<p>It is not only conceivable, but actually the case for some pension schemes including some public sector schemes, that what people pay (eg as a deduction by employers from their employees' salaries) is invested to provide a pool of assets that can be used to pay pensions. As it happens, I receive a pension, arising from my former work in the UK local government and university sectors, from the <a href="https://www.lpfa.org.uk/" rel="nofollow noreferrer">London Pensions Fund Authority</a>, whose website has much detail about its investment strategy.</p>
<p>Of course, no such scheme can provide 100% certainty that pensions will be paid, at the agreed rate, and with appropriate allowance for inflation. But the existence of a pool of assets to fund pensions, held by a body independent of employers or the government and operating within a suitable framework of law, greatly reduces the degree of risk. In particular, it means that short-term financial considerations on the part of employers or the government are much less likely to result in pressures to cut pensions.</p>

CC BY-SA 4.0
2022-11-11T14:35:05.173Z
2022-11-11T14:35:05.173Z
Adam Bailey
<p>Money is merely an accounting system for goods and services. No matter how you fiddle with the accounting, a fundamental truth will always remain: the goods and services which are consumed by retired elderly people in 2050 will be produced by young workers in 2050 (or 2049).</p>
<p>Suppose that I budget to eat one tomato sandwich per day in retirement. I could hoard tomatoes and bread, but by 2050 all but the most recent instalment will have all been eaten by flies and mold. Stupid.</p>
<p>Or, I could hoard money, and trust in the money system (doubtful) to ensure I will be able to buy one tomato sandwich per day in retirement. In this scenario, I give up one tomato sandwich per day now, and someone else can buy it instead. When retired, I receive one tomato sandwich per day, made by someone else.</p>
<p>Or, there could be a public pension that pays for one tomato sandwich per day. In this scenario, I give up one tomato sandwich per day now, and an elderly retired person can buy it instead. When retired, I receive one tomato sandwich per day, made by someone else.</p>
<p>The only difference between the latter two scenarios is the boundary condition. When the second system starts up, there is a generation of young people who give up a tomato sandwich per day, and a generation of elderly people who don't receive anything. When it shuts down, there is a generation of young people who &quot;give up nothing&quot;, and a generation of elderly people who receive one tomato sandwich per day. But I write &quot;give up nothing&quot; in quotation marks, because they are still being coerced into making the tomato sandwiches one way or another!</p>
<p>When the third system starts up, there is a generation of young people who give up a tomato sandwich per day and a generation of elderly people who receive a tomato sandwich per day. When it shuts down, there is a generation of young people who give up nothing (actually nothing) and a generation of elderly people who receive nothing.</p>
<p>Thus the third option may be preferred because if someone decides something is good, they generally want it to happen <em>immediately</em>. If the population decides that elderly people deserve tomato sandwiches, it makes no sense to wait an entire generation before starting to give tomato sandwiches to elderly people.</p>
<p>Another difference is that the second system necessitates the young people to obtain collateral they can use as leverage to ensure the next generation will be willing to make them tomato sandwiches. Because the government isn't promising me to just get tomato sandwiches for free, I have to try to force it. I have to buy up real estate, for example, so that I can release my real estate back onto the market in exchange for tomato sandwiches. If the young workers won't give me tomato sandwiches, they don't get places to live. Thus, I am blackmailing them out of necessity for my own well-being.</p>
<p>This is another reason why the third option may be preferred.</p>
<p>The third option also provides stability. When a young person buys resources to hoard to release back onto the market in exchange for tomato sandwiches, they may have no idea how many tomato sandwiches those resources will be worth 50 years later. It could be zero or it could be way more than they can eat. The public pension option provides, in theory, more predictable returns. Although the government still can't guarantee an exact number of sandwiches, it can promise the pension payouts will be a reasonable fraction of the nation's economic productivity.</p>
<p>If the pension payouts are a &quot;reasonable fraction of the nation's economic productivity&quot; this also incentivizes elderly people to behave in ways that increase overall productivity (grow the pie) instead of just increasing their share of it (like blocking the construction of new housing so the pie shrinks but the value of their real estate goes up).</p>

CC BY-SA 4.0
2022-11-16T11:17:20.360Z
thank you!

