6 ms·

Pension is a Ponzi scheme. Explained in terms of economic theory, if everybody works and saves in time period 1, and retires and receives pension in time period

by tomp 1y ago

Pension is a Ponzi scheme. Explained in terms of economic theory, if everybody works and saves in time period 1, and retires and receives pension in time period 2, then... their pension is worthless, because there's infinite inflation, because no more goods and services get produced. Retirement depends on having young workers. People approaching 60, 70 simply didn't have enough kids to have good retirement. It's not a problem that has easy and/or fast solutions. Yet, actions have consequences...

timschmidt 1y ago
> Pension is a Ponzi scheme. Explained in terms of economic theory, if everybody works and saves in time period 1, and retires and receives pension in time period 2, then... their pension is worthless, because there's infinite inflation, because no more goods and services get produced. You've created an impossible situation which will never exist and then offered it as an example of why taking care of the elderly, something humans have done since before recorded history, is flawed. As Bill and Ted would say: Bogus!
- pfannkuchen 1y ago
  I think what they missed is that people typically work for much longer than they are retired. If the periods were of equal length, I think the Ponzi scheme thing would be true. As is its sort of a modified fractionated ponzi.
  - broken-kebab 1y ago
    Ponzi, or no Ponzi, it's still an illusion: let's assume that we all generate enough money saved in those funds during our productive years to sustain ourselves in senior periods, even counting in the almighty inflation. The problem is it's not money you need when old, and frail, you want somebody doing work for that money. So the whole scheme still requires enough young workers entering the market, and them be willing to perpetuate it. Which is kinda not guaranteed if each gen is smaller then the previous one.
    - timschmidt 1y ago
      > Ponzi, or no Ponzi, it's still an illusion What do you think money is? > you want somebody doing work This is one reason why the robotics work going on right now is so exciting. Without the demand for elder care, it wouldn't attract as much investment or development.
      - imtringued 1y ago
        >What do you think money is? Money is basically a coupon for labor. If there are no vending machines (read young workers) for labor coupons, then you won't get labor, no matter how many coupons you accumulate. Holding money does not teleport people into the future. (= the store of value myth)
  - celeritascelery 1y ago
    Seniors are also really expensive. By some estimates you spend half of your lifetime healthcare cost in the last five years of your life. It typically takes multiple working people to support a single senior on government benefits.
  - tomp 1y ago
    Do they? 0-25 education, 25-67 work, 67-82 pension, it's almost equivalent (42 working, 40 not working)
    - timschmidt 1y ago
      Education isn't work?
- tomp 1y ago
  > why taking care of the elderly, something humans have done since before recorded history Well yeah, but before government-organised pension, it was your kids taking care of you when you get older, so the system was much more balanced (or rather, only imbalanced on the micro scale, not at a mega scale we see now...)
  - kulahan 1y ago
    This is missing the elderly with no young to support them for whatever reason, so some level of government support is necessary. You can’t just have old people dying in the streets of course.
    - zeroCalories 1y ago
      Sometimes you gotta know when the parties over and it's time to leave.
    - buckle8017 1y ago
      Those people literally dug their own graves.
      - timschmidt 1y ago
        NIH / WHO put infertility at somewhere between 10% and 17.5%. You've condemned a sixth of the world's population through no fault of their own.
        buckle8017 1y ago
        Adopt some orphans.
        timschmidt 1y ago
        George Washington chose to found a country instead. Beethoven and Chopin wrote some music. Queen Anne united a Kingdom, and Queen Mary II assented to the 1689 Bill of Rights. Frida Kahlo painted some art. Virginia Woolf wrote some literature. Helen Geisel edited Dr. Seuss. Rosalind Franklin helped discover DNA. Jean Purdy helped develop IVF. All infertile due to no fault of their own. Perhaps you should consider moving out of the country, avoiding classical music, literature, and art, foregoing all DNA-related medical developments and IVF, and meditating on empathy as you do so.
- csomar 1y ago
  > You've created an impossible situation which will never exist It can and does, albeit in slower motion (ie Japan, South Korea) > why taking care of the elderly, something humans have done since before recorded history, is flawed. Humans took care of THEIR elderly. The system was made to take care of THE elderly. Pretty sure most people don't want to see old people begging for food on the street but also prefer not to pay much to have it resolved (varies by country and culture)
  - timschmidt 1y ago
