Apparently, Argentina’s President Cristina Kirchner has signed a proposal nationalizing the country’s private pension funds. The Wall Street Journal reports here that this is being seen as a “grab for cash and power amid the global economic crisis.” Excerpt:
Argentine stocks fell by more than 11% in reaction to news that the government plans to nationalize private pension funds.Details of the proposal — which must be approved by the country’s legislature — were not immediately available. It was signed by Ms. Kirchner, along with Labor Minister Carlos Tomada and Amando Boudou, the head of the national social security system, ANSES. But an announcer during the televised signing ceremony described it as a project to “eliminate” the “capitalization system,” a reference to the defined-contribution plans run by 10 private funds known as AFJPs.
In a speech following the signing ceremony, Mr. Boudou said the reform would “rescue Argentine retirees from uncertainty.”
This Bloomberg article here indicates:
About 55 percent of the 94.4 billion pesos held by the country’s 10 private pension fund managers are in government debt, according to the pension regulator’s Web site. Nationalization would allow the Fernandez administration to write off the government bonds held by the funds, said Javier Salvucci, an analyst with Buenos Aires-based Silver Cloud Advisors.
More from this BBC article here:
Amado Boudou, head of the National Social Security Administration, which will take over the funds, said the “failed experiment” of private pensions was finished.But the pension administrators defended the system, saying it had a “solid mechanism” that had seen an “almost constant growth trend in the 14 years of its existence”.
Union leaders have welcomed the nationalisation move. The commissions on the pensions and the lack of a guaranteed minimum pension has made the private system unpopular with many Argentines.
All of this sounds a bit reminiscent of some of the comments being made about our country’s retirement system and the push to have a universal pension as discussed here and here, a proposal which I wholeheartedly reject.
Some language from a proposal being advocated (the parallels seem obvious to me):
Short term, I propose that since 401(k) accounts and the like are financial institutions — the bank about where 38% of the workforce can intend to save for their retirement — Congress let workers trade their 401(k) and 401(k) – type plan assets (perhaps valued at mid-August prices) for a Guaranteed Retirement Account composed of government bonds (earning a 3% return, adjusted for inflation). When the worker collects Social Security, the Guaranteed Retirement Account will pay an inflation adjusted annuity, based on the accumulated funds.How would this work? Take a 55 year old who had $50,000 in his 401(k) account in August and faces job loss and eroded assets because of the erosion of his retirement accounts. Let him swap out the $50,000 for a guarantee of $500 per month. The economy is probably in a recession, but a guaranteed income from his former 401(k) removes a source of financial anxiety, and — this is not trivial – it end fruitless discussions with brokers and financial sales agents, who are also desperate for more fees and are often wrong about markets. . .
The sooner we admit that our 30 year experiment with 401(k) accounts has failed the sooner we can use these precious government subsidies efficiently and equitably.