I think I get all those advantages.

My concerns with your 3rd option (ie the current system) are:

a) Heavily dependent on population/economic stability, or even growth (what if people emigrate en masse?).
b) Forces a level of debt on future generations that they can't decide nor escape.
c) Retirees (understandably) tend to expect a certain fraction of their lifetime income as pension, but in practice that is contingent on population/economic growth, and that feeds populism, discontent, public debt.
tripu
CC BY-SA 4.0
2022-11-16T21:21:14.227Z
Not really: those 3 issues would be mitigated if all pensions were truly funds set aside by their future beneficiaries (or a company or a state on their behalf) and invested with a high degree of diversification. eg, if half the next generation left the country, retirees would still have a portfolio of investments, much of which is in foreign currency, global companies, etc. Or, if the next generation hold a referendum and decide that they want to cut pension benefits in half, the current retirees won't be affected. etc. Those are the advantages I see. Seems more fair for everyone.
tripu
CC BY-SA 4.0
2022-12-12T22:35:16.557Z
The difference I see is that actual savings/investments can be capitalised or reallocated when there is economic turbulence, demographic shifts, or political sentiments change. If any of those things happen, retirees are relatively protected because they can decide to liquidate investments before a crisis, move to foreign stocks instead, etc. And the current generation isn't taxed so heavily. If, on the other hand, pensions are a function of contingent economic output, the fate of retirees is tied to immediate economic performance, and young workers are chained to that dependency and taxed.
tripu
CC BY-SA 4.0
2022-11-11T19:01:57.793Z
2022-11-11T19:01:57.793Z
Criticize SE actions means ban
<p><strong>Is it conceivable, from a theoretical point of view, that what we pay today for our future pensions is actually invested somewhere so that we can be 100% certain that those assets will be there for us, regardless of whether the population shrinks or future workers pay less taxes?</strong></p>
<p>I suspect that would pose some practical advantages. My naive understanding is that, ceteris paribus, it would always be better to secure those funds, instead of blindly trusting that future taxpayers would provide them to retirees…</p>
<p>I see pensions (specifically <em>public</em> ones) as inherently unjust in the sense that they impose a heavy burden on the next generation.</p>
<p>Yes, it's true that just by bringing more people into this world without their consent, and handing down to them this world with its many issues and deficiencies is also a kind of burden. But somehow pensions as they exist are more blatant: if people today want to “save” for their retirement, shouldn't they… <em>just do that</em>? Instead, what we have is people (states) spending all that saved money <em>now</em>, and hoping that their children and grandchildren will in turn pay enough taxes in the future to make up for those resources spent <em>today</em>.</p>
<hr />
<p>Note 1: I get that those assets, being invested, could depreciate with time. But in the long term (decades), and in the aggregate (lots of diversified investments with lots of money from lots of taxpayers) that money should at the very least keep its value, roughly speaking.</p>
<p>Note 2: I realise that such a change could not be implemented overnight; of course it would take several decades, and probably several generations, to compensate older savers and shift the value in time.</p>

CC BY-SA 4.0
2022-11-11T07:47:22.030Z
Hi! It is not quite clear to me what you are really asking with your first bold font question. Clearly it is *theoretically* possible that the state would force all people to buy a diverse stock portfolio and not sell it until they retire.
Giskard
CC BY-SA 4.0
2022-11-11T07:48:36.140Z
Of course there are no 100% certainties. If the stock market is completely wiped out (has never happened so far) or a meteor hits the Earth, there won't be any value left when you retire.
Giskard
CC BY-SA 4.0
2022-11-11T07:51:51.857Z
As to the advantages: a lot of current pension systems are reliant on pay-as-you-go income, and are thus facing sustainability problems, see e.g., "[ADEQUACY AND SUSTAINABILITY OF
PENSIONS](https://ec.europa.eu/info/sites/default/files/file_import/european-semester_thematic-factsheet_adequacy-sustainability-pensions_en_0.pdf)". Having huge amount of interest payments from lots of savings would alleviate that.
Giskard
CC BY-SA 4.0
2022-11-11T07:54:14.800Z
Do this comments answer your questions? I am not sure this is what you are after.
Giskard
CC BY-SA 4.0
2022-11-16T11:08:30.877Z
@Giskard: well, I guess it's obviously true that it's _theoretically_ possible. I meant if such an economy would be sustainable in the long-term, or would necessarily fail or shrink…
tripu
<social-welfare><population-economics>
Is it possible that pensions (public or private) be actual money saved and “sent” into the future, instead of borrowed from future generations?
tripu
# Is it possible that pensions (public or private) be actual money saved and “sent” into the future, instead of borrowed from future generations?

