Ok , so we all know the population growth isn't there, and the pension ponzis as we know them are in trouble.
But no politician will ever be the one to cut it, even autocrats like Putin are careful when fucking with the pension age. It's the grey third rail.
But let's pretend that the EU, UK, and US have recruited SNs top econ stackers and said, how can we reform this beast without fucking the pensioners too hard?
What would you implement?
The only thing I could imagine not being too explosive is transitioning all pensions to a 401k-type thing instead of current workers paying for retired people.
For the US, it's tricker since you already have both. Maybe SS could be transfered into some other self funded type thing.
People would hate it, especially in Europe, but from a political optics angle, you could still say that we simply don't have enough people paying into the system to make it work, and (in the EU)could also highlight that a 401k system works
The other option might be means testing, but i feel like this is politically toxic, and if most people have shit incomes, the issue of funding amongst the dwindling workforce is still there.
Bonus question, which country do you think has the best pension system at the moment, who is the poster child? Sweden maybe?
That would be great, but they'd have to print the money to fill those accounts, precisely because current workers' "contributions" are going to the current retirees.
I've never thought this was a particularly difficult problem. Means testing + increasing age of eligibility are all you need. The element I would add is legal elder support requirements on families, similar to child support.
I'd set the means testing at median income or net worth: i.e. if you either earn more than an average income or have a greater than average net worth, you don't qualify.
Age of eligibility is actually sort of complex, because you can withdraw early or postpone until later. The way they do it is allowing prorated withdrawals designed to empty your balance by the time you die, with an earliest withdrawal age of 62. They should move that 62 up by one year every other year and base the life expectancy estimates on more generous models. That will lead to fewer people reaching withdrawal age and fewer outliving expectations.
The elder support requirement is the biggest change. Families with the means to support their parents and grandparents should be required to do so before taxpayers are required to do so.
the transition is the hard part, but the gov has no problem doing a bit of printing when needed!
Increasing the age is a hard one, though, voters hate it, when France raised the retirement age from 62 to 64 the country basically lost its mind, millions protesting etc.
ahtough in fairness, the French do love a protest
The thing is, sliding eligibility forward impacts relatively few people, so you might be able to pull it off. Means testing seems like the easy one: everyone hates rich freeloaders.
I can see that we semi-independently reached the same place
I like this approach
Depends a little on the jurisdiction for details but basically I think the key is to do it swiftly, directly, unreversable and on both sides: benefit cutting + cut financing.
So for the US I'd instantly abolish the payroll taxes that fund Social Security, widely communicate that there won't be any government funds for retirees going forward and that you're responsible for your own savings.
Then: Income/housing-wealth test all current retirees, and cut off benefits for anybody above like median income or whatever (so half? One-third of claimants?) and finally use the remaining ~3tn or so to keep paying for existing, non-wealthy retirees until it runs out (2-5 years).
That way you a) instantly creates savings for current workers and income-earners — who are the friends, neighbors, children of current retirees — and b) give time to poor(ish) peeps who deserve some support, stretching the remaining funds for some reasonable time. (Get your affairs in order, have your kids help you out).
...and obvs, abolish the Fed and Congress and everything else that makes economic life for the elderly worse
But you are funded by the Iceland government as a 'creative'.
Should the taxpayer funded welfare payments that support YOU be CUT?
S I L E N C E . . .
Here in Peru, since the supposed pandemic and over the last five years, the government has passed or imposed laws allowing pensioners to withdraw all their money from the "AFPs"—that's what they call the pension system here!
And I've seen elderly people withdraw a significant amount of their life savings and go straight to the bank and deposit it with the most "pleasant and wonderful" advertising...
And the endless cycle begins again...
did they get a better deal or interest rate when redepositing?
No! There were banks that offered people lower interest rates for depositing their money and leaving it there long-term, and people accepted simply because of the misguided notion that "Your money is safer in the bank."
The system simply pushes you to keep falling into the same trap...
I asked once here on SNs if anyone here would choose not to accept a pension offered by the government.
Nobody said they would- they would all take the money offered by the state.
Some 'Libertarians' are all talk no walk.
New Zealand has a universal pension entitlement at age 65- no means testing but any additional income is taxed via the progressive tax system.
A couple receive about $NZ900/week.
A single person over 65 gets about $NZ500/week.
Enough to live a modest comfortable life, as long as you own your home debt free.
We also have a voluntary employer subsidised retirement savings scheme called 'Kiwisaver'.
NZs universal entitlement retirement pension is seen as one of the most equitable and sustainable ones in the world.
Reduce regulations, embrace AI/robotics and pursue rapid productivity gains, then use the surging GDP to make distributions to citizens. This is, essentially, what the current administration in the US is working towards, IMO.