    > It can and does, albeit in slower motion (ie Japan, South Korea) Read what he wrote again. The scenario he created (everyone works, then everyone retires) has never and will never happen. Humanity is more likely to be wiped out by a meteor. > Humans took care of THEIR elderly. Point me toward the non-human elderly being supported by the social safety net. We're all related. You just have to look back far enough. > Pretty sure most people don't want to see old people begging for food on the street but also prefer not to pay much to have it resolved (varies by country and culture) I agree with you here. People don't want to help others, and don't want to suffer the consequences of not helping others. People are conflicted creatures who suffer from a long https://en.wikipedia.org/wiki/List_of_cognitive_biases https://en.wikipedia.org/wiki/List_of_cognitive_biases
    - csomar 1y ago
      > The scenario he created (everyone works, then everyone retires) has never and will never happen. It can happen in a generation, if all of that generation decides to have zero offspring. This is why it is happening in slow motion. There are still people having kids but not enough for sustaining the current population levels. > We're all related. We are also related to bugs. Humans generally care for their very close relatives (kids -> parents -> cousins...) and emotionally care for the rest of humans.
      - timschmidt 1y ago
        > It can happen in a generation, if all of that generation decides to have zero offspring. All of humanity has never decided to do the same thing ever. Society follows a https://en.wikipedia.org/wiki/Normal_distribution https://en.wikipedia.org/wiki/Normal_distribution , and there will always be folks who decide to do other than everyone else. Oppositional defiant disorder is a thing. You're living in imaginary land. > We are also related to bugs. Yes. And many very intelligent people besides myself think that we should be taking better care of the environment and all the other creatures in it besides ourselves as well.
wkat4242 1y ago
It depends on the system. In Holland they just abandoned this for a US-style "every man for himself" 401(k) thing. Luckily there are still parties fighting the implementation. I don't think ponzi scheme is justified, it is too negative, it just makes no sense to actually accumulate all that wealth for so long.
- timewizard 1y ago
  > "every man for himself" 401(k) thing It allows you to do that. In most cases there are various life index funds that operate the way a traditional pension scheme would and is likely the default option in any employer plan. You can additionally add your own money outside of your paycheck and you can use the money inside of the fund to make your own investments. You are also allowed to take personal loans against your own 401k. Which is a generally overlooked benefit of the system. You pay interest on the loan but it just goes back into your 401k itself. You pay interest to yourself. The great thing with a 401k is it's not industry dependent. If your employer or industry goes out of business you still have a lot of options to move your retirement to a new employer or use some of the funds to bridge yourself to a new line of work. I used to hate it but now that I've used it I quite like it.
  - wkat4242 1y ago
    I prefer the old system because it's simpler (the last thing I want to do is manage investments) and it doesn't run out like a personal pension does. You just get the monthly amount as long as you live. Because it's a group scheme. Some people are luckier than others. Unfortunately Holland has become very neoliberal and everything collective or social is frowned upon. That's really why they changed it.
    - vasco 1y ago
      > and it doesn't run out like a personal pension does. You just get the monthly amount as long as you live It doesn't run out? What's this magic infinite money? It doesn't run out because when it runs out other people are working for you. It's a great system that exploits the young to benefit the old that didn't save enough. The new system removes the magic and you have what you saved.
skissane 1y ago
I live in Australia where individuals are expected to fund their own retirement, and the government pension is intended just as a back-up for those who are too poor to do so. Everyone has an investment account ("superannuation", or "super" for short) which is taxed at at a reduced tax rate, and your employer is required to pay 12% of your salary into it. There are many providers of such accounts ("superannuation funds") to choose from (normally your employer has a recommended fund, but you aren't obliged to use the one they recommend) – and if you really want to you can set up your own superannuation fund (a Self-Managed Super Fund or SMSF) in which case you can make all the investment decisions yourself (subject to certain legal restrictions–you risk legal trouble if you make non-arms-length investments, like invest your superannuation into your own business, but other than that you can put the money in whatever you like.) So, lack of young workers is not an inherent problem – you can invest your superannuation overseas (most funds invest a certain percentage of the money overseas, but if you want to take the risk of putting 100% of your superannuation into international investments, that's allowed), so even if the Australian economy were struggling with lack of young workers, you could still live off the investment returns from other global economies which lack that problem. And the reality is that Australia is unlikely to run out of young workers, because even though we have similar problems with low fertility as many other Western countries (although significantly higher than most of Western Europe), we've also always had a relatively high immigration rate, so younger workers immigrating makes up for the insufficient births.
