuelan be a part of it… ”
Because that’s the case now, and Venezuelans A) Have unrealistic expectations of it B) Have been robbed blind. C) cannot be functioning citizens of this country knowing nothing about something that is supposedly here.
February 4, 2011 at 12:52 am
loroferoz,
Glad we agree on simpler and easier to explain. To me that trumps almost everything, if it works. But your claim is that it doesn’t. Perhaps you didn’t read the articles in the links. The experiences described in these articles, is that cash distribution does work, and that it solves a lot. In the document of the first link it even states that a study was done showing that the conditionality behind cash distributions is not the factor determing success, just the cash. This implies that the strings you would attach to the dividends would not be what would make the proposal successful, but rather the cash paid out. Read the articles. Seriously.
Regarding the state budget, we agree. I see any version of PDVSA management too state dependent to guarantee no hairy hands fiddling with the dividends. So I don’t see a shares proposal as a sidestep around the Venezuelan State. I see it more like stepping right into their playing field. Why wouldn’t direct cash distribution from the central bank work for you?
Regarding Venezuelans, you can’t have it both ways: if you indicate that Venezuelans don’t know enough about oil wealth, and that owning shares in the business may provide the incentive for them to learn about it, you can’t turn around and claim that the business will run well with people who lack knowledge or even sufficient incentive.
But that brings me back to concept. Why should we be forcing Venezuelans into the oil extraction, distillation, distribution business? What is ours is the oil, not the things that others do with it. Oil business may very well be a good business, but why should it be that every Venezuelan be a part of it, other than to receive his fair portion of letting others buy the oil that is simply underground. Crude oil sales. That’s it. Each Venezuelan gets a share of allowing others to take our oil. The higher the demand for the oil, the higher the price we charge for it. What the buyers do with it and how the buyers make their profit shouldn’t have to be of required interest to all Venezuelans to get their fair share. That would be classist, giving an advantage to those with higher educational backgrounds, or natural interests, or larger investments. With cash distribution, the percentual advantage is for the poorest; the amount of cash distributed would make a bigger difference to the poor than to the rich, not so with shares.
But again: 1) simpler, 2) easier to sell, and 3) it works better (read the articles).
—
February 3, 2011 at 11:31 pm
Probably, the cash distribution is simpler. And it is simpler to explain.
But it does solve little.
Dividends are cash, but with strings attached, responsibility, and some taxation.
The “extra” step is a sidestep around the Venezuelan State. Experience shows it is very untrustworthy with it’s own budget in the best of possible worlds, much less in the immediate future. Bonds, however have to be honored.
Venezuelan workers have been paid before in negotiable government bonds. Maybe they can be, again in this case, paid in bonds. If the government honors them as it should…
If PDVSA manages the resource, rather than try and do everything itself, what should stop agreements with foreign companies?
You get me there, on dividends being the result of decisions by the board of a company. But maybe then, this will be an incentive for Venezuelans to know more about the wealth that spouts out of holes in the ground, who is in charge, and how.
February 3, 2011 at 11:09 pm
BTW, the US social security system may have been funded, but it doesn’t presently have any funds. The SS accounts were looted during the Clinton years of the 1990s; that’s where the “budget surplus” came from. What Social Security holds is a bunch of IOUs from the treasury. Not bonds, IOUs.
The New York Times headline from March 24, 2010 read “Social Security Payout to Exceed Revenue This Year,” and the boomer retirement is just beginning. I don’t expect to ever see a cent of what I paid into the system.
February 3, 2011 at 7:49 pm
loroferoz,
I’d support shares and dividends over what exists now, so don’t get me wrong; I’m not against what you suggest. But you don’t seem to be listening to what I’m pointing out because you keep sidestepping my points. 1) dividends are cash, so you can’t speak in favor of dividends while at the same time speaking out against cash. 2) shares create an extra step between oil revenues and the end user cash, so you need to explain why that is better than skipping the middle paperwork. 3) Using shares of PDVSA as a way of fairly distributing oil revenues to all Venezuelans precludes oil companies that are not Venezuelan helping to increase the revenues, so PDVSA’s success depends on the honor system instead of good ol’ competitive market system. 4) Dividends are not straightforward nor guaranteed, so there would be a lot of room for management to play around with the dividends, such as reporting losses.
