The pensions systems that I'm familiar with usually work as following:

  1. Workers pay a tax on their salaries
  2. The government uses that money to fund the pensions of current retirees
  3. When the current workers retire they'll rely on future generations to fund their pensions

This works out just fine as long as the population remains stable or increases, but otherwise will require ever increasing contributions from younger workers to prevent inevitable collapse. But what if it could be funded in a different way?

  1. Workers pay a tax on their salaries
  2. The government puts that money into a pensions fund
  3. When these workers retire they'll get a share of what they've contributed, with no reliance on future taxpayers

Did any countries implement such a scheme? I am aware that some countries support voluntary individual pension funds (e.g. 401k in the US), but they still have a traditional tax-based pensions system in place too (Social Security).

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    How does this differ from having a 401k/IRA and no social security? Wouldn’t this just be any country that lacks an old-age pension?
    – divibisan
    Commented Dec 8, 2019 at 21:35
  • @divibisan it could work just like Social Security, except that only money paid by former taxpayers could be used to find the payouts. E.g. only money contributed by taxpayers born in 1950 could be used to pay a pension to people born in 1950. Commented Dec 8, 2019 at 21:43
  • Here's a quick overview of different pension fund systems in use if someone's interested
    – JollyJoker
    Commented Dec 10, 2019 at 12:59
  • Comments deleted. Comments on questions should not be used to debate the subject matter of the question or to post answers. For more information on how comments on questions should be used, please review the help article on the commenting privilege.
    – Philipp
    Commented Dec 12, 2019 at 14:27

10 Answers 10


The question is based on a faulty premise that is all too common in lay discussions of the issue and the broader political debate. A generation “being responsible just for themselves” is an illusion, the percentage of retirees in a society is not only relevant to pension funds, it's always the main factor in the stability of retirement systems, whatever their mechanics.

The reason why is that whatever is being consumed by retirees has to be produced by younger, still-active workers. There is no way around this simple fact. You can store gold, banknotes or shares in some investment fund, you will not be able to transfer value and purchasing power over time. To see why, imagine an economy collapsing: none of these will buy you much in retirement.

If the economy as a whole is more productive (as Western economies have become over the decades following WW2), it's no problem for one active worker to sustain many more non-active people all the while seeing his or her real income increase. Or, equivalently, to see working times over the course of their life decrease (be it through reduced weekly working times, additional paid holiday or longer retirement) while becoming richer. If there are no productivity gains, retirement pensions are a drain on the income of currently active workers, even if they are paid through a pension fund.

Concretely, in the pension fund case, the transfer would not be only through tax-like mandatory contributions but also through the dividends paid to retirees or through the sale of shares and other financial instruments to new workers currently seeking to build their pension fund. But in both cases, it still means a larger share of current income going to pensions, either through increased pressure to lower the wage share or through higher prices to buy into pension funds.

Besides allowing several players to wet their beaks or providing captive capital to protect against outside investors, pension funds do have two marginal advantages over direct transfers:

  • Contributing to the productivity of the economy itself, say because there is more capital to invest. There is however many reasons to believe that we are suffering from a saving glut and a dearth of productive investment. Forcing workers to put part of their income in the hands of the financial system won't necessarily result in a more productive economy.
  • Distributing investment and risks geographically. If you live in a rich, demographically challenged country like Italy or Germany, depending on a pension fund for your retirement would mean that your money could be invested in other countries and you would profit from the contributions of younger, say, Asian workers, rather than the dwindling local population.

But none of these fundamentally change the macro-economical dynamics behind retirement systems.


Malaysia does have a retirement fund system that works exactly the way you describe but Malaysians don't consider it a pension fund (explained later in the answer).

The EPF: Employees Provident Fund

Originally formed as the Employees Provident Fund Board by the British (EPF predates independence), the EPF was founded to provide funds for people entering retirement. It is funded entirely by your earnings as a mandatory pay cut (currently 11%) from your salary. As such, it is more of a government mandated savings scheme rather than a regular pension fund.

