Posted on 12th March 2019 by Trevor Reynolds in Blog |Finance in Focus

We notice that our client base gets older every day, as indeed do we.

And edge closer to retirement age.

Some retirees will have a pension or several pensions (state; employer-based; private) to pay the income. Some will have a lump sum.

If a lump sum, how to eke out the amount so you can make income from it without eroding the principal?

Traditionally, retirement income has been paid out by fixed interest securities. When you could get 6% p.a. in most major currencies you could finance a retirement out of a lump sum. And many high-grade bonds would give you a similar yield.

Retirement income can also be paid out of high-dividend stocks. BP, for example, has a dividend yield of currently 6.8% (and, through pension funds, services about 10% of all UK private and corporate pension payouts).

However, there has been no large stock market correction for nine years now, so the chances of the value of a dividend-bearing stock portfolio getting savaged by 50% are quite high (2000-2002, S&P 500 -50.5% top to bottom; 2007-2009, -57.6%). That kind of risk you may not want to take with retirement money.

And for fixed interest, the governments’ response to the 2007-2009 financial crisis was to lower rates to zero, basically sacrificing savers and the retirees to bail out the banks. In this process first-world nations accumulated much larger national debts (end 2018, UK 86.6%; France 97%; USA 107.1%; Italy 131.1%; Japan 253%).

Interest rates, especially in the USA, have begun to edge up again, but they cannot be historically normalized as the debt servicing, i.e. the payment of due interest, would simply be too large for the debtor nations to pay them. First-world government debt has been boxed into a corner.

It is a crucial observation on financing retirement income that cash won’t do it, unless you erode your capital (i.e., spend your money); bonds won’t do it; and the stock market is too dangerous to do it.

In which context we would like to remind you of the Ebisu Income Fund, which is paying 8-10% p.a. on a highly robust process. No losing months (since the first month: set-up costs, nearly nine years ago). All loans made within the fund fully collateralized, with 30-40% safety margin, in case of a borrower default (one to date). Multiple loans ongoing across different time-frames, so there is always money coming back into the fund. Monthly liquidity, so when you wish to withdraw your profits as income, the process will not take more than a couple of months.

Ebisu Income Fund (Isle of Man)

Posted on 1st March 2019 by Trevor Reynolds in Blog |Finance in Focus

The Banner Asset Management Ebisu Income Fund (IOM) has been established to invest mainly in  Australian mortgage funds, the Banner Ebisu Income Fund, the Banner Wholesale fund, and the Banner Institutional fund. Together referred to as the Master fund.

The Master Fund is a mortgage and construction loan fund based in Australia.  All monthly returns since the first month of operations have been positive.

The fund has security of invested capital as priority. It lends money to developers, with loans usually ranging from $10 million to $50 million. The fund does invest directly in property: the fund lends a percentage of the ‘on completion’ value of approved property projects. Australian law enables the lender to step into a property and sell it (or complete the project) where a loan defaults. The loans are usually for a term of 12 to 24 months.  There are typically 20 to 25 loans in the Fund at any one time, and loans are repaid on a regular basis — creating regular fund liquidity.

The lending activity – at rates of ranging from 9- 18% p.a. – this is possible because the Australian banks are reluctant to meet demand, especially as such loans require the banks to hold greater capital in reserve. The Australian banks show no signs of re-entering the market that they largely vacated after the 2008-2009 financial crisis. Developers still need to borrow and are prepared to pay relatively high rates to do so.  Banks are often slow to assess loans, making them less competitive. As the fund has developed, it has increasingly taken on repeat borrowers — developers of experience who over time have become regular borrowers.

Once made, the loans are carefully managed.  The fund assigns portfolio specialists to monitor the construction process for each loan and only provides the money stage by stage during the construction process.    Most of the properties are significantly pre-sold, to assure repayment on completion from the sales.



To invest directly into the fund in Australia the minimum is AUD $500,000. There is a 10% withholding tax for non-Australian resident investors; for Australian residents the income is taxable.

At the end of 2016, the Isle of Man-domiciled fund was established by Banner Japan to allow its clients access to the Master Fund, with a minimum investment of AUD 25,000. This fund has been available since January 2017.  The Isle of Man fund is free of taxation, and the returns are accumulated into the fund price.  Many investors will only have a taxable position on sale according to their country of residence (each case subject to the investor’s own taxation advice).

