In short: no one’s old age depends on the market anymore, because the elder floor is paid whatever markets do. Savings and pensions above the floor are earned, and stay the saver’s. The transition protects them from crashes and from people who would push their costs onto them.
Exposed twice
A woman who worked forty years as a bookkeeper has her retirement savings in a fund that holds shares. During the transition, two things can happen at once. Markets can soar on automation wealth and then fall hard. And her children’s wages can weaken as their work is automated, just when she hoped to help them. Today, a crash in her last working years could cut her retirement in half, with nothing under it but a thin public pension.
The elder floor: a base no market can take
The floor is paid to every person every month, including every retired person, whatever happens to markets (the floor). In the transition it arrives early for elders: existing public pensions are topped up to the floor, so most of the money already flows and the change fills the gap (where the money comes from).
That changes what savings are for. They no longer have to keep a person housed and fed. They add to a life the floor already secures.
Pensions fold into the floor
Public pensions fold into floor credits as the floor rises, so no one receives less than they do today. A pension above the floor’s amount keeps paying the difference, because it was earned. Pensions paid by employers, and savings people built themselves, stay theirs in full.
Savings above the floor are earned
Savings are contribution income set aside, and returns on them are earned returns (how contribution gets paid). The floor is never reduced because a person has savings, and the income tax rule that earning always pays applies to returns as well. Saving is never punished.
Protection from those who would push costs onto savers
- Buyouts that raid pension promises. A buyer that loads a firm with debt and lets it fail can leave its workers’ pension promises unpaid. The buyout rules reclaim owners’ payouts if a bought firm fails within five years, and pay unpaid pensions from them first (buying and merging firms).
- Advice paid by products. A saver’s adviser owes a duty to the saver, with no pay tied to the funds sold (advice with no hidden seller).
- Machine cascades. Halts and unwinding keep a malfunction among trading machines from wiping out a lifetime’s savings in minutes (when machines trade).
Safe money for what must be safe
Savers who want no risk at all can hold savings in their public money account, which can never fail (safe money and banks that can fail). The choice between safety and return becomes clear: safe money in the public account, or investment openly at risk, never a deposit that seems safe because the public quietly stands behind it.
Pension funds as broad owners
Pension funds already own large shares of many firms on behalf of millions of ordinary workers. That makes them one of the few forms of broad ownership the present economy already has. In the transition, they are natural allies of the closed-field test, the buyout rules, and the duty to the client, because their members lose most when firms are stripped or markets are rigged. Whether pension funds could also hold part of the public share on the public’s behalf is an open question.
What stays open
- How to protect savers caught by a crash in the years before the elder floor reaches its full amount.
- Whether pension funds, or a public fund alongside them, should hold part of the public share.
- How employer pensions are protected when a firm is weakened by automation rather than by a buyout.