We have entered the age of the "Reverse Pension". And what is this Reverse Pension?
It's Subscription-Based Services!
You have likely noticed how more and more things are "subscription-based" nowadays. That is, you don't necessarily buy things; you rent things. Some examples:
Rather than buying the Microsoft "Office" suite and keeping it for years, you lease one for a monthly fee.
I would love to have Adobe Photoshop, but it's only available as a subscription: $21 - $32 per month.
Rather than buying a smartphone and owning the device, you lease it for a monthly fee with "upgrades" every so often.
More and more smartphone apps are subscriptions.
Buying and owning music MP3 albums has been replaced by music subscription services.
I used to read stock news and very interesting articles in the Stock App on my iPhone. But now Apple has "wrapped" many of the articles and won't let me read them unless I get a subscription to "Apple News +".
Many popular online stock sites with many useful articles and essays now require a subscription. I was actually about to read an article on "subscription fatigue" on one of these sites when a pop-up appeared saying "Subscribe to XXX to continue reading!!"
And lately, companies have found a way to "force" consumers to purchase their subscription service! How? By interrupting their content with increasingly aggressive ads.
Youtube actually has many educational videos on science and other areas. But now it is necessary to watch 1 or 2 ads first, and have the video interrupted every few minutes with ads.
One of the weather sites now employs ads that are so invasive that the site is no longer useable (unless of course you subscribe to the "premium" version.)
Many health, nutrition, or cooking bloggers now want a subscription.
Many of the features on certain internet-based home security/entrance devices are unavailable without a subscription.
Even authors have gotten into the act. Some authors are milking a story for 5 or 6 books by having each installment portray only one character's experiences.
For whatever reason, this morning I was thinking that all this is increasing the profits of business
at the expense of the consumer.
For example, I use Microsoft Office 2013. I bought it somewhere around 2013 and haven't paid a dime for it since then. On the other hand, the current offering is "Office 365", which is $10 per month, more for additional computers. Had I done that in 2013, I would have paid $1200 to date rather than about $240!
I do remember from my working days that we all used 1 or 2 year old versions of Office for years, and our IT group only upgraded to newer versions every couple of years. In response to this sort of thing, the big software companies saw the light and began to offer "Software as a Service". They wanted customers to pay an ongoing annual fee for software. The stock sites described "SAAS" as a big deal, since it provided "recurring income".
That is the key to all this subscription-based business. This is an ideal way for a company to grow its revenue each year, because the recurring fees accumulate with each new customer added. So if company A has $1 million in new sales for a quarter, but $3 million in recurring income, then their revenue for the quarter is an impressive $4 million. And, the "Cost of Goods Sold" for the recurring income is very small. Thus company A's "Net Income" is much higher.
While pondering these things it ocurred to me to say "Wait a minute. This is just like a pension!.
During the market crash of 2008, it became painfully apparent to the big auto companies that they could no longer afford paying pension for retired employees. Paying current staff and at the same time paying people who worked 5, 10, 15 years ago is simply not sustainable. So "defined pensions" became "defined contributions", a clever way to say that workers all became responsible for our own retirement. And somewhere in there companies must have said "Wait. That can work both ways! If we can get our customers to give money to us on a regular basis, we get to be on the receiving side of that income."
So all these subscription-based services are just like pension, only you are the provider rather than the recipient!
So what might some of this add up to, just out of curiosity. Here's a sample of an average set of subscription-based services:
|Subscription-based service||Cost per month||Notes|
|Spotify or Apple or Amazon music service||$10|
So if you have these services, you are paying $2700 per year. That's your annual
"negative pension" that you are paying out each and every year to these corporations. And that's only if you are not
willing to pay for informational/investing services that used to be free, and are willing to put up with ads and unwanted videos
interfering with your learning and growth.
I should add, however. that there can be some decent value for some of these services. Amazon Prime, for example, provides "free" 2-day shipping on most items purchased, along with free streaming music, books, and movies. On closer inspection, however, these freebies are a bit limited. Some movies require an additional rental fee. And most of the quiet "New Age" music that I like is only partially supported, and If I want to stream this music, there is a "Music Unlimited" service available for an additonal $8 per month!
I suppose that I simply wish to point out that this increasing shift to subscription-based services strikes me as a permanent and growing "negative pension".
Along these lines, there are more recurring expenditures that are even bigger:
If you are leasing a car for $400 per month, your negative pension is $4,800 more, for a total of $7,500 annually.
And if you are renting a house for $1500 per month, your negative pension is $18,000 more, for
a total of $25,500 annually.
That's 38% of the median household income (2020) of $67,000.
It's 71% of the median individual income (2020) of $36,000.
And, none of this includes the recurring bills (which are a type of "subscription"): water, sewer, electricity, gas.
The original version of this article was 2018. I updated it in 2023, and the subscription greed has really become acute since 2018!
Copyright © 2023 J.A.