- ilya_m 1y ago
  > in Australia where individuals are expected to fund their own retirement, I'm looking at the official statistics, and this is not what they say: The government pension is the main source of income for 47% of retirees vs superannuation's 33%. Moreover, the proportion of those relying on the pension has increased between 2020 and 2022 by 3 pts. https://www.abs.gov.au/statistics/labour/employment-and-unemployment/retirement-and-retirement-intentions-australia/latest-release#income-at-retirement https://www.abs.gov.au/statistics/labour/employment-and-unem...
  - skissane 1y ago
    > The government pension is the main source of income for 47% of retirees vs superannuation's 33%. Yes, but that’s because the current superannuation system was only introduced in 1992, and when it was first introduced the mandatory contribution rate was only 3% (as opposed to 12% starting this year)-so a lot of current retirees had limited super because it didn’t exist for a big chunk of their working life, and then even when it did the contribution rates were arguably insufficient. Younger workers (20s/30s/40s) generally have had much more money put into their super, so it is expected that by the time they reach retirement age, the pension:super balance will have shifted more in the super direction. > Moreover, the proportion of those relying on the pension has increased between 2020 and 2022 by 3 pts. That period saw significant economic and social disruption due to COVID-19, so I doubt that change is representative of long-term trends. If an economic shock causes a rise in unemployment, that can push people near retirement age into unplanned early retirement-and the people most likely to be impacted by that are likely to be the least well-off, who inevitably are more likely to rely on the government pension than their own retirement funds
timewizard 1y ago
> Pension is a Ponzi scheme. It's most appropriately a shared investment scheme. Your pension money should not sit idle while you are building it. That money can earn a percentage in many ways and dividend reinvestment makes the fund grow massively. > Retirement depends on having young workers. Profits do. Retirement is going to happen regardless of how many young workers there are.
- account42 1y ago
  There is zero advantage to a society-level investment scheme and many disadvantages - mainly due to distancing "investors" from the investment which means that the goal of the system becomes profit only without any consideration for ethics.
  - timewizard 1y ago
    > There is zero advantage to a society-level investment scheme and many disadvantages Except we're using it and it works. It's demonstrably better than the previous scheme wherein when a business failed it could take the entire pension with it leaving thousands of people high and dry. > mainly due to distancing "investors" from the investment It puts me directly in control of the investment whereas before I had zero control and had to accept whatever the company administrator decided. > which means that the goal of the system becomes profit only without any consideration for ethics. Do you want to solve the retirement problem or ethics in investing problem? If you insist they both be solved by the same action then I think you're going to end up with a system that has _negative_ advantages and _everyone_ will hate.
  - throw0101d 1y ago
    > There is zero advantage to a society-level investment scheme and many disadvantages […] The first advantage is they're generally a mix between tontines and annuities, which helps to mitigate longevity risk.
oezi 1y ago
Pensions aren't a Ponzi scheme. They just need to be calibrated that the years of pay-in and years of pay-out are balanced as to the ratio of the people in the age cohorts. If you have 10 people paying in for 40 years and only 2 people receiving pay out for 10 years then the system is cheap.
throw0101d 1y ago
> Pension is a Ponzi scheme. Explained in terms of economic theory, if everybody works and saves in time period 1, and retires and receives pension in time period 2, then... their pension is worthless, because there's infinite inflation, because no more goods and services get produced. Except if you take a portion of the contributions and investment in incoming-producing assets. Kind of like what the Canada Pension Plan (CPP ~ US Social Security) does. Not all pensions are the same or created equal.