Corporate Information

Banner Capital Management Ltd is an Australian based ASIC-licensed fund manager focused on structuring, funding and managing quality private debt opportunities in Australian real-estate. Banner has a proven track record of delivering investment returns, to both institutional and private investors. Since 2010 the Banner funds have invested across 45 Australian real estate debt deals, have provided capital more than $500mln and managed assets valued at over AUD3.5bln.

Existing fund structures:

  • Banner Wholesale Fixed Interest Income Fund – an “asset specific” investment vehicle (not commingled).
  • Banner Ebisu Income Fund – a commingled onshore fund. Min $500,000.
  • Specialist opportunity funds – opportunity specific funds that may invest more broadly across the capital stack.
  • Banner Asset Management Ebisu Income (Isle of Man) Fund – a commingled offshore fund. Min $25,000.

A strong local partner for Banner Japan within the Australian real estate industry, Banner is driven by long-term, trusted relationships and built on certainty, speed, transparency, and integrity.

Japan Exit Tax….

Posted on 25th October 2018 by Trevor Reynolds in Blog |Uncategorized

Investments structured as life insurance products help minimize damage when you leave Japan, and indeed while you are here, as they can be reported but aren’t taxable unless you take money out at a profit (this means all unrealized capital gains are shielded from taxes). The new Japan exit tax is applied to financial assets valued JPY100m and more, and a life insurance product currently doesn’t fall into the financial asset category. The exit tax will apply to foreigners from 2020.

Also, the obligation to report overseas assets if their aggregate value was JPY50m or more by the calendar year-end is already in force for all Japan tax residents. With legislation like FATCA and the OECD’s Common Reporting Standard (CRS) in place, more and more of our financial data gets automatically exchanged, so the authorities in Japan, who joined the CRS in September 2018, will become aware of assets held wherever they are held if they aren’t aware already. So again if they are held in an insurance wrapper they can be easily reported but aren’t taxable unless you take a profit out (this means all capital gains are shielded from taxes). At which point one can plan to take things out when one is in the best tax friendly jurisdiction possible to mitigate as much tax or all if possible.

If you are interested in taking a closer look at life insurance products, their benefits, cost, etc., do let me know and we will send you information.

03 5724 5100

Need Travel Insurance ?

Posted on 19th September 2018 by Trevor Reynolds in Blog |Finance in Focus |Uncategorized


Posted on 8th August 2018 by Trevor Reynolds in Blog

Before discussing the BOJ’s recent actions, consider the following, which demonstrates the aggressive use of monetary policy by the BOJ:

  • The BOJ cut their equivalent of the Fed Funds rate to zero in 1999 and, excluding a few minor variations, it has stayed at or below zero since then.
  • The BOJ buys and owns Japanese Treasury bonds (JGB’s), ETF’s and REITs.
  • The BOJ owns 48% of outstanding Japanese Government Bonds (JGBs)
  • The BOJ is a top-ten shareholder in over 40% of Japan’s listed companies.
  • The BOJ owns nearly 80% of domestic ETF’s.
  • The BOJ’s balance sheet is over 110% of Japan’s GDP, dwarfing the Fed (21%) and the ECB (24%).

Throughout the summer of 2016, rapidly rising interest rates became a concern for the BOJ. We say that tongue in cheek as ten-year JGB yields only rose about 0.30% over a few months and were still negative. A continuation of that trend was clearly a threat to the BOJ and, in September that year, they took decisive action to stop the assent of yields.

As discussed in the opening statement, QQE with yield control and the new inflation overshooting commitment would provide the BOJ with unlimited abilities to fight rising rates. Included with that policy modification was a limit or cap on ten-year yields at 0.10%. If that yield level were breached, they would throw the proverbial kitchen sink at the market to fight it. The graph below shows ten-year JGB yields and the effectiveness of the cap (red line).

The BOJ owns an overwhelming majority of Japanese stocks and government bonds. Their control is significantly greater when you consider their ownership of the true float of the securities. This is incredibly important to grasp as the BOJ is quickly reaching the limit on how many more of those assets it can buy.


That is not to say that they don’t have options once they buy all the bonds and stocks the capital markets have to offer. The options become more extreme and, quite frankly, much more consequential. For example, they could take the route of the Swiss Central Bank and buy foreign stocks. They could also print money and give it directly to citizens, aka helicopter money. Both options have grave implications for their currency and greatly increase the odds of meaningful instabilities like hyperinflation.

