4 ms·

The main difference is that in the pension fund model, you (at least in theory) don't need the next generation to pay: you save now so you get money later. In

The main difference is that in the pension fund model, you (at least in theory) don't need the next generation to pay: you save now so you get money later. In the more common model, you pay for the previous generation hoping that the next one will pay for you, and you need intergenerational agreement on what's a fair amount. You don't need that with the fund model, as you (usually) agree & know beforehand how much you'll pay and how much you'll get. I'm fortunate to not be part of it, but I'm pretty sure German employees are looking at France where rents are higher and retirement age is lower and think "hey, you can do that?". I guess we'll see whether you can (though, fair enough, Germany is a special case, the reunification cost a lot of money).

konschubert 4y ago
I think you missed the finer point that GP made: At the end of the day, somebody has to change that bedsheet. Consider this extreme edge case: If everybody is retired and no is is working, inflation goes to infinity and all those savings and stocks become worthless.
- luckylion 4y ago
  For sure, but there's a difference between a promise that someone will do it for you, and you having currency to exchange for doing so. In the "having money" case, you have more options, but if you're given options, you also have more opportunity to make terrible decisions. And if it's a lump sum (or private investment of some kind), you can pass it on to your children - you can't do that with pensions in the other type.
  - PeterisP 4y ago
    What is currency if not an implied promise that someone will provide future services or goods in exchange for it? In a situation where workers can't/won't keep a promise to maintain retirees, the currency value will reflect exactly that, it will devalue so that the total amount of currency retirees have won't be enough to buy these services.
    - luckylion 4y ago
      Yes, but we'll quickly spiral into infinity if we take it too far. For our intents and purposes, currency is a placeholder for value. If you have that value (whether actually material or represented by currency), you'll have a much better chance to find someone who will exchange it for services. Their incentive is getting something from you in exchange. On the other hand, in the current system as it's used in France, Germany etc, their incentive is that hopefully someone else will do it for them in 40 years. But from what I gather, very few members of GenZ believe that our pension system will survive in its current form until it's their turn to benefit from it. They expect it to collapse, so everything they'd now put in would be wasted, much like if you invest in something after it has signaled that it will default soon.
phil21 4y ago
> you save now so you get money later. How do you save labor for later? Current retirees need young folks to do the work they cannot do, and thus those young folks are paying in today. When those young folks retire they will be relying on even younger folks to do the work for them. If there are not enough younger folks to do that work, the money saved between generations will become relatively worthless. Thought another way: The same amount of labor needs doing. If the current generation of workers stops paying in (read: working), then the entire system stops. One generation saving more (or being larger) than the next doesn't change much other than that saved wealth chases a decreasing amount of available labor once that generation retires. Quality of living will be predicated on the amount of available labor - not saved capital. It gets a little more wishy washy when you can plow capital into long-lasting infrastructure, international wage arbitrage, etc. but in the end you simply cannot run retirement systems if you have less labor available while keeping the same quality of life for all parties. Someone is going to lose.
- actually_a_dog 4y ago
  How exactly does the same amount of labor need doing when there will fewer people who need anything in the near future? You seem to be saying more labor per person is necessary to satisfy this “need.” That doesn’t seem beneficial to workers as a whole. I thought innovation was supposed to benefit everyone? Where’s the hole in this logic?
  - phil21 4y ago
    When the current crop of retirees were in peak earning periods, there were something around 6-8 workers per retiree. Data on France isn't super easy to come by. By 2030 this is expected to be about 2, which is better than I expected. You would need massive productivity gains inside the span of the past 40 years to make up 4-6 workers per retiree in labor. The fact I have 4-6 less cousins my age to sell my labor to to help take care of grandma doesn't seem to offset that huge amount of labor now needed to be expended on largely unproductive tasks. We went from 4-6 people pitching in to help out grandma each day to just myself. If you look at that in hours vs. dollars, the problem starts to become quite apparent to me. I don't feel I'm 500% more efficient at what I do than my elders. Perhaps we've innovated so well that we can now support old folks with a fraction of the labor, but I'm skeptical. Fixed costs seem rather fixed, and from where I'm sitting I think a whole lot of that "innovation budget" has been spent already on rising expectations of minimum quality of living.

konschubert 4y ago

I think you missed the finer point that GP made: At the end of the day, somebody has to change that bedsheet. Consider this extreme edge case: If everybody is retired and no is is working, inflation goes to infinity and all those savings and stocks become worthless.

luckylion 4y ago
For sure, but there's a difference between a promise that someone will do it for you, and you having currency to exchange for doing so. In the "having money" case, you have more options, but if you're given options, you also have more opportunity to make terrible decisions. And if it's a lump sum (or private investment of some kind), you can pass it on to your children - you can't do that with pensions in the other type.
- PeterisP 4y ago
  What is currency if not an implied promise that someone will provide future services or goods in exchange for it? In a situation where workers can't/won't keep a promise to maintain retirees, the currency value will reflect exactly that, it will devalue so that the total amount of currency retirees have won't be enough to buy these services.
  - luckylion 4y ago
    Yes, but we'll quickly spiral into infinity if we take it too far. For our intents and purposes, currency is a placeholder for value. If you have that value (whether actually material or represented by currency), you'll have a much better chance to find someone who will exchange it for services. Their incentive is getting something from you in exchange. On the other hand, in the current system as it's used in France, Germany etc, their incentive is that hopefully someone else will do it for them in 40 years. But from what I gather, very few members of GenZ believe that our pension system will survive in its current form until it's their turn to benefit from it. They expect it to collapse, so everything they'd now put in would be wasted, much like if you invest in something after it has signaled that it will default soon.

phil21 4y ago

> you save now so you get money later. How do you save labor for later? Current retirees need young folks to do the work they cannot do, and thus those young folks are paying in today. When those young folks retire they will be relying on even younger folks to do the work for them. If there are not enough younger folks to do that work, the money saved between generations will become relatively worthless. Thought another way: The same amount of labor needs doing. If the current generation of workers stops paying in (read: working), then the entire system stops. One generation saving more (or being larger) than the next doesn't change much other than that saved wealth chases a decreasing amount of available labor once that generation retires. Quality of living will be predicated on the amount of available labor - not saved capital. It gets a little more wishy washy when you can plow capital into long-lasting infrastructure, international wage arbitrage, etc. but in the end you simply cannot run retirement systems if you have less labor available while keeping the same quality of life for all parties. Someone is going to lose.

actually_a_dog 4y ago
How exactly does the same amount of labor need doing when there will fewer people who need anything in the near future? You seem to be saying more labor per person is necessary to satisfy this “need.” That doesn’t seem beneficial to workers as a whole. I thought innovation was supposed to benefit everyone? Where’s the hole in this logic?
- phil21 4y ago
  When the current crop of retirees were in peak earning periods, there were something around 6-8 workers per retiree. Data on France isn't super easy to come by. By 2030 this is expected to be about 2, which is better than I expected. You would need massive productivity gains inside the span of the past 40 years to make up 4-6 workers per retiree in labor. The fact I have 4-6 less cousins my age to sell my labor to to help take care of grandma doesn't seem to offset that huge amount of labor now needed to be expended on largely unproductive tasks. We went from 4-6 people pitching in to help out grandma each day to just myself. If you look at that in hours vs. dollars, the problem starts to become quite apparent to me. I don't feel I'm 500% more efficient at what I do than my elders. Perhaps we've innovated so well that we can now support old folks with a fraction of the labor, but I'm skeptical. Fixed costs seem rather fixed, and from where I'm sitting I think a whole lot of that "innovation budget" has been spent already on rising expectations of minimum quality of living.