[olladecarne]

Pension funds take money from poor people and give it to rich people, just like everything else. When the economy is doing well, rich people make billions by managing them, and when it's not doing well rich people still make billions until the funds become insolvent. Here's a PBS documentary on the state of pensions in the US: https://youtu.be/_r0htm5uHPQ

[sicp-enjoyer]

Somehow I don't think you're giving the full picture.

[socialismisok]

What's missing from the picture?

[sicp-enjoyer]

Well any kind of nuance or perspective.

Here is one thing to consider. A pension trades returns for stability. People pick a pension as their form of retirement because they have a lower risk tolerance. Anytime these tradeoffs are happening you are going to see wealthy people who took the risk side and came out ahead.

Did you know your insurance company is getting rich off your premiums? Are you going to stop paying them and get out of this "greedy" arrangement that takes from poor you to rich them?

Obviously my comment isn't the full picture either. These institutions often have moral hazard, etc.

[xtracto]

> Did you know your insurance company is getting rich off your premiums? Are you going to stop paying them and get out of this "greedy" arrangement that takes from poor you to rich them?

You chose the worst example possible. For profit insurance is a scam, as the insurance company ultimate goal is to pay the minimum amount possible for claims, even after people have diligently paid very expensive premiums. It is one of the most rigged system, which amazingly is culturaly acceptable. (I am sure it is going to go the way of the "private firefighters" in the future).

[sicp-enjoyer]

Do you use insurance?

Here is an example of exchanging risk voluntarily that I don't fits your comment. Farmers will often make deals to sell their goods for a fixed amount before planting. The other side of that deal is a futures contract where investors speculate on commodity value. The farmers accept lower returns while the investors may get fabulously wealthy. Are the farmers being scammed?

[cmeacham98]

If pensions trade risk for stability, then why does this article exist?

[lazide]

Because some of the pension managers apparently decided doing what they were supposed to be doing was boring.

[sicp-enjoyer]

The stability is for the person who receives the pension and has a contract that guarantees them payments.

[landemva]

Most insurance companies are highly regulated so they will pay claims.

[socialismisok]

My insurance company should be, imo, unable to get rich off me. Insurance should be nationalized, imo.

But it's the only game in town. I'm a socialist, but until there's a world where we're all taking care of each other and running worker co-ops, I'm going to have to operate in the existing structures.

[tpxl]

> My insurance company should be, imo, unable to get rich off me.

Where I live, there's a cap on the profits from insurance. I've gotten letters a few times saying due to high profits, the premium for the last month of the year was going to be lower.

That doesn't prevent them from running other scams like 10 year 'insurance savings' with 1% total yield, but those are optional.

[gorgoiler]

How do mutualised institutions — building societies, credit unions, profit sharing with employees — fit into your world view? Are there credit unions that offer insurance products, or is it too risky lumping peoples savings with a risk-forward product like insurance?

[socialismisok]

Generally I'd prefer them over capitalized institutions. At least the people who are making things work are seeing direct positive results.

In some cases (eg health insurance) I believe a single large national pool is preferable.

Should credit unions offer insurance... I am not sure. I think it's reasonable if that's what the credit union members want, but they'd need to be very careful about the policies they were issuing and the potential payouts.

[hackerlight]

It's not the full picture only because a handful of pension funds do their job properly, they come up with a sensible diversification and put it into passive instruments.

Everything beyond that is a scam. High fees for what should be a simple task, or taking reckless risks or allocating to active managers, is where the scam part comes in, and most of the industry is guilty of that.

[sicp-enjoyer]

Complaining about finance compensation is common, but like sales, it's directly tied to earnings. Suppose you take an easy strategy and get 6%. Suppose a professional can work hard and get 6.2%. It's well worth paying for that top performer when you have a pension of $500 million.

My guess is that much of the distortion is caused by moral hazard where pensions know they will be bailed out for taking ridiculous risks, not because they pay professionals to manage money.

[wyager]

Have you considered that you have the causality flipped, and that people are generally rich because they're good at making money under adverse conditions? Would you expect someone who was capable of accumulating large amounts of wealth to get BTFO by a market downturn?

If pensions have a problem, it's because they were never economically viable, and at this point basically serve as a vehicle to transfer money away from the majority of people and towards retired boomers and government employees.

[freemint]

> Have you considered that you have the causality flipped, and that people are generally rich because they're good at making money under adverse conditions?

They might have. However any look at generational wealth dynamics quickly dispels that idea. Any above market performance rich people have are simply able to have better managers because managing bigger pools pays more and maybe an education which focuses on maintaining and building wealth. This education could be widely available but it is not made widely available. I am not going to imply a conspiracy here or appeal to class interests for explanation and just leave it as a statement of fact.

[wyager]

> However any look at generational wealth dynamics quickly dispels that idea

Generational wealth statistics, as well as heritability research, are consistent with the idea that expected wealth is causally preceded by genetically heritable factors.

Wealth is mean-reverting along genetic lines on multi-generational timescales. The idea that wealth is self-perpetuating per se fails to explain the degree to which e.g. poor lottery winners do not kick off dynasties, why children of moderately wealthy parents also tend to be moderately wealthy (not explainable by direct inheritance), etc.

The one domain where your model works better is perhaps for extremely wealthy families like the Rockefellers, but I'm hesitant to say that the model generalizes - that sort of thing might be a rare exception.

[staticman2]

Unless a child is put up for adoption they will inheret a lot more than genetics and money from their parents.

For example: The child of a doctor or lawyer is much more likely to be pressured or encouraged to go into law or medicine.

[wyager]

> Unless a child is put up for adoption

They have, of course, tested this as well.

[staticman2]

Which is neither here nor there.

If you don't understand that the child of a lawyer will be encouraged or pressured into going into law, and therefore staying in the socioeconomic group, you'll overrate genetic factors.

[mihaaly]

As far as I see those making money (actually value behind it) are not getting rich but those who sit on top of the money flow do. Skimming it.

Also pension funds take over money from young or middle age, yes, but not giving it to anyone else than themselves on the end, when they became old. It is not given to boomers, are you sure you know what pension funds do and how it differs from traditional (social) pensions?

Not given to else eventually, except in the meantime when given into the care of financial professionals to hold it for them to keep its value - for a very generous fee, not for free of course, the fee of the professionals is determined by the professionals themselves - and indirectly to bad politicians to finance the everlasting popularity spending and consequential budget deficit through bonds (or sometimes for a good cause too, like in recent and ongoing turmoiled period in the form of social support, which might still strongly overlap with popularity runs, see current UK government).