The BOJ’s rationale for allowing greater flexibility is to address “uncertainties” related to the anticipated consumption tax hike in 2019. In our opinion, the flexibility is the BOJ’s way of whispering “Uncle”. They know they are limited in their ability to further manipulate interest rates and stock prices and do not want to tip their hand to the market. Again, if the market senses the BOJ’s toolbox is empty, trust and confidence could fade quickly.

Some may say this is a first step in the BOJ taking their foot off the monetary gas pedal, and if so, we welcome and applaud such action. What seems more likely is that the market has finally sensed the BOJ’s Achilles Heel.


Public trust and confidence is the single most important asset a central banker can possess. Without these, they are printing worthless currency and have little to no power.

Shorting Japanese bonds has been called the “widow makers trade” as one must have incredible patience and plenty of time to outlast the BOJ’s will. Thus far, anyone that has fought the BOJ has lost, hence the nickname. Japan’s problems have been brewing for decades, and despite recent signs that the BOJ is running out of weapons, we would remain reluctant to fight them.

Of greater concern to us is the macro picture that is emerging in Japan. If investors are starting to question the on-going ability of the BOJ to manage rates, it is not unreasonable to think that other central banks could be at risk. While this story will continue to play out over a long time frame, markets seem content to ignore the growing problem. Our concern is that, if you are not prepared to act when the market unexpectedly awakens, you will be the victim of the reversal of years of interest rate price controls and asset price manipulation.

Keep in mind; you can’t buy homeowners insurance once the house is on fire.



Authored by Michael Lebowitz via,

Time for a Financial Review?

Posted on 8th August 2018 by Trevor Reynolds in Blog |Finance in Focus

 Your financial aspirations are too important to be compromised by inaction – and you need to ensure that your finances continue to be suitably positioned before and after the next big financial shakeup.

We now have all-time low deposit account interest rates and rising stock market volatility coupled with all-time high stock market valuations, so it’s more important than ever to be confident of being on track to realize your objectives.

Sometimes a kick-start is needed to think about, discuss and plan one’s financial future.

What are your financial goals? Perhaps you are looking for capital growth, a regular income, to save for your children’s education, or minimize your tax bill?  At the very least, you will want to preserve your wealth and make a return in excess of inflation.

Whatever your short, medium and long-term goals, we’re here at Banner to help make them a reality – no matter how complex your financial affairs are. Of course, your personal circumstances are unique, so we tailor our investment advice accordingly. Broadly speaking, this involves four key stages:

  • Assessing your financial position – this includes understanding your current circumstances, aspirations, goals, and appetite for risk.
  • Developing a comprehensive plan – one based on robust and rigorous investment principles, such as effective diversification, strategic asset allocation, value for money, and consistent performance.
  • Putting your plan into action ­- we provide a clear timetable of what we will do and by when.
  • Staying on track – we can monitor and review your plan regularly, providing updates and reports.

Over the last 37 years in Japan, Banner has acquired broad investment experience and focused advice. With proven experience, you can access expert advice on virtually every type of investment – equities, commodities, property or bonds – in the local or international markets. We can also advise on using tax-efficient structures, pensions and investment bonds, as well as more complex and highly specialist schemes and trusts structures. It also means we can look at your finances ‘all round’ and so provide the right solutions that take into account the bigger picture.

Banner, since 1979, has helped thousands with their investing and the Banner team look forward to the opportunity of working with you.

email now

Overpromising has crippled public pensions. A 50-state survey

Posted on 24th July 2018 by Trevor Reynolds in Blog |Finance in Focus

By Ted Dabrowski and John Klingner

Download a pdf of the report: Overpromising has crippled public pensions. A 50-state survey


The real problem plaguing public pension funds nationwide has gone largely ignored. Most reporting usually focuses on the underfunding of state plans and blames the crises on a lack of taxpayer dollars.

But a Wirepoints analysis of 2003-2016 Pew Charitable Trust and other pension data found that it’s the uncontrolled growth in pension promises that’s actually wreaking havoc on state budgets and taxpayers alike.[1] Overpromising is the true cause of many state crises. Underfunding is often just a symptom of this underlying problem.

Wirepoints found that the growth in accrued liabilities has been extreme in many states, often growing two to three times faster than the pace of their economies.[2] It’s no wonder taxpayer contributions haven’t been able to keep up.

The reasons for that growth vary state to state – from bigger benefits to reductions in discount rates – but the reasons don’t matter to ordinary residents. Regardless of how or when those increases were created, it’s taxpayers that are increasingly on the hook for them.

