Pensions Are a Ponzi Scheme | Hacker News Reader

Pensions Are a Ponzi Scheme

poddley.com

Well you must exclude money purchase schemes where the pension is a tax efficient form of saving.

Public pensions do rely on current contributions. But Ponzi schemes trick investors by financing initial returns out of investments. Not at all the same thing

Andrew Tate says that pensions are a Ponzi Scheme that depends on new incoming people to support the underlying base of people (at lesst that’s how I understood it).

Is there any truth to this? Or is he just being hyperbolic?

Don't know about Tate and other countries, but that's literally how public pensions work here in Norway. The government relies on taxes paid each year to fund all the pensions they have to pay each year.

Worked well when the country was growing in population, not so much now that the growth is negative (especially working population). Hence it's the primary reason why we renamed our "Oil fund" to "The pension fund"[1].

For private companies it's different, they have to actually put money in a personal pension account for each employee. The company can't fool around with it afterwards.

[1]: https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Nor...

What would happen if the norwegian government spent the whole fund?

If they spent it abroad on say Dutch tulips, so it didn't affect the Norwegian economy directly then short term we'd have to significantly cut spending.

While there's a rule in place to withdraw less than 3% of the value to ensure long-term survival of the fund, due to its size that now constitutes a significant part of the national budget. For 2026 they'll be withdrawing 2.9%, which translates to about 580B NOK, or $58B USD.

However the total spending in the 2026 national budget is 2200B NOK, or $220B USD. So the fund covers about 26% of the budget for 2026.

Lets just say it would be very painful if we suddenly did not have that fund.

If they liquidated it today and put it all in a bank account and wanted to spend it all inside the country, they could fund over 10 years worth of 2026 national budgets in its entirety.

Well, in a nutshell that is undeniable. Pensioners don't work. Other people fund them. No matter how it is calculated - whether through ownership of assets, direct government obligation, or otherwise - that product consumed by pensioners, is produced by workers, it doesn't come from nowhere.

Growth must persist

he could or could not be correct depending on how any particular pension is constructed, but as I understand most pensions are constructed as taking the money you put in and investing it and then paying you out of what gets returned from the pension.

Why don't you just invest yourself?

Well first because pensions being large scale investors can get better results and second because most people don't do the smart thing and put some money aside for a rainy day, a pension forces that.

In such a scenario the incoming people function more as a failsafe, the investment should handle paying out for your pension but in cases where there have been a problem in the market, you have outlived your pension expectations etc. you then end up having the failsafe of new people always putting money in. Thus giving the pension an extra layer of security than just investing for yourself.

on edit: of course there can be difference between governmental and company pensions.

Isnt that the american style? Saving up for pensions urself? I never quite understood the steucture

the pension that the government provides in most places is not enough to support someone in a continued middle class life, therefore you may often get a pension on top of your governmental pension from a company. The money paid in to this pension is often beneficial to you in that it will not be taxed as part of your income therefore you are deriving a benefit for your work that you do not get taxed on presently. Obviously when you get your pension you will be taxed but probably at a lower rate than when actually working.

These pensions that invest and compound your investment over time can turn a comfortable middle class life into a very comfortable retirement, the American model instead of the European model of these kinds of company investments tends to be more risky however, and so there can often be scandals where you were supposed to be getting a pension but the rich company looted you and you're screwed hah hah.

so for the case of negotiating for a job in Europe, if it is a good job, you should often consider not just the present wage but what the pension gives you.

For example you may get a pension of 5% of your wage goes into the fund, and the company you work for matching that, indicating 5% extra wage that is not part of your taxed income. Depending on how your life is structured it may be smarter to go for a pension.

There's nothing unsustainable about that btw. Imagine everyone puts $1 into a central pension fund for 40 working years, until they retire and withdraw $40 at 65. Now just cut out the bank account and have the working people fund the payments directly. Works out to the same given a constant rate of people. There's more nuance of course about the time value of money and demographics, but the direct new->old connection does not imply it's a scheme of any kind. Ponzis require exponential growth in new entrants by contrast rather than just population entry rate ~= exit rate.

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