The system has effectively failed most everywhere on the West. The post-WWII generations are numerous and have a long life expectancy, apparently longer than the pension systems planned for. Generations that came after them are less numerous, and, in a way, somehow less prosperous. They cannot pay enough to keep the pension systems afloat.
The Japanese faced this earlier and harder than Europe, with about 30% of their population being past the retirement age. They increased their productivity very significantly, but it's still not enough, and a lot of older folks in Japan keep working well past the retirement age, sometimes even re-hired by the companies from which they had retired.
But people are living longer, in better health (I think but didn’t verify with data) and entering the workforce later (due to more secondary schooling).
Setting aside the issues of declining birth rate for a minute, this seems like a reasonable adjustment to the other factors?
True but no matter how healthy one is in their 60s and 70s people's health degrade significantly in their 80s. So, you have then 10 year of healthy life after retirement.
There's the flip side if the coin though: old people are healthier in Denmark (vs US for example [1]) due to the social welfare system. Well, that system needs to be funded. With the aging population, the costs are rising but contributions are (relatively) declining. That's why there's a push for higher retirement age. It's either this, or defunding the social welfare programs, or immigration. That last one isn't a viable political option in Denmark at the moment.
Personally, I'm not sure that they are living in better health in the way that I care about. I.e. my goal is to retire when I'm still healthy enough to do things (i.e. travel). Although they are likely healthier than previous generations, most of the 70 years olds I see still aren't healthy enough to travel.
It is simple mathematics. European pension systems are not a saving system, but a pay as you go system, where pensions are paid from the people who work now. What you get in taxes this month you pay as pensions this month, as a state. This is the Bismarck model and it was invented at a time when the average lifespan was lower than the pension age, so many people were contributing very little as a percentage for very few people to get pensions. Today the situation is the opposite, with less and less people paying (not too many people start working at 16 years like in 1860), retirement age was lowered in most countries, the percentage of salary you pay as pension tax can be 25%, growing that is not too easy as this is just part of the taxes workers pay.
This system was working back in 1860, but it is a Ponzi scheme in decline for the past 50 years. And there is no way out, most people rely on state pensions to live after retirement; it is the perfect trap.
If pensions were funded by actual retirement accounts, where employees invested money into some state fund and have it paid out for retirement this would be entirely unproblematic.
But the pension system in many EU countries is set up in a way in which tax contributions now finance pensions now. This can only work with a steadily growing economy which continually generates more revenue when more people retire. In some sense it is a literal Pyramid scheme, in which the obligations are continually pushed to younger generations, which have to contribute based on how many pensioners there are.
Especially now as EU economies become weaker this issue becomes bigger and bigger.
Fundamentally any retirement plan that doesn't involve canned food in a celler is pay-go because the retirees will be consuming resources from the economy they retired into rather than the one they were workers in.
Their retirement savings can be in public company stocks instead of government guarantees but that only works if there are people willing to buy those stocks (ex: younger people saving for retirement).
No, fundamentally it doesn't really matter. Retired people consume but don't produce. They are fed by the economy of today, not by economy of the past.
Whatever you accumulate for retirement (cash, stocks, gold, state pension points) it only represents coupons for your share of the economy of the future. Details may differ but fundamentals are the same: it a promise that the future generation will share some of their yield with you.
> If pensions were funded by actual retirement accounts, where employees invested money into some state fund and have it paid out for retirement this would be entirely unproblematic.
You're talking about a system of pension by capitalization, like in US, which comes with its own problems.
Namely that if you reach retirement age during a crash like in 2008, you're screwed. You have to work 5 more years hoping the market recovers in the meantime, or retire anyway and get way less than you put in.
- increase productivity more than how much the workforce/receivers grow.
And if AI/robots eventually deliver, we're soon going to need a discussion about lowering the retirement age to 55 or even 50 if we don't want 30% unemployment anyway.
That omits the essential fact that economies tend to grow - quite a bit over your lifetime. 2% compounded annual growth over 50 years will result in the economy being 2.7x its starting size.
Typically EU countries implement the 3 options together - option 1. btw is meant to make the pension irrelevant. It can't happen from one day to the next, but there is a shift happening where people contribute more and more towards private pension funds. It's easy to see that at some point, there will be the equivalent of the US 401K in Europe.