Unsurprisingly, the states with the most out-of-control promises are home to some of the nation’s worst pension crises. Take New Jersey, for example. The total pension benefits it owed in 2003 – what are known as accrued liabilities – were $88 billion. That was the PV, or present value, of what active state workers and retirees were promised in pension benefits by the state at the time.

Today, promises to active workers and pensioners have jumped to $217 billion – a growth of 176 percent in just 13 years. That increase in total obligations is four times greater than the growth in the state’s GDP, up only 41 percent.

Many of the top-growth states – including New Jersey, Illinois, Kentucky and Minnesota – have high growth rates due to recent changes in their investment assumptions.[3]

But more honest accounting, i.e. lowering the investment rate, is hardly a comfort to the residents of those states.[4] It simply reveals just how much in promises residents are – and always have been – on the hook for.

And it’s not just the fiscal basket-cases that are in trouble. Accrued liabilities have skyrocketed in states across the country. Legislators continued to grow their obligations even as their states’ pension crises worsened during the 2003-2016 period.

Twenty-eight states allowed their accrued liabilities to outgrow their economies by 50 percent or more. And pension promises in 12 states outgrew their economies by a factor of two or more.

Pension promises were meant to be funded by a combination of employer (i.e. taxpayer) contributions, employee contributions and investment returns. But as promises have skyrocketed and assets have failed to keep up, funding shortfalls across the 50 states have jumped.

The Pew data shows that unfunded state promises – known as unfunded liabilities – grew six times, to $1.4 trillion in 2016 from $234 billion in 2003.[5]

In all, states had just $2.7 trillion in assets in 2016 to cover accrued liabilities of $4.1 trillion. And that’s the rosy scenario. Most states use assumptions that underestimate the true size of the promises they’ve made to state workers. Under more realistic assumptions, the pension shortfalls are actually $1-$3 trillion larger.[6]

Those funding shortfalls are being piled onto ordinary residents. Government employee contributions are generally fixed and investment returns aren’t enough to dig most funds out of debt. So taxpayers are stuck holding the bag for the states’ massive unfunded liabilities.

The Pew data covers 13 years of pension growth, a relatively short period when analyzing pensions. A longer-term data series is needed for a deeper analysis. Fortunately, Wirepoints was able to collect 30 years of Illinois pension data. The state’s long-term numbers show an even greater disparity between the growth in total benefits and what taxpayers can afford.[7]

Total promised benefits in Illinois are nearly 1,100 percent higher now than they were in 1987. In contrast, Illinois personal income – a proxy for GDP – was up just 236 percent during that 30-year period.[8]

Illinois is the poster child for why the common narrative surrounding pensions – that crises are due to taxpayer underfunding – is false. The real problem has been the enormous growth in accrued liabilities across the nation.

There’s no fixing pensions without dramatically scaling back that growth in retirement promises.

Growth in total pension promises across the states

Some states have experienced far higher growth in pension promises, and far more fiscal strain, than others

At the top of the list are states like New Jersey, New Hampshire, Illinois, Nevada, Kentucky and Minnesota. Several of those states have lowered their assumed investment rates as a result of their crises (see Endnote 3).

All six states experienced accrued liability growth of more than 7 percent a year between 2003 and 2016.

At the bottom of the list, states like Wisconsin, Maine, Michigan, Oklahoma and Ohio have all kept their accrued liability growth rate below 4 percent per year.

That 3 percentage-point difference in annual growth is significant when the impact of compounding is considered over a 13-year period.

It’s pushed pension promises up in the top states by 160 percent over the period. In contrast, the states with more moderate benefit growth grew their promises by a total of 60 percent or less.

In many states, that’s made the difference between fiscal stability and financial crisis.

Pensions vs. economies

A vast majority of states have experienced unsustainable pension benefit growth compared to their economies.

In 28 states, accrued liabilities outgrew their economies by 50 percent or more between 2003 and 2016.

And 12 states were totally overwhelmed by increases in their accrued liabilities. The total growth was more than double that of their economies.

Again, it was New Jersey, New Hampshire, Illinois, Connecticut and Kentucky which were the most out-of-control.

Those states have mature pension systems that have been in operation for decades. There’s little reason, in theory, for their promised benefits to grow so much faster than their economies. In some cases, it’s due to more honest reporting of their true liabilities.[9]

Other states have seen robust increases in population – thereby necessitating some growth in services – but not enough to warrant the kind of increases in their pension obligations.

Nevada’s population, for example, grew more than 25 percent. But that doesn’t justify the fact that its pension promises grew by more than two times the growth in the state’s GDP.