EPF is generally structured as follows:

  • 11% of your salary goes to your EPF contribution
  • Your employer must contribute an additional 12% of the value of your salary to your EPF fund (or 13% for people earning near minimum wage)
  • In addition, your contribution is used by the government for investment, earning you annual dividends. Historically the dividends have averaged around 6% so on average it beats inflation by around 2-3%
  • Your contribution and your employer's contribution are separated into 2 different accounts. You may withdraw from your contribution before retirement for things like buying a house or medical emergencies.
  • Upon reaching the age of 50 you may withdraw up to 30% of your EPF.
  • Upon reaching the age of 55 you may withdraw all of your EPF. In addition, above the age of 55 if you are still working contributions becomes voluntary rather than mandatory

The upside to this is that retirement funding cost the government almost nothing (apart from administration costs) but there are downsides to this. Those who don't earn much (the median income is literally the minimum wage) will end up with very little for their retirement. Also this system isn't mandatory for those who are self employed (which includes a growing number of "workers" in the gig economy) leaving a large chunk of the population without a retirement plan.

Singapore has a similar system called the Central Provident Fund (CPF) founded 4 years after EPF (while both Malaya/Malaysia and Singapore were both under British rule at the time they were governed by different agreements with different Sultans and thus different administrations).

India also has a similar system called the Employees Provident Fund Organisation (EPFO) founded a year after Malaysia's EPF.

Pensions in Malaysia

Pensions do exist in Malaysia and those who have pensions are not required to contribute to EPF. The difference is that a pension in Malaysia is a retirement fund that pays monthly until death. In comparison, EPF gives you your entire "savings" upon retirement and it is up to you to manage it and you don't have additional funds once you've used up your savings.

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    Young people tend to not like it and view it as a tax. It is much higher than income tax at the start of your career when you're still at the low end of the tax bracket. When you've reached my age you start viewing it as a very large piggy bank that you have no access to :P
    – slebetman
    Commented Dec 10, 2019 at 8:35
  • 2
    Also, self employed people are not covered in this system - should include that as a con in the answer
    – slebetman
    Commented Dec 10, 2019 at 8:40
  • 1
    @cbeleitessupportsMonica The system we have is voluntary for self employed. Still, most don't want to be forced to take a monthly pay cut - a lot of people still view it as a tax. There are even plans to expand the voluntary contributions to cover housewives from their husband's salary
    – slebetman
    Commented Dec 10, 2019 at 8:59
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    Great description. How big are the problems with people withdrawing everything at 55+ and spending all if it a long time before they die?
    – Manziel
    Commented Dec 10, 2019 at 15:52
  • 2
    @Manziel I don't know. It's just accepted as normal. People don't think "he died because he ran out of money". Islam is a very fatalistic religion - death is just part of life and you don't die unless it's your time to die (you don't continue being alive after your time either - it's like Final Destination if death didn't fail the first time). So that's how roughly 60% of the population feel. I don't know about how others feel about it but it's not a big issue.
    – slebetman
    Commented Dec 10, 2019 at 23:41

You won't get a satisfactory answer to this question. I'll try to elaborate why. But, please, be prepared for the fact that you really won't like the answer.

The whole concept of past vs present contributions is a misnomer unless the pension fund is no longer accepting contributions at all.

The 1st reason for it is that in order to offset inflation, the money has to be invested. The rate of return of an investment is usually proportional to the level of its risk. Risks are offset by various insurance instruments. But these insurance instruments also cost money.

Generally any open fund (a fund which continues to receive contributions) has a plan for future payments and future liabilities. In this consideration, the future payments to pensioners serve the same function as the future payments on these insurance instruments. Both are future liabilities.

The cost of the payments to pensioners is fairly well-known (based on certain assumptions about life expectancy). The cost of derivatives (these are really the insurance instruments) is not known because they are determined by future market conditions. The amount of money that will continue to be contributed to the plan is not well-known because it is effected by the workers ability and willingness to contribute (it does happen from time to time that workers' representatives do not make payments because the times "are tough"). The amount that the investments return is also volatile.