by tomp 1y ago

timschmidt 1y ago

> Pension is a Ponzi scheme. Explained in terms of economic theory, if everybody works and saves in time period 1, and retires and receives pension in time period 2, then... their pension is worthless, because there's infinite inflation, because no more goods and services get produced. You've created an impossible situation which will never exist and then offered it as an example of why taking care of the elderly, something humans have done since before recorded history, is flawed. As Bill and Ted would say: Bogus!

pfannkuchen 1y ago
I think what they missed is that people typically work for much longer than they are retired. If the periods were of equal length, I think the Ponzi scheme thing would be true. As is its sort of a modified fractionated ponzi.
- broken-kebab 1y ago
  Ponzi, or no Ponzi, it's still an illusion: let's assume that we all generate enough money saved in those funds during our productive years to sustain ourselves in senior periods, even counting in the almighty inflation. The problem is it's not money you need when old, and frail, you want somebody doing work for that money. So the whole scheme still requires enough young workers entering the market, and them be willing to perpetuate it. Which is kinda not guaranteed if each gen is smaller then the previous one.
  - timschmidt 1y ago
    > Ponzi, or no Ponzi, it's still an illusion What do you think money is? > you want somebody doing work This is one reason why the robotics work going on right now is so exciting. Without the demand for elder care, it wouldn't attract as much investment or development.
    - imtringued 1y ago
      >What do you think money is? Money is basically a coupon for labor. If there are no vending machines (read young workers) for labor coupons, then you won't get labor, no matter how many coupons you accumulate. Holding money does not teleport people into the future. (= the store of value myth)
- celeritascelery 1y ago
  Seniors are also really expensive. By some estimates you spend half of your lifetime healthcare cost in the last five years of your life. It typically takes multiple working people to support a single senior on government benefits.
- tomp 1y ago
  Do they? 0-25 education, 25-67 work, 67-82 pension, it's almost equivalent (42 working, 40 not working)
  - timschmidt 1y ago
    Education isn't work?
tomp 1y ago
> why taking care of the elderly, something humans have done since before recorded history Well yeah, but before government-organised pension, it was your kids taking care of you when you get older, so the system was much more balanced (or rather, only imbalanced on the micro scale, not at a mega scale we see now...)
- kulahan 1y ago
  This is missing the elderly with no young to support them for whatever reason, so some level of government support is necessary. You can’t just have old people dying in the streets of course.
  - zeroCalories 1y ago
    Sometimes you gotta know when the parties over and it's time to leave.
  - buckle8017 1y ago
    Those people literally dug their own graves.
    - timschmidt 1y ago
      NIH / WHO put infertility at somewhere between 10% and 17.5%. You've condemned a sixth of the world's population through no fault of their own.
      - buckle8017 1y ago
        Adopt some orphans.
        timschmidt 1y ago
        George Washington chose to found a country instead. Beethoven and Chopin wrote some music. Queen Anne united a Kingdom, and Queen Mary II assented to the 1689 Bill of Rights. Frida Kahlo painted some art. Virginia Woolf wrote some literature. Helen Geisel edited Dr. Seuss. Rosalind Franklin helped discover DNA. Jean Purdy helped develop IVF. All infertile due to no fault of their own. Perhaps you should consider moving out of the country, avoiding classical music, literature, and art, foregoing all DNA-related medical developments and IVF, and meditating on empathy as you do so.
csomar 1y ago
> You've created an impossible situation which will never exist It can and does, albeit in slower motion (ie Japan, South Korea) > why taking care of the elderly, something humans have done since before recorded history, is flawed. Humans took care of THEIR elderly. The system was made to take care of THE elderly. Pretty sure most people don't want to see old people begging for food on the street but also prefer not to pay much to have it resolved (varies by country and culture)
- timschmidt 1y ago
  > It can and does, albeit in slower motion (ie Japan, South Korea) Read what he wrote again. The scenario he created (everyone works, then everyone retires) has never and will never happen. Humanity is more likely to be wiped out by a meteor. > Humans took care of THEIR elderly. Point me toward the non-human elderly being supported by the social safety net. We're all related. You just have to look back far enough. > Pretty sure most people don't want to see old people begging for food on the street but also prefer not to pay much to have it resolved (varies by country and culture) I agree with you here. People don't want to help others, and don't want to suffer the consequences of not helping others. People are conflicted creatures who suffer from a long https://en.wikipedia.org/wiki/List_of_cognitive_biases https://en.wikipedia.org/wiki/List_of_cognitive_biases
  - csomar 1y ago
    > The scenario he created (everyone works, then everyone retires) has never and will never happen. It can happen in a generation, if all of that generation decides to have zero offspring. This is why it is happening in slow motion. There are still people having kids but not enough for sustaining the current population levels. > We're all related. We are also related to bugs. Humans generally care for their very close relatives (kids -> parents -> cousins...) and emotionally care for the rest of humans.
    - timschmidt 1y ago
      > It can happen in a generation, if all of that generation decides to have zero offspring. All of humanity has never decided to do the same thing ever. Society follows a https://en.wikipedia.org/wiki/Normal_distribution https://en.wikipedia.org/wiki/Normal_distribution , and there will always be folks who decide to do other than everyone else. Oppositional defiant disorder is a thing. You're living in imaginary land. > We are also related to bugs. Yes. And many very intelligent people besides myself think that we should be taking better care of the environment and all the other creatures in it besides ourselves as well.