-Tom
Canada has some ideas
You are circling the real problem which is that old age income systems were built for a demographic world that no longer exists and politicians keep pretending you can paper over that with vibes and slogans
If you really hired the best econ people and gave them political air cover they would not give you one silver bullet they would give you a portfolio
Because pension reform is fundamentally a risk allocation problem
Who eats the risk of longer life
Who eats the risk of lower returns
Who eats the risk of fewer workers per retiree
Who eats the risk of low wage growth
Right now in classic pay as you go systems workers eat the demographic risk
Taxpayers eat the political risk
And politicians try to make retirees eat none of it which is exactly why the system breaks
A serious technocratic reform for US UK EU would have roughly these pillars
1 Move from pure pay as you go to mixed systems
Not a full sudden jump to 401k style but a gradual build up of funded components on top of a smaller pay as you go base
Think in layers
Layer 1 A universal basic pension
Small flat benefit funded by taxes or payroll contributions
You do not starve in old age but you will not be middle class on this alone
This is the truly intergenerational solidarity piece and is politically very defensible
Layer 2 Mandatory or quasi mandatory funded saving
Occupational or personal accounts where contributions are invested over time with default diversified portfolios
This is where your 401k instinct is broadly right but with far more regulation on fees defaults and payout structures than the US 401k mess
Layer 3 Voluntary top up saving with tax advantages
For anyone who wants more optionality and has the income to save extra
The idea is to shrink the pay as you go promise to something sustainable and predictable and shift the rest into funded mechanisms that are harder for future politicians to raid
2 Slowly and automatically adjust the pension age
Do not do one big jump from 65 to 70 and start a riot
Instead hard code automatic linkages
Life expectancy goes up by one year normal retirement age creeps up by say 8 months with a long phase in period
Everyone under 45 knows the formula and plans expectations adjust gradually
You also create flexible windows instead of a cliff
Retire between 62 and 72 for example with actuarially neutral adjustments
If you go early you get less per year
If you go later you get more
This is not about cruelty it is about aligning math and reality
3 Redesign incentives for later life work
The cleanest way to take pressure off the system is not actually cutting pensions it is encouraging another five to seven years of part time or flexible work for most people
You do that by
Removing payroll tax penalties for older workers
Making it easier to combine pension income and work income without weird cliffs
Subsidizing retraining and gentle career downshifts instead of assuming everyone either fully works or fully retires
Old age becomes a slope not a cliff and each extra year of work does two things at once more contributions less years drawing a full pension
4 Make means testing less politically toxic by doing it quietly and gradually
Means testing is a third rail because people hear we are going to take away what you paid for
But there is a spectrum between universal benefit and brutal hard cutoff at X dollars of income
You can implement soft progressivity algorithms that phase down benefits very gradually at high total lifetime income or total retirement income levels
For example above a certain pension income plus investment income total your public pension top up shrinks by a few percent that way 80 percent of retirees are barely touched and you quietly save meaningful money at the top
And you frame it not as punishment but as a way to protect base pensions for everyone else
5 Fix the 401k style system before you copy it
The US 401k model as it exists is not the poster child you want to import
It is an accidental system riddled with
High fees
Poor default choices
Unequal access
Leakage when people cash out balances
If you are going to move toward funded individual accounts the grown up version looks more like
National or sector based pension funds with default enrollment
Strict fee caps
Very simple default investments
Collective risk pooling during payout
Limits on pre retirement withdrawals
Think more like a national Thrift Savings Plan or Dutch style pension fund and less like a menu of weird expensive mutual funds chosen by your cousin who became the benefits manager
6 Always protect the current old and hit future promises instead
Politically survivable reform never says Grandma loses her check next year
You draw a bright line
Anyone within say 10 to 15 years of retirement sees only minimal changes
The biggest changes hit people in their 20s 30s and early 40s
You are not cutting current pensions you are changing the deal for those who still have decades to adjust
That is also where you can push harder on funded components because compound interest needs time
7 Immigration and productivity are not side notes they are load bearing beams
If you refuse to talk about immigration and productivity you are not serious about pensions
Demographics can be partly offset by
Higher skilled immigration
More female labor force participation
Policies that raise productivity so you can tap more fiscal capacity per worker
If each worker produces a lot more you can support more non workers without making everyone miserable
On your bonus question who is the poster child
No one has solved it perfectly but you want to steal pieces from a few places
Netherlands
Strong funded occupational pensions
Collective investment
High coverage
But they are grappling with intergenerational fairness and are transitioning to more individual accounts with collective risk sharing
Denmark
High replacement rates
Mandatory funded schemes
Transparent adjustments
Sweden
Solid example for mixed systems
They have
A notional defined contribution public pillar that automatically adjusts to demographics
Premium pension individual accounts
Occupational pensions on top
It is not perfect but as a design pattern it is very close to what you are describing
Australia
Superannuation
Compulsory funded saving
Large national scale and relatively low cost
The challenge is adequacy for low income or broken work histories so you still need a base public pension
The US is the counter example
Great capital markets
Reasonable pre funded individual account structure in theory
But the patchwork nature the inequality of participation and the reliance on voluntary saving make it fragile