(Asked by: username_0 on 2022-11-11)

**Is it conceivable, from a theoretical point of view, that what we pay today for our future pensions is actually invested somewhere so that we can be 100% certain that those assets will be there for us, regardless of whether the population shrinks or future workers pay less taxes?**

I suspect that would pose some practical advantages. My naive understanding is that, ceteris paribus, it would always be better to secure those funds, instead of blindly trusting that future taxpayers would provide them to retirees…

I see pensions (specifically *public* ones) as inherently unjust in the sense that they impose a heavy burden on the next generation.

Yes, it's true that just by bringing more people into this world without their consent, and handing down to them this world with its many issues and deficiencies is also a kind of burden. But somehow pensions as they exist are more blatant: if people today want to “save” for their retirement, shouldn't they… *just do that*? Instead, what we have is people (states) spending all that saved money *now*, and hoping that their children and grandchildren will in turn pay enough taxes in the future to make up for those resources spent *today*.

---

Note 1: I get that those assets, being invested, could depreciate with time. But in the long term (decades), and in the aggregate (lots of diversified investments with lots of money from lots of taxpayers) that money should at the very least keep its value, roughly speaking.

Note 2: I realise that such a change could not be implemented overnight; of course it would take several decades, and probably several generations, to compensate older savers and shift the value in time.

**Tags:** social-welfare, population-economics

> **Comments:**
> **username_1**: Hi! It is not quite clear to me what you are really asking with your first bold font question. Clearly it is *theoretically* possible that the state would force all people to buy a diverse stock portfolio and not sell it until they retire.  
> **username_1**: Of course there are no 100% certainties. If the stock market is completely wiped out (has never happened so far) or a meteor hits the Earth, there won't be any value left when you retire.  
> **username_1**: As to the advantages: a lot of current pension systems are reliant on pay-as-you-go income, and are thus facing sustainability problems, see e.g., "[ADEQUACY AND SUSTAINABILITY OF PENSIONS](https://ec.europa.eu/info/sites/default/files/file_import/european-semester_thematic-factsheet_adequacy-sustainability-pensions_en_0.pdf)". Having huge amount of interest payments from lots of savings would alleviate that.  
> **username_1**: Do this comments answer your questions? I am not sure this is what you are after.  
> **username_0**: @username_1: well, I guess it's obviously true that it's _theoretically_ possible. I meant if such an economy would be sustainable in the long-term, or would necessarily fail or shrink…  

---

## 2 answers

### Answer by username_2 on 2022-11-11. Score: 3

It is not only conceivable, but actually the case for some pension schemes including some public sector schemes, that what people pay (eg as a deduction by employers from their employees' salaries) is invested to provide a pool of assets that can be used to pay pensions. As it happens, I receive a pension, arising from my former work in the UK local government and university sectors, from the [London Pensions Fund Authority](https://www.lpfa.org.uk/), whose website has much detail about its investment strategy.

Of course, no such scheme can provide 100% certainty that pensions will be paid, at the agreed rate, and with appropriate allowance for inflation. But the existence of a pool of assets to fund pensions, held by a body independent of employers or the government and operating within a suitable framework of law, greatly reduces the degree of risk. In particular, it means that short-term financial considerations on the part of employers or the government are much less likely to result in pressures to cut pensions.


---

### Answer by username_3 on 2022-11-11. Score: 1

Money is merely an accounting system for goods and services. No matter how you fiddle with the accounting, a fundamental truth will always remain: the goods and services which are consumed by retired elderly people in 2050 will be produced by young workers in 2050 (or 2049).