Overall, only six states – Rhode Island, Wisconsin, Oklahoma, Oregon, Texas and North Dakota – experienced GDP growth that exceeded the growth in their accrued liabilities.

States with the largest and smallest pension benefit growth

There is a stark contrast between the states at the top and bottom of the accrued liability growth chart. Many states with rapidly growing pension obligations are in crisis. Most states with slow-growing obligations are not.

The five states with the largest growth in promises in the nation – New Jersey, New Hampshire, Illinois, Nevada and Kentucky – have all seen their benefits grow 150 percent or more since 2003.

That explosive growth in benefits has overwhelmed many of those states’ economies and their residents’ ability to pay. Every one of the top 5 states has seen their pension benefits grow 2 to 4 times more than their GDP growth.

Growing pension obligations is also reflected in those state’s promises as a share of GDP. For example, Illinois pension promises have grown to 28 percent of GDP in 2016 from 16 percent of GDP in 2003, a 75 percent increase. New Jersey has seen its promises as a share of GDP skyrocket 96 percent, growing to 42 percent from 22 percent. (See Appendix 3 for a full list of state accrued liabilities as a percent of GDP).

Unsurprisingly, these states are also home to some of the nation’s worst pension crises.

In 2016, New Jersey had the nation’s 2nd-worst credit rating and the worst-funded pensions in the nation – only 31 percent funded.[10] Kentucky was right behind with a funded ratio of 31.4 percent. And Illinois followed closely with a funded ratio of just 36 percent and the lowest credit rating in the nation, just one notch above junk.[11]

In contrast, the lowest promise-growing states in the nation – Rhode Island, Wisconsin, Maine, Michigan and Oklahoma –all kept their annual accrued liability growth at 4 percent a year or less between 2003 and 2016. (See Endnote 3).

That kept pension benefits from overwhelming those states’ economies. Take Wisconsin, for example. The state’s pension promises grew 48 percent over the time period, less than the state’s GDP growth, up 53 percent. And Rhode Island’s economy managed to grow faster than promised benefits. Benefits grew just 24 percent while the state’s economy grew 41 percent.

A common factor among these low growth states is their more reasonable pension benefits and a willingness to enact pension reforms.

Wisconsin’s “shared risk” pension plan and relatively modest benefit structure have kept the state’s promises limited and its pension system healthier than most for decades.[12] Michigan pioneered comprehensive state pension reform. Back in 1997, the state froze pensions for some state workers and created 401(k)-style plans for them going forward.[13]

And Rhode Island enacted major pension reforms in 2011. That’s one of the reasons why the state’s benefits grew more slowly than the economy. The state introduced hybrid retirement plans, cut cost-of-living adjustments and increased retirement ages for both new and current workers.[14]

A 30-year case study: Illinois’ overwhelming pension promises

Illinois provides the perfect example of how out-of-control pension benefits can create a state pension crisis.

Wirepoints analyzed Illinois pension and economic data stretching back to 1987 using data from the Illinois Department of Insurance. Our analysis found that Illinois’ total pension promises have grown exponentially over the past 30 years.

Illinois’ 2016 accrued liabilities were 1,061 percent higher than they were three decades ago. In 1987, total accrued liabilities equaled $18 billion. By 2016, that amount had swelled to $208 billion.[15]

No other measure of Illinois’ economy even comes close to matching the growth in pension promises. That growth was six times more than Illinois’ 176 percent growth in general revenues over the same time period; eight times more than the state’s 127 percent growth in median household incomes, and nearly ten times more than the 111 percent growth in inflation.

Illinois’ dramatic increase in accrued liabilities over the past three decades has been driven by three factors: overly generous benefits, pension sweeteners and a realization that pension promises were dramatically understated due to faulty assumptions.

Since 1987, lawmakers have added benefits to Illinois pensions that:[16]

  • Add compounding to a retiree’s 3 percent cost-of-living adjustment. That doubles a retiree’s annual pension benefits after 25 years.
  • Significantly increased the pension benefit formulas for the Teachers’ Retirement System, or TRS, and the State Employees’ Retirement System, or SERS.
  • Provided lucrative early retirement options.
  • Allow workers to boost their service credit by up to two years using accumulated unpaid sick leave.
  • Grant automatic salary bumps to workers who earn masters and other graduate degrees.
  • Allow for the spiking of end-of-career salaries.

