The words 'pensioner's paradise' might no longer a reality for many elderly people as most pension schemes are losing sheen. The final salary based-pensions that are indirectly dependent on the stock market might go for a toss and keep the pensioners at bay due to the sharp fall in the markets.
Unfortunate are the employees on the verge of retirement this week when the stock markets are bearish. Annuity rates determine the pensioner's income, so when the annuity rates are pushed down to the lowest levels by stock markets, the employees might find it extremely tough to make up for the losses. An alternative for the retirees this week is probably to work longer and look for additional voluntary contribution schemes. For younger people, it might be feasible but for the old, it looks like it's time to brace up for tough times ahead.
"If we lose money on our pension plans, it might result in higher contributions needed at a later point," said Kentwood finance director Tom Chase for Wwmt.com. The stock market will have ripple effects on the local governments depending on the fluctuations in the stock market. The health insurance schemes for the retirees will suffer a setback as the retirement benefits are also tied to stock markets. A similar thing happened in the year 2008 when the stock markets crashed. According to Kent County administrator Daryl Delabbio, "For the county, the exact effects on pensions may not be known for two years." This is because the rates are already set for 2012 and the costs are already established.
The stock market analysts say that the U.S. state and local governments would have to raise taxes by about $1400 per household every year for the next 30 years to make up the shortage of pension funds. The public is already raising a hue and cry in the recent months over this issue. There has been a debate in many states over the pension funds that have become thin due to the financial crisis in 2008. Any further market crash will add to the woes of pensioners and their retirement benefits.
The only silver lining here is that a significant portion of the daily operational budgets for local governments does not bank on the money invested in stocks. Thankfully the state law prohibits that. Chase also said that Kentwood invests in the bond market, which is not facing bad times. There is no need to strike panic as most pension plans are tailored to ride out tawt markets.