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Good News on Pensions? Not So Fast

Reuters gives us something we haven’t seen in a while: good news about public pensions. The median rate of return on public pensions has risen to 7.5 percent during the first quarter of the year—a significant increase from last year’s dismal rate of 4.2 percent, and better than the 6.03 percent median for the past decade as a whole. After years of poor returns, pension investments are finally making a comeback.

Yet this good news is not as heartening as some may have hoped. Returns of 7.5 percent may look good compared with the rock-bottom rates seen in 2008 and 2009, but most pensions assume a rate of return of about 8 percent. Even in good years, pensions have had trouble producing returns this high. During the past decade, median returns were only 6 percent, and while these years contained the largest recession in recent memory, they also contain a long, sustained boom. If recent history is any guide, the 7.5 percent returns will stabilize at a somewhat lower amount, and taxpayers, policy makers and retirees will be struggling unhappily with the consequences for decades to come.


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  • thibaud

    Holland has what WRM would call a deeply “blue” social model.

    Why then do Dutch pensions have a solvency rate (>105%) that is vastly higher than ours?

    Could it be that pension sustainability has nothing to do with the degree of “blueness” of a particular political entity, and everything to do with the quality of management, the governance regime, the integrity of elected officials?

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