There is a whole area of expertise called "financial risk management" which seeks to determine relationships between various possible future events and how these events would change the holdings of the pensions plans. Its aim is to make sure that the risks, taken by the pension plans, make it highly unlikely that the liabilities will reduce the plans' future ability to pay.

This may have been too long an answer. But if you read through all of it, then here's why the question doesn't make sense. The payments made into the plan are no different than payments made by investments made by the plan. They are determined by multiple factors. The sum total of the payments received by the plan (both from the investments and from the payments made by workers) should not be lower than the liabilities. If it is, then the plan is losing money.

However, the payments are made to the plan on nearly continued basis. And the payments are paid out by the plan on regular basis. So the distinction between past money and "current" money is moot. The only distinction which can be made is whether the plan's assets are increasing or decreasing.

Oh, and it doesn't matter if the money is collected by an employer or the government (in the form of taxes). The mechanism remains the same. There are current payments into the plan and payouts by the plan.

  • 3
    There is a significant distinction: if the percentage of retirees in the country begins to increase, the current system breaks down and either the retirement age has to be increased, the pensions amount has to be reduced or the amount of taxes has to be increased. But in a system where each generation is responsible just for themselves, no such issues could possible arise as the percentage of retirees in the society is more or less irrelevant. Commented Dec 9, 2019 at 8:05
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    To give another example - baby boomers would have enormous pensions under the system of "you get what you paid in", as the stock market grew by an average of 8% since they've entered the workforce. But this would also mean that Social Security wouldn't have been a thing for people who retired back during the Great Depression, as no money would've been available at the time. Commented Dec 9, 2019 at 8:10
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    @JonathanReezSupportsMonica stock market is a very small part of the investment market. Overwhelmingly most money, that is invested, is invested in bonds. They are just not as glamorous or as often speculated by the retail investors. Ultimately if there is no people to support a generation of retirees (provide the services they need... not just pay for them), no accounting is going to produce it. And money only accounts for who does which work.
    – grovkin
    Commented Dec 9, 2019 at 14:30
  • 3
    @JonathanReezSupportsMonica it's not necessarily regressive to have a larger portion of the economy dedicated to elderly care. Japan, in anticipation of ever-growing elderly population, had entire industries which developed with the sole purpose of enabling autonomy for the elderly. These provided high-end employment and actual tech progress. Thinking that this must be about limiting money which is spent on care of elderly (who are no loner productive) would just lead to rationing of care. That is not only cruel, but it would also lead to increasing bureaucracy instead of technology.
    – grovkin
    Commented Dec 9, 2019 at 14:38
  • 1
    @grovkin Yes. The most recent Annual Report of SS' Board of Trustees says, "The Department of the Treasury currently invests all program revenues in special non-marketable securities of the U.S. Government which earn interest equal to rates on marketable securities with durations defined in law." SSA's website also says that the trust funds now consist only of special-issue bonds (i.e. the non-marketable ones,) though they have held public-issue bonds in the past.
    – reirab
    Commented Dec 12, 2019 at 21:01

If I remember correctly, such plans have already been discussed here in Germany, however there are some drawbacks about the government acting as an investor on behalf of the people as compared to a system that is paying out pensions with the current income and only keeping a small reserve of money

