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No. It is about how the system is funded. If pensions were funded by actual retirement accounts, where employees invested money into some state fund and have i

No. It is about how the system is funded. 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.

JackYoustra 1y ago
Chile had this and, while technocratically sound, was so unpopular it led to a new constitution.
tossandthrow 1y ago
This is about public pensions. 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.
- constantcrying 1y ago
  Germany has private pensions. Just as in Germany Denmark funds it's pensions through taxes, Germany additionally funds them through employee contributions.
  - tossandthrow 1y ago
    But these are organized as insurances, right? In Denmark you have ratepension, which truly is an investment account and not an insurance product.
jordanb 1y ago
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).
- triceratops 1y ago
  That's only true if the economy doesn't grow i.e. productivity doesn't improve. If retirements are funded from returns on assets they scale with productivity. If they're funded by current workers they're bounded by the limits of population and wage growth.
  - missedthecue 1y ago
    There is a production side of the equation but also a demand side. Through robotics and AI, Toyota might get really good at making cars really fast with minimal human labor. But if the demand for cars drops every year, the value of Toyota will be like a melting ice cube. This will be true for all stocks actually, (except perhaps the firms that sell adult diapers) but not only stocks, but property as well. And probably bonds. Do we really think Japan is good for their 2060 bonds, assuming no debasement? In a world with forever imploding consumer aggregate demand, there is no safe asset.
    - triceratops 1y ago
      It breaks down if you think about individual firms like Toyota. But the macro picture is that humans are consuming less goods and services and due to that consumer demand drops. And that means the non-working population's needs can still be fulfilled by the proportionately-smaller working population.
      - missedthecue 1y ago
        Yes but my comment was about asset prices
deleted 1y ago
[deleted]
alexey-salmin 1y ago
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.
- io4throwaway 1y ago
  Retirement migration will be common in the future, either to lower-cost parts of the country or to different countries altogether. It's happening right now with Spain or Florida, but it will get even more common.
  - lobotomizer 1y ago
    Let the hurricanes wipe out the current batch and then move your hovel in to be the next, o happy retirement!
eloisant 1y 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. 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.
dboreham 1y ago
> in many EU countries is set up in a way in which tax contributions now finance pensions now Hopefully US people realize that this is also how US public pensions (social security) actually works.

JackYoustra 1y ago

Chile had this and, while technocratically sound, was so unpopular it led to a new constitution.

tossandthrow 1y ago

This is about public pensions. 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.

constantcrying 1y ago
Germany has private pensions. Just as in Germany Denmark funds it's pensions through taxes, Germany additionally funds them through employee contributions.
- tossandthrow 1y ago
  But these are organized as insurances, right? In Denmark you have ratepension, which truly is an investment account and not an insurance product.

jordanb 1y ago

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).

triceratops 1y ago
That's only true if the economy doesn't grow i.e. productivity doesn't improve. If retirements are funded from returns on assets they scale with productivity. If they're funded by current workers they're bounded by the limits of population and wage growth.
- missedthecue 1y ago
  There is a production side of the equation but also a demand side. Through robotics and AI, Toyota might get really good at making cars really fast with minimal human labor. But if the demand for cars drops every year, the value of Toyota will be like a melting ice cube. This will be true for all stocks actually, (except perhaps the firms that sell adult diapers) but not only stocks, but property as well. And probably bonds. Do we really think Japan is good for their 2060 bonds, assuming no debasement? In a world with forever imploding consumer aggregate demand, there is no safe asset.
  - triceratops 1y ago
    It breaks down if you think about individual firms like Toyota. But the macro picture is that humans are consuming less goods and services and due to that consumer demand drops. And that means the non-working population's needs can still be fulfilled by the proportionately-smaller working population.
    - missedthecue 1y ago
      Yes but my comment was about asset prices

deleted 1y ago

[deleted]

alexey-salmin 1y ago

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.

io4throwaway 1y ago
Retirement migration will be common in the future, either to lower-cost parts of the country or to different countries altogether. It's happening right now with Spain or Florida, but it will get even more common.
- lobotomizer 1y ago
  Let the hurricanes wipe out the current batch and then move your hovel in to be the next, o happy retirement!

eloisant 1y 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. 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.

dboreham 1y ago

> in many EU countries is set up in a way in which tax contributions now finance pensions now Hopefully US people realize that this is also how US public pensions (social security) actually works.