How would you fix it? Note that even Scandinavian nations with very generous healthcare and childcare policies can't raise their rates, it simply seems that as people get wealthier, they have fewer kids, regardless of the status of their country's systems.
Yeah, people keep trying to find a purely economic reason for why folks are having less kids. I think I'm satisfied with the very simple reason that raising kids is hard work. Most people feel like 1 kid already gets their hands full. That's really it IMO. Whenever it was that joint families split up into disparate nuclear families, obviously the load of raising say 5 kids that was being shared among 20 people, suddenly fell on just 2 people.
In the places with high fertility rate, you will almost surely observe joint families. I'm from India where we have such demographic variety that you can see adjacent areas with completely different fertility rates. In one, you will see old-style large houses with courtyards and 15+ people in them living as a joint family. Invariably these people have more kids. But in the next town with more nuclear families and modernish apartments, you will be lucky to see 2 kids per family. [1]
This is what births the secondary economic incentives which are mentioned a lot in popular discourse. For example, if you're already living in a house with 15 people your financial realities will require a similar number of people in the next generation to continue the same lifestyle.
[1] Wealth is not a confounding factor here. The specific two areas I have in mind are both more or less equally wealthy, one has folks running a coconut business primarily and the other is a small town with the usual assortment of office jobs.
My take is that saying the problem is birth rates is misguided. Surely we have enough labor to provide for the elderly, why can’t our economy be structured to get this labor to the people who need it?
It's not that you are expected to work that long. It is a case of not being expected to work longer than that. You are always welcome to retire earlier if you have the financial means to do so. You are also welcome to work longer than that should you have the desire to do so.
Of course, those last two sentences are tongue in cheek.
The real problem is that certain segments of society are not compensated for their labor at a rate that would allow them to retire early, and may even have to work beyond retirement age in order to supplement their stipend. Worse yet, these people often work in sectors that offer few affordances for them to maintain their health into old age and may even push them into living conditions that are detrimental to their health (assuming their job isn't detrimental to their health in the first place).
Ideally, people would be able to retire when they want (within reason). The reality is that some people can retire at a relatively young age while others don't really have that option.
Maybe the system needs a rethink; an expectation that everyone able to will pretty much work their whole lives, but making work much less miserable and time-consuming so that's just fine.
Ha. Total pipedream. It is easier to imagine the end of the world than to imagine the end of our current economic system.
Higher life expectancy more like, the state can't afford for people to spend 20 years unproductive. This is a much less acute issue in the USA and Russia where health is poor and life expectancy low.
The first pension was put in place by Bismark as a way to "steal the clothes of the socialists whilst they were bathing". It was seen as the cheapest social benefit because life expectancies were so low. A popular policy delivered at low cost to the state.
That people are living longer is why the system is failing. It's an interesting thought experiment to consider whether any country would introduce a state pension now knowing how much they cost.
I'm in the US, but I'd be happy if social security ages were pushed out to 75 or 80 but benefits preserved.
I'm saving heavily for retirement, but the biggest challenge is figuring out how long you're going to live. If you have sort of a defined and horizon, it's much easier to calculate.
The social pension system always was a Ponzi scheme where the ones who got in first(boomers) get the biggest share of the pie(10-20 years of life left after retirement), while those coming into the system last(millennials+) and pay for the current retirees will get rug-pulled(5-10 years of life left after retirement).
Sustainable population and economic growth at that rate can't happen indefinitely.
Some people have been vocally saying this system in unsustainable long term, just that Europeans governments never wanted to publicly admit this due to fears of loosing elections, so they kept kicking the can down the road.
The boomers definitely weren’t the first getting in, the original pensions were paid to their own parents
It’s not really a Ponzi scheme, it is completely possible for the system to be balanced, it’s just very very hard to get people to vote for you if you say they’ll have less tomorrow
My boomer parents are already pushing being retired for 20 years, neither did anything more than the bare minimum in life.
They could have easily worked 10 years longer instead of doing nothing but drinking wine all day and/or going out to restaurants in retirement. That is in between traveling to go out to restaurants and/or drink wine.
The boomers scammed us all and aren't done yet. They are going to make sure to bankrupt the entire system with healthcare cost before they go.
No it isn't because of their birth rate, or at least, birth rates are an issue orthogonal to it.
In some rich countries people spend now more years of their life out of work than in work because of much longer education and much longer lifespans. If you want to keep the same social standards, all other things being equal, you need to raise the retirement age.