  1. If you have one big pension fund, you get a really really huge player distorting the market.
  2. Given the performance of many government driven investments, my expectations would be very low for this.
  3. Condensing retirement funds into a single pension fund would wipe out competition on those funds. While the effect of competition on those founds is not really clear (as no one can predict the market), I would rather prefer to have many investentment and insurance companies invest with their different strategies for private pension funds than a single government owned player
  4. Events like wars or a major crash can wipe out the value of such a pension fund for decades. Try to imagine how such a system would have worked for a German taxpayer born around 1880 with 2 world wars and a huge crash. This fund would not have had any substantial value by their retirement. By contrast, the system of paying todays retired people with the current income immediately works as soon as your economy is back on track
  5. The whole model assumes that the government would be completely responsible with this money and only use it for the intended purpose. This giant pile of money could be very tempting to use for other purposes
  6. It is not really clear if this model actually works better for a different age distribution. If there is a huge number of people to be payed from the fund, the fund will have to sell a lot of its assets. As pointed out in 1. this player would be really huge and selling large quantities will affect the price.
  • 1
    Please try to add references to support your answer.
    – JJJ
    Commented Dec 9, 2019 at 0:23
  • This is a decent answer, but might be improved by broadly noting Germany's current pension system (e.g., "intragovernmental debt fund"). The answer talks about "drawbacks", but it's difficult to know what is being compared against.
    – Knetic
    Commented Dec 9, 2019 at 23:16
  • I'm in Germany, and while we have a (small) subpopulation with captial-based pension system for some freelance professions, I'm not aware of any public discussion of changing from pay-as-you-go to captial based pension system. In fact, there's rather a discussion whether those who are not obligatorily in the pay-as-you-go system (and do capital based retirement savings) should included into the pay-as-you-go system, so rather the opposite direction. The idea is: more contributors. But that also means more beneficiaries, and freelancers tend to grow older than employees (Wikipedia:by 4 years). Commented Dec 10, 2019 at 9:07
  • @cbeleitessupportsMonica The discussion has already happened when the Schröder government decided to subsidize private capital-based pensions (Rürup- and Riester-Rente) rather than propping up the public pay-as-you-go system. Commented Dec 10, 2019 at 15:32
  • 1
    Yes, put that way I couldn't agree more. The reform discussions were always about complementing pay-as you-go with private and firm-level pensions. Commented Dec 11, 2019 at 13:10

The original argument as put forward by Wilhelm I in 1881 is still, at its heart, sound:

". . .those who are disabled from work by age and invalidity have a well-grounded claim to care from the state."

The alternative to state pensions is to accept that potentially a large number of people who are too old to work will be destitute and likely suffer an accelerated death.

Within that, there is of course huge room for argument over how large the value of the state pension should be. But the "individual account" proposal doesn't actually solve this, because it's not actually structured as an investment. Private pension schemes invest in a mixture of the stockmarket and bonds; the final value of the pension is usually mostly investment return, several times the nominal value of payments into the fund. For a government "defined contribution" scheme to work, it would have to define the rate of return - an extremely political question.

However, the "not enough people to pay for pensions" argument doesn't magically go away if you make it defined contribution either!

If we have a simplified model where all economic value is divided into "return to investors", "return to labour" (wages), and "taxes", then all that defined contribution does is move the same people from the "taxes" column to the "return to investors" column. It doesn't actually produce any more value with which to pay them.


I 'mwas (see @slebetman's answer) not aware of any country having their pension system entirely as a government-based capital funding scheme.

That being said,

  • keep in mind that "no pension system" is quite similar - just that it's not the government that is entrusted with each individual's savings for old age, everyone has to save for their own needs.
    I've frequently heard the argument that young workers feed their old age parents, i.e. the family version of the (pay-as-you-go) pension systems is having (lots of) kids as it is typical for primitive/less developed societies. However, according to the studies cited by Preparing for an Aging World: The Case for Cross-National Research. Ch 5: Intergenerational Transfers the net transfer between generations in such societies goes clearly downward (i.e. parents -> children, grandparents -> parents or grandparents -> children) and it is only in highly developed/western countries (if Japan counts as western) that a net transfer towards the elder generation is found.
    (I seem to recall graphs showing age at transfer for giver and recipient in a more detailed fashion for more societies with net transfers towards kids and grandkids for most regions but Southeast Asia, but couldn't find the reference now, if someone comes across such (or contradicting) data, please edit/comment.)

  • There are a number of countries that favor "mixed" pension systems, with part of the pension being pay-as-you-go and part being captial based.