There are many more arguments in favor of simple resource revenue versus business dividends, especially when trying to generalize to other natural resources, but, if you wish me to continue considering your proposal, you need to show me that you are at least thinking about what I’m pointing out: cash distribution is simpler.
If you look into the Alaskan example, you will see all kinds of trouble they’ve run into regarding optimizing investment versus dividend decisions that now have to be political instead of business minded. The experience from Alaska is that the idea of forcing people into the roles of investors doesn’t work. The health of a business depends on the shareholders being in it for the long haul, something that won’t happen with your scenario.
But given the presidential elections coming up, answer at least this one question, if both your and my proposals are about giving out cash one way or another, which do you think is more easily and quickly explained to and accepted by the majority of voters?
—
February 3, 2011 at 7:04 pm
Contradiction?
Petroleum revenues in Venezuela are not foreign aid, and they don’t come from taxation of businesses an citizens (outside of oil production by contracted operators).
They come from the exploitation of a natural resource by the State.
They are widely held to be the property of Venezuelans. Whatever… That State ownership equals ownership by citizens is an illusion, a mirage for all practical matters. One that goes with Socialism too.
I only said that if cash from oil revenues must be handed over to every Venezuelan (with presumably no strings attached), you might as well hand over ownership (and responsibility). And actually realize democracy, in the only way there can be democracy where property is involved. Joint ownership. Shares.
In fact, the paper you cite in http://www.cgdev.org/content/publications/detail/1424714
puts up the Alaskan Permanent Fund Dividend and the shares given to residents of Alaska as an interesting, long running and maybe successful example of distribution of dividends. It cites taxation of additional income in general as a way to strengthen institutions and give leverage to citizens in government affairs. That the Dividends do. As well as produce income for residents of Alaska.
Corruption is always there. The idea of issuing shares (and of course, having solid protections for property, these shares included) is to make sure no government will be able to use oil and it’s revenues to control Venezuelans. The cash handouts on the other hand can well go the way of IVSS.
February 2, 2011 at 8:17 pm
loroferoz,
Your opinion regarding cash distribution contradicts the latest finding on the subject
http://www.cgdev.org/content/publications/detail/1424714
http://blogs.monografias.com/sistema-limbico-neurociencias/2010/07/26/here%E2%80%99s-an-idea-for-foreign-aid-just-hand-over-the-cash/
and your support of shares does not contradict the unecessary complications including increased potential for corruption of what is in effect a cash handout, too (i.e., dividends).
—
February 2, 2011 at 1:45 pm
The problem with cash distributions is the same with cash handouts. Cash is, well, cash that rains literally from the sky.
In order for a person to own something, they should be responsible for it. And they should take it freely. Moot or not, there should be the option of refusing shares, or reselling them to PDVSA at any rate. If Venezuelans own oil production, they should have something to show for it. And maybe would have an incentive not to remain painfully ignorant about oil production, to know more about it.
Politicized shareholder meetings are something you have to live with if you allow property and with it decision making power to others.
The government should be completely cut off from the loop at the moment the shares are issued. Previous Ground rules, OK. Ad-hoc manipulation of commercial relationships with a public company, NOT OK.
Let PDVSA become a commercial company for real. Owned by Venezuelans. Not by their government.
There is all the corruption, demagoguery, pork-barreling, cronyism and crooked syndicalism you can imagine in government ownership of these resources and their production. And then some. It is kept under wraps until it explodes and public enterprise reports record losses.
February 2, 2011 at 11:28 am
loroferoz,
Well, there are several angles to shares proposals.
