Final Word from Thursday, September 1, 2016
If a pension-fund salesman knocked on the door promising an 8% annual return, a wise person would send the charlatan packing. Interest rates are so low that Czech pension funds, according to today's HN, want to be allowed to park their money at the CNB for a measly 0.05%. Yet public pension plans run by city and state governments in the U.S. are assuming an average future rate of return of 7.6%. By doing this, they're able to disguise their future obligations to retirees. By one estimate in the Financial Times, these pension plans have unfunded liabilities of $5-6 trillion. That's roughly 25 times the size of Czech GDP. Economist Pavel Kohout wrote in LN on Mon. that how to pay for future pensions is Europe's most pressing economic problem. Bigger than the Italian banking crisis, he said, and much bigger than Greek's financial problems. As Czech politicians bicker about capping retirement at 65 or 67, they're missing the big picture entirely. [Czech Republic Czech National Bank age]
Glossary of difficult words
charlatan - a person falsely claiming to have a special knowledge or skill;
to send someone packing - to send someone away; to dismiss someone, possibly rudely;
measly - ridiculously small or few;
unfunded liability - the amount at any given time by which future payment obligations exceed the present value of funds available to pay them;
to bicker - to argue about petty and trivial matters;
to cap - to place an upper limit or restriction on (prices, expenditure, or borrowing).