    AFAIK in addition to the countries mentioned in other answers, also Switzerland and Norway. Norway AFAIK sticks out as their oil earnings go into a national pension fund whereas the other systems IIRC favor constructions where everyone puts savings into their individual capital based pension account.
    (Please correct me if I'm wrong - I know of these systems only as interested citizen of another country [Germany].)

    Germany in a way also has both systems, but mostly not for the same people: employees are in the pay-as-you-go pension system (although there are some slight efforts to encourage additional capital based pension savings this is volountary and of minor importance). Self-employed/freelancers are historically deemed capable of taking care of their own retirement savings, and that is mostly capital based. There is currently a discussion whether they as well as public officials (whose pensions are paid as government expense, i.e. also pay-as-you-go) should obligatorily join the pay-as-you-go system.

    For the freelancing professions organized in mandatory professional associations such as pharmacists, medical doctors, lawyers, architects, tax advisors,... Kammerberufe the professional associations also organize their pension system (Berufsständisches Versorgungswerk) and that is capital based and comes close to what the question asks, with the difference that the pension funds are not one governmental plan for the entire population but separate funds for each of those professions (and also by Land/state/province).

This works out just fine as long as the population remains stable or increases, but otherwise will require ever increasing contributions from younger workers to prevent inevitable collapse. But what if it could be funded in a different way?

I'd like to add some myths* about relevant economical and political thoughts:

  • @Relaxed has made the point in their answer that pensioners consume goods and services that are freshly produced. The "textbook example" I've met is that someone needs to grow the tomatoes the pensioner is eating.
    This is certainly true for important parts of old age consumption, e.g. nursing services.
  • It is already less true for the tomatoes if the pensioner is willing to eat canned tomatoes that have been stored for a few decades. As @lazarusL rightly points out, there are other goods/services that can even better be saved, i.e. the pensioner may be living in a house they built decades ago,
  • and in addition, the pensioner could have built sufficient housing space decades ago that they can now offer in return for nursing services or tomatoes: the nurse or tomato grower can now nurse and grow tomatoes instead of building their own house.

To me, this looks as if a mixed system may align better with this situation than either of the "pure" systems.

In addition, I think a mixed system allows a bit more diversification in the sense that

  • the pay-as-you-go system works better in case of an economic catastrophe that voids any lifetime savings (e.g. a war destroying all the houses, to some extent economic crises)
    These economic catastrophes would include governments that take such pension savings for other purposes.
  • a capital based system has advantages in other types of crises: if the total productivity cannot keep up with the demand (of pensioners and kids, see below; this puts together the effect of more & longer living pensioners and later contribution start age due to longer education and possible population decline**) but also some economic crises: capital based savings may be diversified world-wide, so a local (national) but not world-wide economic crisis may affect the capital based system less than a pay-as-you-go with incoming payments dropping steeply due to unemployment.

One thing that I'm crucially missing so far in this discussion is that pensioners aren't the only ones that need to be fed and cared for. Also kids need to be fed and educated, and that must be produced by the working (middle) age group, and there's no way a kid could have put up savings like a pensioner could.

I've done a rough back-of-the-envelope calculation a while ago for Germany, and the average pension cost for one person came out to be roughly the same as the cost to bring up and educate one kid (which was roughly half and half costs payed usually by parents/family such as food, clothing, housing and their part of education costs and tax-payed education i.e. schools and university [IIRC, I was able to roughly separate the education part of universities from research])). So the cost of raising kids is not negligible in the pension discussion.

The conclusion from that is a continuously shinking population isn't as difficult for a pension system as a situation with increasing numbers of pensioners and kids.

A last, loosely related thought ("myth") for health care costs: on a macroeconomic level, quite a lot of the health care costs arise in old age. However, I recall seeing the argument that a better description of the actual situation is that the last $n$ years cost a lot of health care rather than describing rising health care costs at age $x$. That would mean that a chunk of health care costs should be allocated (saved) for everyone, regardless of pension age.
(Again, I'm missing the citation - note to self: start putting also generally interesting stuff into literature data base)

*I use "myth" here in the sense of a narrative that illustrates basic insights/beliefs/mind models about how our world works, i.e. this narrative is necessarily simplified but otherwise there is no implication of its being wrong. I take this meaning mostly from T. Sedláček's Economics of Good and Evil.