My first reaction is that if the purpose of handing out shares that are non-transferable is to distribute dividends, then why go such a roundabout way to distribute cash? It adds an unnecessary level of complexity to cash distribution, especially to the end users who for the most part have never dealt with shares, but are all well versed in dealing with cash. It also adds a distortion to the meaning and value of shares of PDVSA; it’s a forced role of investor for all citizens, probably leading to highly politicized shareholder meetings for what should be strictly private interests.
My second reaction is that Venezuelans have no conceptual justification for owning PDVSA. Venezuelans own the oil underground. The investors that get it out of the ground own the infrastructure of getting it out of the ground. They deserve the profits from doing that; they just shouldn’t be getting the oil for free. So, Venezuelans sell the oil to PDVSA and profit from that sale, not from the profits derived out of the investments of those who do the extraction, distillation, and distribution work.
There are other issues, too, like the political weakness of laws governing shares. Governments could easily get a shareholder’s meeting to declare new classes of shares, or new conditions on old ones. A whole new set of laws would have to be created for these “special” shares. I shudder to think all the manipulation that would go into that. Shares for gold, bauxite, geostationary orbits, etc. would also have to be created. I envision corruption galore in such a scenario.
But it all boils down to unnecessary complication. Force government to live strictly off of taxation, distributing all other revenue as cash to all citizens equally. That’s as simple as it gets. Fair, efficient, uncorruptible. Just distribute cash. Simple.
—
February 1, 2011 at 10:59 pm
I doubt that Venezuela can afford these pension costs without major changes…
Here in Canada, the national pension scheme was started at a time when the average age at death was about 67, and we started collecting at 65. Now we have the choice to start earlier at a (permanently) reduced rate at 60 years, or the full rate at 65 years. But we have been living until an average of 80 now, and this isn’t sustainable over the next 20 years while the “baby boom” that was a result of those soldiers returning from war in 1945 and the resulting millions of new babies.
So we’re collecting for an average of 15 years, not 2 years anymore, and even though it’s mandatory that everyone contributes all their working days here, I’ll be very lucky to draw on this account.
*All people here and the USA are eligible for the same pension benefits regardless of male or female, it only varies by how much we contribute, and the retirement age is equal for all.
With the coming explosion of food prices worldwide, there’s going to be more pressing matters than making sure we’re merely making the electrical utility payments…
February 1, 2011 at 5:41 pm
Pensions is a hot potato in many countries.
Over here in Germany is the age for a male to receive a pension 67! years.
And it is very clear and everybody knows that in about 10 years the system will implode and ppl in my age will get the minimum pension – after paying at least 15 years into the system. And you have to pay into it by law!
Invest the same amount of money over all those years and invest it in something secure you will have much more money at the time you retire.
February 1, 2011 at 5:37 pm
torres:
Though I believe no single entity should have monopoly over a whole area of the economy, and much less enforced monopoly…
How about issuing individually named, non-transferable shares of PDVSA and asking recipients to agree to such a condition for receiving them (or refusing them altogether)?
PDVSA is, or at least should be about the oil business. If it issues shares, it can attach conditions upon their acceptance by recipients. Which can be refused.
January 31, 2011 at 2:55 pm
Hmmmm, perhaps a modified pension system extended unconditionally to everyone is the way to go for getting a cash distribution system accepted…
—
January 31, 2011 at 1:18 pm
When my wife went to collect hers, she was told someone else was getting it but the problem was fixed.
January 31, 2011 at 12:44 pm
I left the country 3 years ago, but in the IVSS system appears like working there and receiving pays from the same company I quit, and I made my documentation requirement to quit the company and to change my status in IVSS system before leave the country.
I see in comments and I guest lots of the Venezuelan pensions are fraud and lot of people receiving pensions or in amounts they do not deserve.