As a result of these changes, long-time state workers in Illinois receive overly generous pensions. The average newly-retired state employee who worked 30 years or more receives $68,100 in annual pension benefits and will see his or her yearly pension payments double to $140,000 after 25 years in retirement. In total, career workers can expect to collect more than $2 million over the course of their retirements.[17]

Illinois state workers also tend to retire long before their peers in the private sector. In fact, 60 percent of all current state pensioners began drawing pensions in their 50s, many with full benefits.

Changes in mortality, investment rates and other actuarial assumptions also increased the amount of total pension benefits promised. In 2016 alone, assumption changes contributed to $10 billion of a $17 billion jump in accrued liabilities.[18]

For a deeper dive into Illinois’ pension crisis, read:
Illinois state pensions: Overpromised, not underfunded – Wirepoints Special Report

Interestingly, Transparent California recently analyzed California pensions over the same period, 1987-2016, and discovered similar results. The state’s accrued liabilities grew nearly 900 percent in total, far faster than any other economic indicator.[19]

State pension asset growth

On average, state pension assets nationally grew 3.7 percent a year through 2015, almost identical to the 3.8 percent annual growth in GDP over the same period. That trend was thrown off track in 2016, a year of poor investment returns.

The accrued liability/asset dynamic of the past 15 years is particularly important because in 2003, the (weighted) average funding ratio across all state pension plans was 88 percent.

If all legislatures had taken steps in 2003 to ensure that pension promises would not grow at outrageous rates – especially in states that lowered their assumed investment rates – many states across the nation would not be in crisis today.

As with pension promises, there is a lot of variety between states as to how much pension assets have grown.

Nearly half of all states grew their assets faster than their economies, an outcome that helped offset rapidly growing pension promises. But that wasn’t enough for many states to keep up with the full pace of their promises.

At the top of the asset growth list are states like West Virginia, Nevada, South Dakota, Idaho, Nebraska and New Hampshire.

All those states saw their pension assets grow more than 6 percent a year between 2003 and 2016.

And all of them but New Hampshire are well-funded in relative terms. They have pension funding ratios of anywhere between 72 and 97 percent.

Another exception to the rule is Illinois. It had the 8th highest pension asset growth in the nation, yet it’s just 36 percent funded. That’s largely a function of the Prairie State also having the 4th-fastest growth in accrued liabilities since 2003.

At the other end of the spectrum, Michigan, Rhode Island, Pennsylvania, Kentucky, and New Jersey all saw their assets grow less than one percent annually.

That’s a big problem for most of those states, in particular for those with rapidly growing promises like New Jersey and Kentucky.

It’s no surprise that New Jersey’s funding ratio fell from 93 percent in 2003 to 31 percent in 2016.

The same goes for Kentucky, whose funding ratio collapsed from 88 percent to 31 percent over the same period.

The lethal combination of collapsing assets and fast growing promises has dropped both states’ pensions into virtual insolvency.

Changing the narrative

The pension crisis is currently wrapped up in a false narrative of underfunding – that residents have never contributed enough to state pensions.

As long as that narrative dominates, higher contributions and tax hikes will be promoted as the only “solutions” to the crisis. It’s what states with the deepest crises are pursuing.

In 2016, California extended a millionaire’s tax that’s poured billions into teacher pensions.[20]New Jersey Gov. Phil Murphy and the state legislature have just agreed to a new tax hike package.[21] And Illinois Democratic gubernatorial candidate J.B. Pritzker is fighting for a multi-billion progressive tax hike – on top of last year’s record $5 billion income tax increase.[22]

But the nation’s pension crises won’t be solved by piling higher taxes on to residents. “Underfunding” is just a symptom of the real problem plaguing pensions.

Each state’s crisis is unique – but a common factor across almost all of them is a rapid and uncontrolled growth in accrued pension liabilities.

The states’ pension crises will only be solved when there is a reversal in liability growth. And that reversal will begin when states, the media, and politicians finally address the crises as a problem of over promising, not underfunding.


Appendix 1: Notes on the growth of state pension promises


A.  California’s 2016 pension data

The Pew data includes a revaluation of assets and liabilities by California’s Public Employee’s Retirement System (CalPERS) that occurred in FY 2016 under new GASB 67 and 68 accounting rules. As result, Pew was unable to provide a like-for-like comparison between CALPERS 2016 data and previous years.

In order to achieve a more like-for-like comparison, Wirepoints used CalPERS’ reported asset and liability data from the fund’s official 2016 actuarial report as a replacement for the Pew 2016 data.[23]

B.  Total vs. individual pension benefits

Wirepoints’ analysis does not directly address the generosity of individual pension benefits. Our analysis only examines the growth in total pension obligations – each state’s aggregate promises to its active workers and retirees.