** I live in Germany. I've learned in school that the population here is shrinking, and this is regularly reiterated in such discussion. Since the wall fell (when I was in school), the population of Germany has shrunken roughly from 79 to 83 mio inhabitants.

  • "Shrunk" from 79 to 83? Commented Dec 10, 2019 at 0:34
  • I'm not aware of any country - check out Malaysia and Singapore
    – slebetman
    Commented Dec 10, 2019 at 5:16
  • 1
    @JonathanReezSupportsMonica: exactly. Doesn't that make you really trust that they get the math right for adapting the pension system...</sarcasm> Commented Dec 10, 2019 at 8:55

Yes and no, in the case of New Zealand.

NZ (New Zealand) once had such a system but the pollies stole the money, as usually happens in such cases.

For a while NZ then only had a "Ponzi scheme" type system* - contributions made and current payments had no direct relationship.

HOWEVER - NZ now has two systems which run in parallel.

  • One is a taxpayer funded NON-means-tested everyone-is-eligible "National Superannuation" system which pays a fixed amount per week to EVERYONE 65 years and older regardless. (Rates per person for married people are slightly lower than for singles - go figure).


  • A "KiwiSaver system which is funded by contributors plus employer contributions where each account is wholly owned by the beneficiary. Their are a number of competing offerings operated by private companies. The government guarantees each fund against failure of the operator and in exchange to qualify to operate a fund well defined equity and operating conditions are set.

Membership of KiwiSaver is compulsory for employees and optional for the self employed.
Returns vary by operator and each operator offers a number of high/medium/low risk options. Funds are usually accessible only at age 65 or for certain specific purposes (such as first home purchase under specific conditions).

So, every multimillionaire and every footpath rough-sleeper will both qualify for "National Superannuation" at age 65. And every employee will qualify for a self funded KiwiSaver nest egg (payable in various ways by choice) at age 65 (if not having qualified sooner).


*A Ponzi scheme uses new contributions to pay past debts or supply expected "profits".

Pension schemes which pay new funds into a general account for use on anything desired and which then pay pensions out of the public purse, with no linkage between income, investment returns and payouts, as is the case in many and maybe most systems, is closer to a Ponzi scheme than is comfortable.

Worldwide you currently hear that "we can't afford the baby boomers" and retirement ages are being pushed upwards as the input funds have not been applied in calculating benefits.


No (see other answers). The Dutch system comes close though.

The Dutch pension system combines a pay-as-you-go system, in which workers pay for retirees' benefits, and an individual investment system. In the individual investment system, groups and individuals make high-risk and low-risk investments to make up for the amount they receive from the state pension. These different models can be seen as the three pillars of the Dutch pension system.

Source: wikipedia

The 'individual investments' are still usually based on the group the individual is part of. The collective invests in their future. So they pay for their own (collective) retirement.

See also: https://www.iamexpat.nl/expat-info/official-issues/pensions-retirement-netherlands

  • 1
    Note that it's not just workers who pay for retirees benefits; this basic pension (AOW) is funded from general tax income. The additional individual pensions are tax-postponed, which means that they will generate delayed tax revenue when they pay out. Currently these are roughly in the same order of magnitude, and this is expected to remain so for at least a decade.
    – MSalters
    Commented Dec 10, 2019 at 12:00

The Canada Pension Plan (CPP) is partly funded.

CPPIB is one of the world's largest sovereign wealth funds and one of the world's largest investors in private equity, having invested over US$28.1 billion between 2010 and 2014 alone. As of June 30, 2019, the CPP Investment Board manages over C$400 billion in investment assets for the Canada Pension Plan on behalf of 20 million Canadians.

  • Sure, but Canada still has a pensions component covered by current taxpayers. The CPP is somewhat equivalent to 401k, which has 5 trillion in assets in the US. Commented Dec 9, 2019 at 20:12

In addition to a wonderful answer from @Grovkin, who covered financial management & investing.

