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Tuesday, December 09, 2025
A triumph of capitalism
If you are reading or watching international macroeconomic content, you probably encountered stories like this: Country X is worrying about a looming pension crisis, while looking jealously at the pension system of country Y, which seems to hold up much better. Usually that contains some sort of calculation of how many workers are paying for one pensioner. Which points at the actual problem: The countries having underfunded pension systems all have pay as you go systems, in which today's workers are paying for today's pensioners. Those systems don't do well with falling birthrates and stagnating or falling population numbers. The countries that are always pointed out as working better are those who have individual savings systems to finance pensions: Today's pensioners put money aside (usually not voluntarily) when they were working, and now fund their own retirement.
Once you think of it, this also reveals an interesting fact: The pension crisis isn't the fault of today's pensioners. In fact, if all the money today's pensioners have paid in during their work life had been saved up in their name, their pensions would be a lot safer. It is a triumph of capitalism, where an individual saving system combined with compound interest over decades yields much better results as the "intergenerational solidarity" pay as you go systems.
The obvious problem is that it is hard to impossible to change from a pay as you go system to an individual savings system, as the currently working generation would have to pay both the pensions of the previous generation and their own. Many pension systems all over the world produced surpluses when the baby boomer generation was paying in, there being so many workers per pensioner. But politicians took those previous surpluses and spent it on other stuff, so the money is gone and can't be used to fix the system for the future. Not having locked the money in individual savings accounts also missed out on the compound interest that would have accrued.
In short, the pension crises all over the world are real, but they are self-inflicted. A sequence of larger and smaller generations doesn't cause a pension crisis if every generation pays their own pension.
- posted by Tobold @ 9:42 AM Permanent Link
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In the US at least it also doesn't help that most people don't really know how retirement systems work. When I started my public sector job 5 years ago they offered us a choice between joining the Pension or an Investment Plan. At my age the Investment Plan will be worth far, far more than the Pension and yet basically all my coworkers were shocked I wouldn't pick the Pension because they all believe a Pension is a "sure thing" and investments are not.
They are currently not even offering the Pension plan to new hires at my job anymore because the fund is at risk of becoming insolvent before all the future retirees are paid out.
They are currently not even offering the Pension plan to new hires at my job anymore because the fund is at risk of becoming insolvent before all the future retirees are paid out.
You also are missing something huge : the value of the investment done by the retiree is mainly based on the work done by the workers.
It means that the retiree are still a huge burden on the workers even in a individual savings system. It is true that pension plan are often mismanaged. But on the other hand, in most developed countries, it is not at risk of becoming insolvent. For exemple a tax on the top 0.1% could solve the issue.
The good part of the individual saving systems against the pension one, is that the investment can be done world wide, even in pension countries, while it is harder to make other countries pay in a pension system. So basically, the workers in a pension country pay twice : one for their own citizen, once for the saving of other's.
My guess and my fear is that this level of inequality is unsustainable, and will lead to major politic crisis. Trump is one example of that.
The chance of European union imploding with far right growth is also increasing. The risk of wars is also. At some point , wealth will be distributed one way or another. But I would strongly prefer for it to be peaceful.
It means that the retiree are still a huge burden on the workers even in a individual savings system. It is true that pension plan are often mismanaged. But on the other hand, in most developed countries, it is not at risk of becoming insolvent. For exemple a tax on the top 0.1% could solve the issue.
The good part of the individual saving systems against the pension one, is that the investment can be done world wide, even in pension countries, while it is harder to make other countries pay in a pension system. So basically, the workers in a pension country pay twice : one for their own citizen, once for the saving of other's.
My guess and my fear is that this level of inequality is unsustainable, and will lead to major politic crisis. Trump is one example of that.
The chance of European union imploding with far right growth is also increasing. The risk of wars is also. At some point , wealth will be distributed one way or another. But I would strongly prefer for it to be peaceful.
# posted by 
: 9/12/25 21:30
: 9/12/25 21:30
You also are missing something huge : the value of the investment done by the retiree is mainly based on the work done by the workers.
It means that the retiree are still a huge burden on the workers even in a individual savings system. It is true that pension plan are often mismanaged. But on the other hand, in most developed countries, it is not at risk of becoming insolvent. For exemple a tax on the top 0.1% could solve the issue.
The good part of the individual saving systems against the pension one, is that the investment can be done world wide, even in pension countries, while it is harder to make other countries pay in a pension system. So basically, the workers in a pension country pay twice : one for their own citizen, once for the saving of other's.
My guess and my fear is that this level of inequality is unsustainable, and will lead to major politic crisis. Trump is one example of that.
The chance of European union imploding with far right growth is also increasing. The risk of wars is also. At some point , wealth will be distributed one way or another. But I would strongly prefer for it to be peaceful.
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It means that the retiree are still a huge burden on the workers even in a individual savings system. It is true that pension plan are often mismanaged. But on the other hand, in most developed countries, it is not at risk of becoming insolvent. For exemple a tax on the top 0.1% could solve the issue.
The good part of the individual saving systems against the pension one, is that the investment can be done world wide, even in pension countries, while it is harder to make other countries pay in a pension system. So basically, the workers in a pension country pay twice : one for their own citizen, once for the saving of other's.
My guess and my fear is that this level of inequality is unsustainable, and will lead to major politic crisis. Trump is one example of that.
The chance of European union imploding with far right growth is also increasing. The risk of wars is also. At some point , wealth will be distributed one way or another. But I would strongly prefer for it to be peaceful.
# posted by : 9/12/25 21:30
: 9/12/25 21:30<< Home