In other words, this report focuses on the growing accrued pension liability faced by states, just as other reports address the growing aggregate of other debts.

C.  Comparing promised pension benefits across states

Comparing an individual state’s growth in pension benefits to another state’s is difficult because the math behind each pension system varies widely.

The government employees covered by the state pension systems differ from state to state. For example, California’s state funds cover local/municipal employees while Illinois’ state funds do not. The benefits offered to workers also differ, as do other perks tied to retirement. For example, some states offer compounded cost of living adjustments and early retirements while others do not.

Each state’s actuarial assumptions and the changes they’ve made over the years also vary. A pension system’s assumed rate of return on investment has a major impact on its accrued liabilities. States that have lowered their assumed rates of return during the 2003-2016 period will have, everything else equal, higher accrued liability growth compared to states that have not.

D.  Time period of Pew data

The Pew data covers a relatively short period in regard to the nation’s pension crisis. Problems have been building in most states for decades, long before 2003. Longer-term data needs to be collected for a deeper analysis. However, the limited data available still shows legislators continued to grow their obligations even as their states’ crises deepened during the 2003-2016 period. Despite its limitations, the Pew data provides a good proxy for how much politicians haveoverpromised pensions in each state.

Appendix 2: State pension liabilities and assets

Appendix 3: Accrued liability growth vs. economic growth

Appendix 4: Growth in accrued liabilities as a percentage of GDP

Wirepoints used the Pew Center’s pension data and economic data from the Bureau of Economic analysis to calculate each state’s total pension promises as a share of GDP. Because state pension assumptions, membership and benefits differ widely from each other, Wirepoints does not compare promises as a share of GDP across states. Instead, our analysis looked at the change, over time, in each state’s accrued liabilities as a share of GDP.

Appendix 5: Assumed investment returns of state pension funds, 2016 


[1] The Pew Charitable Trusts, “The State Pension Funding Gap: 2016,” (April 12, 2018).

[2] U.S. Bureau of Economic Analysis: Regional Economic Accounts

[3] New Jersey’s major pension funds have significantly lowered their expected rates of return in recent years, from as high as 8 percent in 2013 to as low as 3 percent in 2016. Those changes directly impacted the state’s promised pension benefit growth over the 2003-2016 period. It should be noted that New Jersey, along with Kentucky and Minnesota have used some of the lowest expected returns in the country. According to Pew’s collected pension data, nearly 80 percent of state pension funds with liabilities of $3 billion or more still use expected investment rates of return of 7 percent and above as of 2016. See Appendix 5 for more details. Wirepoints recognizes that if other states were to lower their assumed investment rates, the overall rankings of these states would change.

[4] For example, U.S. Census data shows New Jersey’s real median household income falling to $68,468 in 2016 from $73,136 in 2003,; New Jersey has the 3rd-highest state-local tax burden & as a percentage of income according to the Tax Foundation. Morgan Scarboro, “Facts and Figures 2018: How Does Your State Compare?” Tax Foundation(March 21, 2018).

[5] The Pew Charitable Trusts, “The State Pension Funding Gap: 2016.” See Appendix 1 for information on California’s 2016 pension data.

[6] Joshua D. Rauh, “Hidden Debt, Hidden Deficits: 2017 Edition: How Pension Promises Are Consuming State and Local Budgets,” Hoover Institution(May 15, 2017).

[7] Ted Dabrowski and John Klingner, “A dramatic rise in pension benefits – not funding shortfalls – caused Illinois’ state pension crisis,” Wirepoints(February 2018).

[8] Wirepoints used Illinois personal income as a proxy for GDP growth due to a U.S. Bureau of Economic Analysis warning against using state GDP data from 1987 through 2016 because of a discontinuity in its data beginning in 1997.

[9] See Endnote 3 for more information on New Jersey and the lowering of its expected investment rate of return.

[10] Samantha Marcus, “N.J. avoids another credit downgrade as perky economy trumps ailing pension system,” (April 18, 2017).

[11] Ted Dabrowski and John Klingner, “Rating agencies warn, Illinois flirts with junk,” Wirepoints (April 24, 2018).

[12] Jason Stein, “Wisconsin’s fully funded pension system is one of a kind,” Milwaukee Journal Sentinel (9/26/2016).

[13] Anthony Randazzo, “Pension Reform Case Study: Michigan 2016 Update,” Reason Foundation (August 2016).