January 31, 2011 at 12:18 pm
Never mind the minimum 5 years’ contribution. What about the people who have never worked or contributed to the system and who are now receiving the so-called pension because of falsification of data in the system. I hear that there are people with contacts in the IVSS who collect thousands of BsF from people who want false data entered in the system so that they can receive the pension. Whereas those who actually worked and paid the cotizaciones sometimes have a hard time proving that they worked and paid them, especially when the companies they worked for have stopped existing in the country. That’s probably why you get the 83% who are receiving pension, Miguel.
January 31, 2011 at 12:17 pm
liz:
That’s a common problem! Someone else was receiving the pension in my name for years before I reached eligible age. It took me a year to get her removed (she was an employed government teacher). To get your mom off the active list just needs lots and lots of visits to Seguro Social I am afraid and it doesn’t matter if the company doesn’t exsist. They should take it from the date of her last contribution to calculate what she needs to pay. I must admit I gave up after 6 visits and paid a “gestor” (he of course worked in IVSS!)
January 31, 2011 at 11:35 am
You are quite correct. Its just another direct government subsidy and like all subsidies it is abused. Its ridiculous that with just 5 years contributions a person can collect full payment.
January 31, 2011 at 11:33 am
This is my personal experience with the venezuelan social security:
Although I cannot receive it yet… I have paid all of my ‘cotizaciones’! and I have been out of the job market for more than a decade.
OTOH, my mom is 80 years old and cannot receive the pension. Then, last year the government issued a especial plan for those with not enough ‘cotizaciones’… we were so happy, she was eligible!
Our happiness did not last. She appears as an active worker in the IVSS site!! They won’t pay her retirement because she’s ‘working’!! We haven’t been able to solve the problem. And we know of some people that are in the same status. Who’s benefiting with it?
Moreover: the company that my mother ‘works’ for, does not exist any longer.
January 31, 2011 at 10:58 am
I asked someone about the extra year end months, they told me they thought they had received four, may be my mistake.
I still think is too high. In the case of Norway there is a fund with what? 200 billion invested? Here we have nothing. Add to that the profile of our population and the fact that you only need five years work to get it and it is a disaster waiting to happen. The result will be that the minimum salary will have to be smaller and the dream of making us all poor will be a reality.
January 31, 2011 at 10:38 am
“When the State does it, it’s benevolent and wise.”
It is a Ponzi scheme. In Venezuela, by the way, “Ponzi” pretends no personal interest, fuels the scheme with oil (votes are valuable to him, we presume) but steals a bit on the side and gives some to friends and cronies.
I frankly don’t know what effect the failure of Venezuelan pensions will have. There have been so many broken promises that have failed to enrage Venezuelans, who just sit patiently and wait for the golden rain (from the Zeus in Miraflores, I guesss) to fall their way. Maybe they will sit down some more to wait.
Anyhow, when the real, economic reckoning comes, I don’t want to be near Venezuela. The opposition and the chavista government are more alike than they acknowledge and share some of the same delusions, or at any rate perpetuate them willlingly.
They, for example, will never acknowledge that No “Welfare State” Scheme directly managed by the government has ever worked out in Venezuela. Any promise made is worse than empty, it is a cruel practical joke on impoverished people.
And will never work, under present conditions. For public pensions to work here would take changing everybody to Norwegians, French or Germans, including (auchie!) civil servants and elected officials, and having a sane economy with less than 5% inflation, together with solid financial institutions (the last two apply to private pensions too).
When will they get it into their heads? When will it be safe to acknowledge it publicly? Social democracy (or at least the oil fueled Venezuelan versions thereof) has not worked for Venezuela, like State ownership of anything economic, specially oil. When it all blows up catastrophically?
See ya a long way from here…
January 31, 2011 at 10:37 am
Interesting that 4 extra months were paid – I only got 2. I paid into this Ponzi scheme for almost 30 years. It is true that you can not compare the needs of pensioners in first world schemes with those of developing nations. Its just a drop in an inflationary ocean when it buys just half of a cesta basica. Pension fund viability depends on the amount of employed people paying into the fund and the average age that people will live to (although this doesn’t count in the Venezuelan scenario because of the payment to survivors) and investment returns. As most of those factors are in decline in Venezuela there seems little option other than an oil funded scheme.