Of course it failed when it was created in completely different circumstances.
Or some may say it got outdated.
It was started at times when the life expentancy was low. And it was given at age above the life expentancy. And in the beginning not to everyone. The retirement age got lower and given to broader set of population gradually. These moves made governments popular, so it was no brainer to introduce, on the expense of future generations.
Birth rates that can maintain the economics of relatively low retirement age could not be sustained without destroying the planet. Actually has to be reversed still as it went too far already and deteriorating as we speak, especialy with the ongoing large increase in the overall life quality - causing decreasing birth rate alone - and healt. The system was destined to fail. But how to take away rights? It is much harder than giving, especiallly when the adverse effects are for current voters, not future generations?
So the necessary steps are postponed, postponed, postponed yet again, for many decades, taking about necessity in many forms, meanwhile filling bigger and bigger holes in the budgets, through borrowing, making the problem worse, again for future generations. Very few countries do tiny adjustments, and even those are met with huge protests mostly.
I wonder what the future holds. Painful adjustments or more painful collapse later in some form.
Some comments were deferred for faster rendering.
nine_k|9 months ago
The Japanese faced this earlier and harder than Europe, with about 30% of their population being past the retirement age. They increased their productivity very significantly, but it's still not enough, and a lot of older folks in Japan keep working well past the retirement age, sometimes even re-hired by the companies from which they had retired.
neom|9 months ago
downrightmike|9 months ago
lancekey|9 months ago
Setting aside the issues of declining birth rate for a minute, this seems like a reasonable adjustment to the other factors?
mahkeiro|9 months ago
bgnn|9 months ago
There's the flip side if the coin though: old people are healthier in Denmark (vs US for example [1]) due to the social welfare system. Well, that system needs to be funded. With the aging population, the costs are rising but contributions are (relatively) declining. That's why there's a push for higher retirement age. It's either this, or defunding the social welfare programs, or immigration. That last one isn't a viable political option in Denmark at the moment.
[1] https://www.euronews.com/health/2025/02/05/older-people-are-...
harimau777|9 months ago
philjohn|9 months ago
aaomidi|9 months ago
AdrianB1|9 months ago
This system was working back in 1860, but it is a Ponzi scheme in decline for the past 50 years. And there is no way out, most people rely on state pensions to live after retirement; it is the perfect trap.
constantcrying|9 months ago
If pensions were funded by actual retirement accounts, where employees invested money into some state fund and have it paid out for retirement this would be entirely unproblematic.
But the pension system in many EU countries is set up in a way in which tax contributions now finance pensions now. This can only work with a steadily growing economy which continually generates more revenue when more people retire. In some sense it is a literal Pyramid scheme, in which the obligations are continually pushed to younger generations, which have to contribute based on how many pensioners there are.
Especially now as EU economies become weaker this issue becomes bigger and bigger.
jordanb|9 months ago
Their retirement savings can be in public company stocks instead of government guarantees but that only works if there are people willing to buy those stocks (ex: younger people saving for retirement).
alexey-salmin|9 months ago
Whatever you accumulate for retirement (cash, stocks, gold, state pension points) it only represents coupons for your share of the economy of the future. Details may differ but fundamentals are the same: it a promise that the future generation will share some of their yield with you.
eloisant|9 months ago
You're talking about a system of pension by capitalization, like in US, which comes with its own problems.
Namely that if you reach retirement age during a crash like in 2008, you're screwed. You have to work 5 more years hoping the market recovers in the meantime, or retire anyway and get way less than you put in.
unknown|9 months ago
[deleted]
tossandthrow|9 months ago
Denmark has private pensions like the 401k system in the US.
People can start tapping into these up to 5 years before they are 70.
In reality most people will go down in time and partially tap into private pensions and saving long before they turn 70.
This is opposed to other European countries, like Germany, that does not have these private pensions, but only retirement insurance.
dboreham|9 months ago
Hopefully US people realize that this is also how US public pensions (social security) actually works.
JackYoustra|9 months ago
tossandthrow|9 months ago
And this is the case in all western countries.
It is just being realized in different ways.
Fundamentalle there are 3 ways to cope
1. reduce pensions
2. Raise taxes
3. Decrease amount of benefit receivers.
Denmark choose number 3
CubsFan1060|9 months ago
hmmokidk|9 months ago
dyauspitr|9 months ago
littlestymaar|9 months ago
- increase productivity more than how much the workforce/receivers grow.