[14] Anthony Randazzo, “Pension Reform Case Study: Rhode Island” Reason Foundation (January 2014).

[15] Wirepoints, “A dramatic rise in pension benefits.”

[16] Commission on Government Forecasting and Accountability, “March 2017 Financial Condition of the Illinois State Retirement Systems,” (March 2017).

[17] Member data received from a 2018 FOIA request to the Teachers Retirement System, State Universities Retirement System and State Employees Retirement System.

[18] Moody’s Investors Service estimates Illinois has a $201 billion net pension liability. See the May 29, 2018 edition of Moody’s Credit Outlook for more information.

[19] Robert Fellner, “Nearly 900% increase in CalPERS benefits dwarfs economic growth, taxpayers’ ability to pay,” Transparent California (July 12, 2018).

[20] Chuck DeVore, “Coming Tax Hikes for Government Pensions, How Much Will You Pay?Forbes (July 22, 2016).

[21] Dustin Racioppi and Nicholas Pugliese, “NJ budget agreement: Deal on taxes, spending increases includes gimmicks Murphy faulted” (July 1, 2018).

[22] Rick Pearson, “Pritzker: Raise state tax rate, boost exemptions while working on a graduated income tax,” Chicago Tribune(April 3, 2018).

[23] California Public Employees’ Retirement System, “Comprehensive Annual Financial Report FY 2017”


Posted on 13th April 2018 by Trevor Reynolds in Uncategorized



Posted on 30th May 2017 by Trevor Reynolds in Blog |Finance in Focus

Starting early is so important especially in Financial planning.  So I wanted to share a story of one family who have done just that.

Their first child was born and the parents took out a modest savings account putting away $250 a month — today (18 years later) the account is worth over just over $100,000 achieving a only 6.2% return.   Their daughter now has a great start and will have little or no university debt (depending where she goes)

At the same time they also did this for themselves as one of the many things they added over time, houses, shares and their business, always remembering to pay themselves first as their income grew.

So now that their daughter is 18 they sat down and explained the magic of compound interest and together decided to take out another savings plan jointly with their daughter. She would contribute 25% and the parents would contribute 75% to ensure that she would be financially fit and would soon see the benefit and magic of compound interest.  Together they will contribute a $1,000 a month.  What could this become in 25 years when the daughter would be only 43 years old?

At a modest 6.2% it will be about $720,000.  If it achieved 10% it would become just about $1,300,000.

Remember this is just a $1,000 a month for 25 years, a total contribution of $300,000.  Started when their daughter was 18 and now that she is turning 44 she has options — you as a parent have the benefit of wisdom and this is a wonderful gift to pass on to your children. (This also fits under the gift tax allowance here in Japan.)

Talk to Banner and we can help make this happen.

Ebisu fund

Posted on 1st February 2017 by Trevor Reynolds in Blog |Finance in Focus

A fund run by ourselves at the Banner Group, The Banner Asset Management Ebisu Income fund domiciled in the Isle of Man.  We have worked hard over the last 8+ years to achieve this.

Banner Ebisu Income Fund

BAM started the Ebisu Fund in 2010, initially as a bridge lending fund; over time this has developed into an alternative income fund. The fund has earned an average return to investors of 13.50% p.a. since inception.

BAM is not a hedge fund and is not investing in speculative property appreciation – we are lending our funds to property developers.  The loans are structured to cover the build costs and we manage this process from the first $ to the last.  All the developments are usually 75% (or higher) pre-sold with 10% deposits normally taken on the units sold.  Loans are usually for a term of 18 to 24 months. Once the building is complete, settlements are made, the loans are repaid. The Banner Ebisu fund is usually invested in 12-15 projects at any one time.

All the loans are 100% asset-backed with full recourse personal guarantees so they are fully dischargeable in the event of default.

Banner Wholesale Fixed Interest Income Fund

The BAM Wholesale Fund began in 2011. Each investor chooses his or her investment.  BAM has managed over AU$ 3 billion in loans since inception.

Our initial two offerings have investment minimums beginning from AUS$500,000 and AU$ 5 million respectively.

The Banner Asset Management Ebisu Income Fund, domiciled in the Isle of Man, us now be available for investments starting from AUS$25,000, putting money to work in the same tried and tested investment process.  We anticipate returns in the 8-12% range in this investment class. We believe these returns will continue for the next few years at least. With –from our point of view — a high degree of confidence in the integrity and security of the fund process.