Suppose that I budget to eat one tomato sandwich per day in retirement. I could hoard tomatoes and bread, but by 2050 all but the most recent instalment will have all been eaten by flies and mold. Stupid.

Or, I could hoard money, and trust in the money system (doubtful) to ensure I will be able to buy one tomato sandwich per day in retirement. In this scenario, I give up one tomato sandwich per day now, and someone else can buy it instead. When retired, I receive one tomato sandwich per day, made by someone else.

Or, there could be a public pension that pays for one tomato sandwich per day. In this scenario, I give up one tomato sandwich per day now, and an elderly retired person can buy it instead. When retired, I receive one tomato sandwich per day, made by someone else.

The only difference between the latter two scenarios is the boundary condition. When the second system starts up, there is a generation of young people who give up a tomato sandwich per day, and a generation of elderly people who don't receive anything. When it shuts down, there is a generation of young people who "give up nothing", and a generation of elderly people who receive one tomato sandwich per day. But I write "give up nothing" in quotation marks, because they are still being coerced into making the tomato sandwiches one way or another!

When the third system starts up, there is a generation of young people who give up a tomato sandwich per day and a generation of elderly people who receive a tomato sandwich per day. When it shuts down, there is a generation of young people who give up nothing (actually nothing) and a generation of elderly people who receive nothing.

Thus the third option may be preferred because if someone decides something is good, they generally want it to happen *immediately*. If the population decides that elderly people deserve tomato sandwiches, it makes no sense to wait an entire generation before starting to give tomato sandwiches to elderly people.

Another difference is that the second system necessitates the young people to obtain collateral they can use as leverage to ensure the next generation will be willing to make them tomato sandwiches. Because the government isn't promising me to just get tomato sandwiches for free, I have to try to force it. I have to buy up real estate, for example, so that I can release my real estate back onto the market in exchange for tomato sandwiches. If the young workers won't give me tomato sandwiches, they don't get places to live. Thus, I am blackmailing them out of necessity for my own well-being.

This is another reason why the third option may be preferred.

The third option also provides stability. When a young person buys resources to hoard to release back onto the market in exchange for tomato sandwiches, they may have no idea how many tomato sandwiches those resources will be worth 50 years later. It could be zero or it could be way more than they can eat. The public pension option provides, in theory, more predictable returns. Although the government still can't guarantee an exact number of sandwiches, it can promise the pension payouts will be a reasonable fraction of the nation's economic productivity.

If the pension payouts are a "reasonable fraction of the nation's economic productivity" this also incentivizes elderly people to behave in ways that increase overall productivity (grow the pie) instead of just increasing their share of it (like blocking the construction of new housing so the pie shrinks but the value of their real estate goes up).

> **Comments:**
> **username_0**: thank you!  I think I get all those advantages.  My concerns with your 3rd option (ie the current system) are:  a) Heavily dependent on population/economic stability, or even growth (what if people emigrate en masse?). b) Forces a level of debt on future generations that they can't decide nor escape. c) Retirees (understandably) tend to expect a certain fraction of their lifetime income as pension, but in practice that is contingent on population/economic growth, and that feeds populism, discontent, public debt.  
> **username_0**: Not really: those 3 issues would be mitigated if all pensions were truly funds set aside by their future beneficiaries (or a company or a state on their behalf) and invested with a high degree of diversification. eg, if half the next generation left the country, retirees would still have a portfolio of investments, much of which is in foreign currency, global companies, etc. Or, if the next generation hold a referendum and decide that they want to cut pension benefits in half, the current retirees won't be affected. etc. Those are the advantages I see. Seems more fair for everyone.  
> **username_0**: The difference I see is that actual savings/investments can be capitalised or reallocated when there is economic turbulence, demographic shifts, or political sentiments change. If any of those things happen, retirees are relatively protected because they can decide to liquidate investments before a crisis, move to foreign stocks instead, etc. And the current generation isn't taxed so heavily. If, on the other hand, pensions are a function of contingent economic output, the fate of retirees is tied to immediate economic performance, and young workers are chained to that dependency and taxed.  

---