January 31, 2011 at 10:21 am
I Agree with Yngvar: 15% is not enough. The issue is what they do with the 85% that is not dedicated to the SS programs. Of course, the “fairness” criteria doesn’t work here. It’s a survival matter (US$ 5000 do no make people more or less lazy at that age, and is not enough incentive to make younger people to be less productive). Again, the problems are others, and changes have to come together with the proper use of the additional 85% of the resources.
January 31, 2011 at 9:25 am
If you retire to a country with a pension Ponzi scheme then you will be the one with money in a poor country. I think that is why the elite stand by and do nothing. If the economy does well they make a lot of money. If the economy does bad, then they are the ones with deep pockets and their money goes further. Either way, they live well.
January 31, 2011 at 9:04 am
The pension ponzi scheme is already starting to unravel in Europe.
In the US, it will fully blow in 10 years or so. For example, it is a fact that many important pension funds (such as the Teamsters’) will run out of cash (yes, they will deplete) sometime at the end of this decade. Even the notoriously mighty Calpers, as expressed by its manager, needs a return of 8,5% forever (!!!) in order to be fully funded.
The debate is which generation will bear the consequences of irresponsible promises, ever increasing longevity and compounded interest.
The underlying problem is that the modern capitalist and democratic state model is at stake. And tragically good for the chinamen, taliban, mobutus, and the like.
Urgent and drastic action is needed, but politicians around the civilized world are dealing with current problems, and leaving to the next guy the atomic-bomb-type damage caused by demography, statistics and financial math.
My advise to the little guy is to save, save, save, invest in something that does not normally lose value (land, bonds, commodities, etc. always in a basket of “hard” currencies) and, have a plan “B” of retiring to a country without the pension ponzi scheme (Chile, Norway, etc…. even the Dominican Republic).
January 31, 2011 at 8:29 am
“You know, you can be a real asshole sometimes.”
Not just sometimes. I think it is a life long vocation.
January 31, 2011 at 8:26 am
Thanks, Miguel. Revolutionary they were. Do you have a name or two from that group?
There should be a “Museo Virtual Venezolano de Proyectos Engavetados”, with names and all.
January 31, 2011 at 7:59 am
Kepler: It was very simple, the Congress before Chavez was elected approved a funded pension system. It increased the age to 65 and created a transition period of I think 5 years. It made all pensions uniform, including universities. At Chavez request the new Congress held the implementation back until a Committee recommended changes within six months. Six Months went buy, nothing. It was extended for six more months. Nothing. Then, for six more months. Nothing and the “problem” was forgotten.
Most of those in this committee were “revolutionary” university Professors eligible to be pensioned off under the old system but who would receive lower pensions under the new system. They could never agree on what to do.
January 31, 2011 at 7:39 am
I wonder who’s going to fund the pension system in a decade after all the young professionals have left.
January 31, 2011 at 4:02 am
Great post.
“unless the Social Security system is funded, a project that Chavez killed when he first became President in 1999.”
Can you elaborate on that, pleeeease? Cuenta, Miguel, cuenta.
Yngvar,
Norway is so completely different. For one: there is an oil fund that is managed in a responsible way and that has been so for ages. I remember watching one very peaceful protest in Oslo of drugstores professionals because they wanted less money going to the fund and more to their pockets. And yet when I found out the details I saw it was really the kind of problem any country would like to have.
Norway is a highly educated country and the population was already highly educated – on average, as compared to the rest of Europe – when it was under Danish rule, way before the Swedish union. Although Norwegians tend to say “before oil Norway was poor”, this “poverty” was very relative. Norway was not much poorer than Sweden before that, just a bit. The productivity levels of Norwegians could become very high if need be. The only problem I see right now in Norway is with the hundreds of thousands of recent immigrants, some of which have no idea how the system works and have very little education and do not know how the system is paid and live from dole money without making the extra effort. I am sure there are a couple of Norwegians doing that as well, but probably less, it has to do with traditions and education and understanding of the system.
