It is worth noting that pension plans are always going to be a regulated industry. There is a huge amount of trust in giving somebody money now and expecting it back (with interest and earnings) in 30 years. If you do a truly private firm, then there is a concern about outright theft. If you do a government overseen hybrid model, it appears that things can also go wrong:
Why is this becoming a big issue now? Because for its first 35 years, when it was being hailed as a free-market miracle, not many people were actually retiring. Now they are, and it turns out their pensions are pretty paltry. If net returns had been closer to the 8 percent retirees deserved, their pensions would be three times higher. Fees like this are basically legalized theft.I think Kevin Drum is a bit bombastic in his conclusions here. but it is easy to see how there can be a lot of wealth extraction. After all, a 401(k) plan has a management fee and then invests in instruments (like mutual funds) that also have management fees. It's easy to see how these layers can add up, even before one considers the possibility of investing in a hedge fund with both management and performance fees.
That is why I am interested in options like social security. Governments have political risk (they can cut benefits or be destroyed by war) but they have the longevity to make these types of commitments. Governments do best in the face of issues like collective action problems and social insurance, and saving for retirement has features of both of these problems.
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