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Pensions Drive Global Debt Three Times Higher Than Previously Estimated

(REUTERS/Amr Abdallah Dalsh)

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Bloated pension funds are a growing problem among many industrialized countries and may be driving global debt to three times previous estimates, according to a report Tuesday.

Pensions are a popular investment plan that require regular payments by  both recipient and employer. Government pensions have a tendency to inflate beyond what is manageable. Citigroup argues in its new report “The Coming Pension Crisis” that debt is three times higher than thought among 20 leading industrialized nations because of pensions.

“We estimate global retirement underfunding sitting on government balance sheets for these twenty countries to total $78 trillion, compared to reported national debts totaling $44 trillion,” the reported noted. “Total global government debt may be three times as large as people currently think it is.”

The report takes into account both pension liabilities and social security. It contributes the problem to several factors, including longer life expediencies and bad investments. Those retiring are becoming a much larger percentage of the population compared to working age adults.

In the U.S., public-sector pensions have proven to be a huge problem for state budgets. The Competitive Enterprise Institute (CEI) found Sept. 29 that unchecked union power has prompted unsustainable member benefits, perhaps most notably rapidly expanding pension obligations. With the threat of striking workers and government shutdowns, politicians rarely stand up to organized labor.

The Commonwealth Foundation found Pennsylvania alone has $50 billion in unfunded pension liabilities. A significant percentage of school budgets across the country often go to huge pension funds. Teachers unions, among some of the most powerful labor groups in the country, make sure pension reform is incredibly difficult.

Some states have been able to get out of their pension debt through sweeping reforms. Wisconsin Republican Gov. Scott Walker was able to rein in pension debt through limiting union power in 2011 by signing Act 10 into law. His office estimated that the measure has since saved state taxpayers over $5 billion.

New Jersey Gov. Chris Christie recently won a long legal battle with state unions over pensions. Christie cut state pensions in 2014 as part of a reform bill designed to address budget problems in the state. Unions claimed the cuts violated a contractual agreement the state had to fund retirement. The New Jersey Supreme Court ruled June 9 the pension cuts were legal.

The Greek financial crisis can be partially blamed on extreme pension debt. Growing unemployment, early retirement, horribly run welfare programs, declining labor standards, complacent and corrupt officials and powerful unions have all been blamed for the financial problems. The crisis has become so bad it has since impacted markets from across the globe.

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