I wish Venezuela could learn a bit from Norway, but I also am not very sure this is priority 1, 2, 3 or 4. Priority 1) is education. Pupils have very bad basic&secondary level education in Venezuela and we have not addressed that at all.
Then there is the real jobs issue. Half the population is selling Chinese toys and Peruvian panties or Venezuelan empanadas for a living, without paying any taxes (most earn a misery, some do earn very well). Some people are working hard but most of them are working by using tools of the XIX century. And the others have no idea about productivity.
January 31, 2011 at 3:47 am
Luis Peña
Governments don’t fear the 55 plus aged folk. Take it from one.
If they fear anyone is 18 to 35 age group.
Whatever they decide to do for pensioners is pure propaganda. I can see them laughing at close doors in Miraflores: “Yes let’s give them a rise. Afterall when we devalue the currency their real spending power will be less and they will be totally clueless about it since they have a few more Bs. in the pocket.”
A big scam that is all it is. VZLA Paraiso Perdido
January 30, 2011 at 10:24 pm
“Here in stupendously oil-rich Norway universal entitlements…”
And people who have neve worked are also entitled to a pension? Where is the encentive to work for the new generation?
January 30, 2011 at 10:21 pm
Yngvar: Yes, but here it is 55 years for females and the Govt. borrows about 8 billion a year…moreover, I did not deal with the question: Is it fair? That is, you are paying these pensions in a country with extreme poverty. How do you set the priority?
January 30, 2011 at 10:17 pm
“so when are you fleeing the country? I havent looked at Daniels blog in a while because I assume by now he was doing it from the Castro District in San Fran…..so that leaves only you….why stay unless you are gonna learn chinese?”
You know, you can be a real asshole sometimes.
January 30, 2011 at 10:13 pm
Here in stupendously oil-rich Norway universal entitlements (pensions, sick-pay, unemployment benefits, maternity leave comp., etc.) amount to 33% of the government budget. Additionally there is also a mandatory pension system for both private and public employees.
I don’t think 15% sound that high. In a welfare state, paying out entitlements are one of the main obligations. It looks to me that the Venezuelan state are spending way to much on other things, on stuff the government shouldn’t intervene in.
PS. We reformed the pension system last year, to prevent (hopefully) the boomers from wrecking it all. An average retirement age of 62 was just to damn low.
January 30, 2011 at 8:42 pm
so when are you fleeing the country? I havent looked at Daniels blog in a while because I assume by now he was doing it from the Castro District in San Fran…..so that leaves only you….why stay unless you are gonna learn chinese?
Venz will never revolt like the Egyptians…they have too many mango trees to choose from
January 30, 2011 at 8:17 pm
You are touching a hot potato here. A government that haven´t rose fuel price due to its fear of an uprising is not going to touch one of the few reasons so many people declare themselves to be Esteban´s followers.
Believe me, my mom is very reddish and one of the very first reasons she cites to follow this government is that her pension was put to a good level.
So please do not even imply a reduction because you will get a “Caracazo” version II, even if not from the old people, from their offspring.
So. What do you suggest? Even when nobody from officialism or the opposition is going to do it
January 30, 2011 at 8:16 pm
There is absolutely no way that can work economically. They will have to rapidly inflate the currency to make those pensions worth as little as needed to keep the country afloat.
In the US the pension obligations for the government employees is astronomical, they paid in very little and are promised large benefits, but the country is broke. It isn’t going to work, I can tell you, but I can tell you that he will expand it to the entire government sector in order to keep them all on his side.
That is politics, reality be damned.
January 30, 2011 at 8:08 pm
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January 30, 2011 at 7:50 pm
Social security pensions are just one big ponzi scheme. Really, when a indivudal does a scheme like that like Maddof did, he is one evil dirty capitalist.
When the State does it, it’s benevolent and wise.