IMF warns of £750bn pensions time bomb

Britain’s ageing population is threatening a pensions time bomb that could cost as much as £750billion, the International Monetary Fund has warned.


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Low-income seniors will pay the price for OAS plan

The government has said the OAS change is required because of cost pressures created by the huge baby boom generation, but its implementation rules have exempted most of the boomers from the new OAS rules to avoid immediate political suicide. Given that, what’s the point of the change?
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Europe debt crisis triggers fall in oil demand

Within the OECD, European oil demand has taken a substantial hit. In aggregate, European oil consumption contracted at a rate of 272 thousand bpd or 1.9 percent last year. Similarly, crisis-struck Greece has seen its oil consumption rate contract by 8.9 percent in 2011 as GDP continued to drop. Other deficit nations in Europe such as France, Italy and Spain have also experienced substantial declines in recent months as the sovereign debt crisis continued to unfold. For instance, Italy’s oil demand contracted at a yearly rate of 4.9 percent in November just as Spain’s fell by 7.4 percent in the same month.

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Mayor of Providence Seeks Urgent Steps in City’s Financial Crisis

The mayor of Providence, R.I., on Thursday laid out a series of steps he said were crucial to shoring up the city’s finances. He warned that it would otherwise run out of money in June.

Mayor Angel Taveras, a Democrat, outlined plans to reduce pensions for retired municipal workers and vowed to appeal a recent state court ruling preventing the city from forcing its retirees to switch to the federal Medicare health insurance program when they turned 65. He also called for bigger contributions from major tax-exempt universities and hospitals in Providence.

“The worst-case scenario is bankruptcy,” Mr. Taveras said in a phone interview after a news conference at City Hall.
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Pension Threat: The Looming Crisis Facing Investors

Pension funds have become seriously underfunded. According to a recent report from Credit Suisse some of the nation’s largest companies owe their pensions more than 25% of their market cap (after taxes).

Pension Shortfall as Percentage of Market Cap

AK Steel (99%)
ITT (83%)
Goodyear Tire (67%)
United States Steel  (59%)
Sears (43%)
Lockheed Martin (39%)
Supervalu (39%)
Computer Sciences (37%)
Whirlpool (33%)
Ford Motor (32%)
Alcoa (30%)
Donnelley (29%)
Textron (27%)
Raytheon (25%)
Source: Credit Suisse

This developing situation is potentially market moving because it could require companies to make larger contributions – much larger. And if contributions ‘do’ go up, the money will have to come from someplace on the balance sheet.

“A pension accounting change at UPS will result in $527 million after tax charge in 2011,” says Joe Terranova. “And Sunoco said they have to contribute $80 million into their pension funds.”

“I think in 2012 it will be a recurring issue,” Terranova says.

John Ehrhardt of Milliman confirms the thesis. He tells us that investors should expect record numbers of earnings charges in 2012.

“Record low interest rates result in historically high liabilities and the only remaining lever may be employer contributions.”

And according to Ehrhardt this may be just the tip of the iceberg. “These companies are going to need 20-30% returns to fill the kinds of gaps we’re talking about.”
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Feeding the Pension Thieves

Every year state politicians loot the pensions of more than 17 million public workers and retirees to “balance” budgets, yet those workers keep putting the looters back into office while fighting the few who try to head off this $4-trillion national economic catastrophe.

A look at the latest U.S. Census data shows that over four years the geniuses running state pensions lost almost 20 percent — $552 billion in total investment value — and blew more than $600 billion of income needed to pay benefits. They lost $4.33 for every dollar public workers “contributed.”
However, the geniuses did manage to pocket $36.6 billion in “Other Expenses” for themselves and their pals in the process.

That puts funds almost $1.3 trillion behind where they promised to be and increased the real long-term funding shortfall to well over $4 trillion despite taxpayers pumping $378 billion into the void through employee and government “contributions.”

Why do rank-and-file public workers continue to feed this devouring beast? Maybe it’s because they think oblivious taxpayers will endure decades of service cuts and tax increases to pay for it. They should think again.

One question not asked or answered by panels on Collective Bargaining, Public Pensions and Voters: The Policy and Politics of Public-Sector Employees in the 2012 Elections at the American Enterprise Institute last week is:

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U.S. Pension Agency Pressures American Airlines

The federal government signaled Tuesday that it was ready to fight to prevent American Airlines from using bankruptcy to shed its pension plans.

While American has not said it intends to force the government to take over its pension plans, Joshua Gotbaum, director of the Pension Benefit Guaranty Corporation, said he was hoping to get out in front of any such move by the airline. The agency is already operating with a $23 billion deficit and has said it would bear an additional $9 billion loss if American terminated all four of its employees’ plans, which cover 130,000 people.

Last month, American’s parent company, AMR Corporation, said that it was contributing just $6.5 million to the pension plans, far short of the $97 million contribution that it would need to make if it were outside bankruptcy.

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