wkat4242 1y ago

It depends on the system. In Holland they just abandoned this for a US-style "every man for himself" 401(k) thing. Luckily there are still parties fighting the implementation. I don't think ponzi scheme is justified, it is too negative, it just makes no sense to actually accumulate all that wealth for so long.

timewizard 1y ago
> "every man for himself" 401(k) thing It allows you to do that. In most cases there are various life index funds that operate the way a traditional pension scheme would and is likely the default option in any employer plan. You can additionally add your own money outside of your paycheck and you can use the money inside of the fund to make your own investments. You are also allowed to take personal loans against your own 401k. Which is a generally overlooked benefit of the system. You pay interest on the loan but it just goes back into your 401k itself. You pay interest to yourself. The great thing with a 401k is it's not industry dependent. If your employer or industry goes out of business you still have a lot of options to move your retirement to a new employer or use some of the funds to bridge yourself to a new line of work. I used to hate it but now that I've used it I quite like it.
- wkat4242 1y ago
  I prefer the old system because it's simpler (the last thing I want to do is manage investments) and it doesn't run out like a personal pension does. You just get the monthly amount as long as you live. Because it's a group scheme. Some people are luckier than others. Unfortunately Holland has become very neoliberal and everything collective or social is frowned upon. That's really why they changed it.
  - vasco 1y ago
    > and it doesn't run out like a personal pension does. You just get the monthly amount as long as you live It doesn't run out? What's this magic infinite money? It doesn't run out because when it runs out other people are working for you. It's a great system that exploits the young to benefit the old that didn't save enough. The new system removes the magic and you have what you saved.

skissane 1y ago

I live in Australia where individuals are expected to fund their own retirement, and the government pension is intended just as a back-up for those who are too poor to do so. Everyone has an investment account ("superannuation", or "super" for short) which is taxed at at a reduced tax rate, and your employer is required to pay 12% of your salary into it. There are many providers of such accounts ("superannuation funds") to choose from (normally your employer has a recommended fund, but you aren't obliged to use the one they recommend) – and if you really want to you can set up your own superannuation fund (a Self-Managed Super Fund or SMSF) in which case you can make all the investment decisions yourself (subject to certain legal restrictions–you risk legal trouble if you make non-arms-length investments, like invest your superannuation into your own business, but other than that you can put the money in whatever you like.) So, lack of young workers is not an inherent problem – you can invest your superannuation overseas (most funds invest a certain percentage of the money overseas, but if you want to take the risk of putting 100% of your superannuation into international investments, that's allowed), so even if the Australian economy were struggling with lack of young workers, you could still live off the investment returns from other global economies which lack that problem. And the reality is that Australia is unlikely to run out of young workers, because even though we have similar problems with low fertility as many other Western countries (although significantly higher than most of Western Europe), we've also always had a relatively high immigration rate, so younger workers immigrating makes up for the insufficient births.