And if AI/robots eventually deliver, we're soon going to need a discussion about lowering the retirement age to 55 or even 50 if we don't want 30% unemployment anyway.
namdnay|9 months ago
mmooss|9 months ago
WinstonSmith84|9 months ago
risyachka|9 months ago
Most don't want to so they have to compensate via taxes and higher pension age.
jxjnskkzxxhx|9 months ago
lostlogin|9 months ago
robaato|9 months ago
https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Nor...
satvikpendem|9 months ago
porridgeraisin|9 months ago
In the places with high fertility rate, you will almost surely observe joint families. I'm from India where we have such demographic variety that you can see adjacent areas with completely different fertility rates. In one, you will see old-style large houses with courtyards and 15+ people in them living as a joint family. Invariably these people have more kids. But in the next town with more nuclear families and modernish apartments, you will be lucky to see 2 kids per family. [1]
This is what births the secondary economic incentives which are mentioned a lot in popular discourse. For example, if you're already living in a house with 15 people your financial realities will require a similar number of people in the next generation to continue the same lifestyle.
[1] Wealth is not a confounding factor here. The specific two areas I have in mind are both more or less equally wealthy, one has folks running a coconut business primarily and the other is a small town with the usual assortment of office jobs.
jmpetroske|9 months ago
II2II|9 months ago
Of course, those last two sentences are tongue in cheek.
The real problem is that certain segments of society are not compensated for their labor at a rate that would allow them to retire early, and may even have to work beyond retirement age in order to supplement their stipend. Worse yet, these people often work in sectors that offer few affordances for them to maintain their health into old age and may even push them into living conditions that are detrimental to their health (assuming their job isn't detrimental to their health in the first place).
Ideally, people would be able to retire when they want (within reason). The reality is that some people can retire at a relatively young age while others don't really have that option.
EliRivers|9 months ago
Ha. Total pipedream. It is easier to imagine the end of the world than to imagine the end of our current economic system.
satvikpendem|9 months ago
sgt101|9 months ago
rors|9 months ago
That people are living longer is why the system is failing. It's an interesting thought experiment to consider whether any country would introduce a state pension now knowing how much they cost.
pwarner|9 months ago
croes|9 months ago
FirmwareBurner|9 months ago
Sustainable population and economic growth at that rate can't happen indefinitely.
Some people have been vocally saying this system in unsustainable long term, just that Europeans governments never wanted to publicly admit this due to fears of loosing elections, so they kept kicking the can down the road.
namdnay|9 months ago
It’s not really a Ponzi scheme, it is completely possible for the system to be balanced, it’s just very very hard to get people to vote for you if you say they’ll have less tomorrow
rxtexit|9 months ago
They could have easily worked 10 years longer instead of doing nothing but drinking wine all day and/or going out to restaurants in retirement. That is in between traveling to go out to restaurants and/or drink wine.
The boomers scammed us all and aren't done yet. They are going to make sure to bankrupt the entire system with healthcare cost before they go.
Barrin92|9 months ago
In some rich countries people spend now more years of their life out of work than in work because of much longer education and much longer lifespans. If you want to keep the same social standards, all other things being equal, you need to raise the retirement age.
mihaaly|9 months ago
Or some may say it got outdated.
It was started at times when the life expentancy was low. And it was given at age above the life expentancy. And in the beginning not to everyone. The retirement age got lower and given to broader set of population gradually. These moves made governments popular, so it was no brainer to introduce, on the expense of future generations.
Birth rates that can maintain the economics of relatively low retirement age could not be sustained without destroying the planet. Actually has to be reversed still as it went too far already and deteriorating as we speak, especialy with the ongoing large increase in the overall life quality - causing decreasing birth rate alone - and healt. The system was destined to fail. But how to take away rights? It is much harder than giving, especiallly when the adverse effects are for current voters, not future generations?
So the necessary steps are postponed, postponed, postponed yet again, for many decades, taking about necessity in many forms, meanwhile filling bigger and bigger holes in the budgets, through borrowing, making the problem worse, again for future generations. Very few countries do tiny adjustments, and even those are met with huge protests mostly.
I wonder what the future holds. Painful adjustments or more painful collapse later in some form.
simianwords|9 months ago
spacebanana7|9 months ago
frollogaston|9 months ago
agilob|9 months ago