Pension age is raised 2 years in France, now Paris is burning.

[Tradess0610]

Don't know about the structure in France.

But, usually in Europe, a portion of your taxes, as long as you're working, despite your age, goes into your retirement fund .
Then that money is being used to buy Tbills & to get long into various investments, and from the returns you're being paid that pension.
You can save for the retirement, on top of that freely through various products.

Well not everywhere - some countries have Pay-As-You-Go system, where current payments of the working population fund directly the pensions of the current retirees.

This is Pillar I. Pillar II are various employment contributions, where not every company unfortunately contributes and Pillar III is what you save on your own.

 

[virtusa]

I have no idea. But as the population gets older, it's seems like a right choice the raise the pension-age.

There is no other option.

Life expectancy is growing.
In 1950, in my native country, people had an average life expectancy of 67.8 years.
In 2020 it went up till 82.2. We went always on pension at the age of 65.
So in 1950 you need a financial reserve to survive for 2.8 years.
In 2020 you need a financial reserve to survive for 17.2 years. The amount became 6.14 times bigger (without including inflation).

Who pays the pension?
In the end we all pay it ourself, because the government uses taxes, and social security amounts paid by the citizens. So theoretically we have to have enough saving to survive 17.2 years without income. Do the math how much you need each year and you will understand the problem. You will need to save 17.2 years of income during your active life (about 45 years). So each year you should save above your yearly expenses an extra 38% of income for your pension. Most people can never do that.

I forsee huge problems in the near future. Especially because more people retire than new young starters join to pay.

https://www.populationpyramid.net/
https://www.statista.com/statistics/457822/share-of-old-age-population-in-the-total-us-population/

 

[virtusa]

Well not everywhere - some countries have Pay-As-You-Go system, where current payments of the working population fund directly the pensions of the current retirees.

These countries will be the first victims as the % of retiring people is growing fast, while the % of working people is shrinking. So more receivers and less payers.

 

[Tradess0610]

These countries will be the first victims as the % of retiring people is growing fast, while the % of working people is shrinking. So more receivers and less payers.

So true. And this is also one of the arguments why Europeans started to be more open about mass immigration of foreign working population.

I remember my grandmother - I believe she retired when she was around 50? And lived until 90+. So she was contributing for less than 40 years (absolute minimum today) and was receiving the pension for over 40 years.

Absolutely crazy to imagine this today. And yes, I live in a former socialistic state

 

[nitrene]

In the US when SS was implemented the retirement age was set at ~15% above the median life expectancy (65 vs. 58) so it was sustainable in 1935 when it started but not today. I think the main short-term goal of SS was to reduce elderly poverty during the Great Depression.

Pensions in general are not sustainable because they imply a fixed rate of growth in the underlying assets but that rarely ever happens long term. Here in California there are huge pension funds for the public workers and they are in huge deficits because they mainly invested in sovereign debt but after 2 bubbles & collapses the interest rate was lowered to zero and the pension funds were screwed. The same is true in Illinois, New York, etc.

Every pension is a Ponzi scheme in the long term because politicians promising you money long after they have left office have no accountability. Here in California we had one governor after another promising all kinds of money to the public workers' union but those crooks already left office while piling up massive long term liabilities for the citizens to pay.

 

[Tradess0610]

Pensions in general are not sustainable because they imply a fixed rate of growth in the underlying assets but that rarely ever happens long term.

Additional reason why the pensions are not sustainable (many countries who follow the pay-as-you-go system) is the demographic trends - not enough people are being born. When the system was designed, the population was increasing (over 2.1 children born per couple), now it is below 2 I believe.

Such trends over time mean that there is less working population paying pensions for the existing retirees. And such issue is solved in various ways: decreasing the payout today, increasing the age, when people can retire and making it easier to foreign workers enter the working market.