>n cases where a pension job paid less than prevailing wages,
How often is that actually the case? I think it was the ideal and expected result at one time (civil service job + pension = private market job) but the connection was broken long ago.
How often is that actually the case? I think it was the ideal and expected result at one time (civil service job + pension = private market job) but the connection was broken long ago.
Long ago, private sector jobs also had defined benefit pensions, and civil service jobs still were notorious for having lower pay outside of low-end labor (where, sometimes, civil service jobs still, in addition to pensions, have competitive pay and better pre-retirement benefits.)
If I weren't going to start collecting a pension soon from some ago company that by now has gone through a couple generations of acquisitions would I have been paid more at the time? Maybe I guess. But it's very indirect.
We have a lot of laws around pensions these days to prevent that. However they were written when the investing environment was different (higher interest rates made AAA bonds a great investment, so investing in risky stocks didn't make sense). The result is pensions are generally have a terrible return on investment. You are much better off with a well managed 401k in modern funds (at least as I write this and the 30 years before, while I can only guess what the future will hold I think that trend will hold for the next 10 years at least).
401k has one other advantage: it is clear where the money is and who controls it. Pensions often are setup as a great deal if you work for the same company for 40+ years (25-65), but if you switch jobs you don't get nearly as much, even if all the other companies have a pension plan your total is much worse.
I'll add another one: the investor can tailor their risk to where they are in life. At some point, it probably makes sense to put even most of my savings in very low risk, low yield bonds.
But that point is probably not when I'm in my twenties.
I actually understand the appeal of a (presumably) low risk "guaranteed" annuity payout at retirement that may have been a long ago benefit you never really thought about. But it probably wasn't really free and probably doesn't represent a better investment than if you were given the actuarial share of the money paid into the pension on your behalf instead.
A lot risk annuity payout is a great insurance against living to 105. I tell people when they retire they need to figure out the minimum they need to live on and invest in a guaranteed annuity that will pay that amount (ideally inflation adjusted) until they die. However because annuities are not really a great investment, don't put any more than that in them. Plan for a more normal lifespan.
An annuity or two isn't bad. I'll have one through a long-ago DB pension and another through a charitable trust that wasn't really a great financial "deal" but I wanted to donate and it provides another income stream. But they're pretty much just nice add-ons (in addition to social security of course).
I'm not against annuities, including DB pensions. I just don't think (honestly funded) DB pensions are this fantastic benefit that's been yanked away from people who could have taken the same amount of money and invested it otherwise.
They stopped because tax policy was adopted to incentivize more portable, defined contribution plans, as a deliberate effort to both increase retirement insecurity and promote labor mobility.