The solutions as per question don't work.

My answer would be similar to his but would cover a different scenario. Maybe, it won't give you a direct answer, but it will help you understand the situation.

Let's assume there are 10 (P1-P10) people in a country. Just 10. Fictional nation.

Say, P1 orders a product from P2.

  • P2 sources some parts from P3 and P4. Assembles & processes them and delivers to P1.
  • P3 sources some chemicals from P5 and uses it to deliver to P2.
  • P4 uses some minerals from P6 to make a product and sell it to P2.
  • P7 provides software services to P2 and P3.
  • P8 facilitates the delivery of the goods from one to other.
  • P9 provides banking transactions and other stuff.
  • P10 provides the much needed social services to all, like laundry, cleaning, etc.

When P1 makes a payment to P2. P2 pays others in his supply chain. This continues and everyone gets paid.

  • If P1 is a company like GM, making cars, then all 10 in the country are making a part of the product and getting paid. Essentially creating jobs for the others in the system.

  • If P1 (GM) decides to make a futuristic flying car, then looking at the demand, P9 may start aviation research and produce services for P1.

  • If P1 decides to make a robot for doing janitorial services, then looking at demand, P10 may start a moulding company to produce parts for P1.*

If you look at the above examples, the whole future of P2-P9 depends on the direction taken by P1. The living standards, the expectations of P2-P9 are directly related.

Consider a scenario, where P1 wants to file for bankruptcy. What would happen to P2-P10?

Coming to the real world, demand is a varying factor in any economy. When the demand falls, the demand (for products/services) is artificially driven by the governments (by spending money) to create opportunities. In turn the spender goes into debt (P1, as per our example).

After the great 2008 financial crisis, the US government did,

  • loan to companies like Tesla to create demand (jobs for P2-P10)

  • Invested heavily in oil drilling and search. Today, US has shale because of this spending (and jobs for P2-P10)

  • Invested heavily in drones and automation tech for military use.
  • Invested in climate and weather research, using which we can exactly predict the crisis today.

The government is taking a part of money (taxes) from its citizens and spending the same (giving it back) to produce real products and services. The taxes collected were again invested back in the nation creating a demand. This additional demand has created more companies and gave more money back to people.

So, technically, the tax dollars (except the contributions to pensions) paid by people/companies aren't with the government anymore. In addition, the government actually borrowed more and created demand, so P2-P10 can have jobs/let's say a purpose. All people have to be responsible for the nation's debts. Using the newly created products (shale/Tesla, etc.) the nation can pay off its debts (the US debt is 22 trillion).

Coming to your question. Now, P2-P10, seeking their tax payments back for pensions. To be fair, - The government doesn’t have that money anymore. - They were able to pay taxes, because the government artificially created a demand. They had jobs. Enjoyed life and now want their money back.

It might not happen. (Possible if, From @Grovkin answer, if inflation rises.) If it happens in the current form, the whole nation might go bankrupt.

The traditional pension systems are broken. They were initially implemented with flawed assumptions, populist considerations and statistical expectations, which were never possible in real situations.

The government wont be able to fulfill all pension promises. If they do, it's by raising debt, essentially a country (all people) borrowing from other nations to pay for pensions, for which future generations will have to pay for. (If inflation rises to a significant level, this scenario is out of the question.)

In other words, if pension payments are made (without inflation rising) your kids must pay some 70-80% or maybe more in taxes to serve the nation debt. Is it fair?

https://www.statista.com/statistics/203064/national-debt-of-the-united-states-per-capita/ US debt per papita (person) is now at 65000$. After government spending, it can hardly pay interest on the debt. Additional borrowing for pensions means, next generations will have to be slaves for others (With no inflation).

This is an extremely complex subject. I just scraped the surface of a mountain.

  • 1
    Minor comment :-) : re " ... using which we can exactly predict the crisis today. ..." - > good luck with that :-( :-) Commented Dec 10, 2019 at 7:00

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