ilya_m 1y ago
> in Australia where individuals are expected to fund their own retirement, I'm looking at the official statistics, and this is not what they say: The government pension is the main source of income for 47% of retirees vs superannuation's 33%. Moreover, the proportion of those relying on the pension has increased between 2020 and 2022 by 3 pts. https://www.abs.gov.au/statistics/labour/employment-and-unemployment/retirement-and-retirement-intentions-australia/latest-release#income-at-retirement https://www.abs.gov.au/statistics/labour/employment-and-unem...
- skissane 1y ago
  > The government pension is the main source of income for 47% of retirees vs superannuation's 33%. Yes, but that’s because the current superannuation system was only introduced in 1992, and when it was first introduced the mandatory contribution rate was only 3% (as opposed to 12% starting this year)-so a lot of current retirees had limited super because it didn’t exist for a big chunk of their working life, and then even when it did the contribution rates were arguably insufficient. Younger workers (20s/30s/40s) generally have had much more money put into their super, so it is expected that by the time they reach retirement age, the pension:super balance will have shifted more in the super direction. > Moreover, the proportion of those relying on the pension has increased between 2020 and 2022 by 3 pts. That period saw significant economic and social disruption due to COVID-19, so I doubt that change is representative of long-term trends. If an economic shock causes a rise in unemployment, that can push people near retirement age into unplanned early retirement-and the people most likely to be impacted by that are likely to be the least well-off, who inevitably are more likely to rely on the government pension than their own retirement funds

timewizard 1y ago

> Pension is a Ponzi scheme. It's most appropriately a shared investment scheme. Your pension money should not sit idle while you are building it. That money can earn a percentage in many ways and dividend reinvestment makes the fund grow massively. > Retirement depends on having young workers. Profits do. Retirement is going to happen regardless of how many young workers there are.

account42 1y ago
There is zero advantage to a society-level investment scheme and many disadvantages - mainly due to distancing "investors" from the investment which means that the goal of the system becomes profit only without any consideration for ethics.
- timewizard 1y ago
  > There is zero advantage to a society-level investment scheme and many disadvantages Except we're using it and it works. It's demonstrably better than the previous scheme wherein when a business failed it could take the entire pension with it leaving thousands of people high and dry. > mainly due to distancing "investors" from the investment It puts me directly in control of the investment whereas before I had zero control and had to accept whatever the company administrator decided. > which means that the goal of the system becomes profit only without any consideration for ethics. Do you want to solve the retirement problem or ethics in investing problem? If you insist they both be solved by the same action then I think you're going to end up with a system that has _negative_ advantages and _everyone_ will hate.
- throw0101d 1y ago
  > There is zero advantage to a society-level investment scheme and many disadvantages […] The first advantage is they're generally a mix between tontines and annuities, which helps to mitigate longevity risk.

oezi 1y ago

Pensions aren't a Ponzi scheme. They just need to be calibrated that the years of pay-in and years of pay-out are balanced as to the ratio of the people in the age cohorts. If you have 10 people paying in for 40 years and only 2 people receiving pay out for 10 years then the system is cheap.

throw0101d 1y ago

> Pension is a Ponzi scheme. Explained in terms of economic theory, if everybody works and saves in time period 1, and retires and receives pension in time period 2, then... their pension is worthless, because there's infinite inflation, because no more goods and services get produced. Except if you take a portion of the contributions and investment in incoming-producing assets. Kind of like what the Canada Pension Plan (CPP ~ US Social Security) does. Not all pensions are the same or created equal.