Pensions = Pyramid Scheme

[Faultymain5]

Not sure if this is political, but I think it must be because it is government based.

So can anyone explain to me how pensions aren't simply a complicated ponzi scheme? Originally invented, not for you to have a decade or so of a comfortable existence before you croak, but in the hope you die before that decade is up (or before retirement) and they get to keep your excess.

But they have told the truth. If people choose to ignore it then that's up to them. Government and other agencies have been promoting saving in to your own pension and for your own retirement for years. Whilst I appreciate this is hard for some it's not like the government ate keeping it a secret.

It's not a pyramid scheme, in the sense of someone getting rich at the expense of new joiners.

It is however a scheme which relies on current income to pay for its obligations. Rather like a lot of government spending, schools don't have to be arranged as they are now, and the government doesn't have to fund it as it does. But the population is so used to the arrangement and has counted on it in making their life plans, that is has to continue and the government must find the money every year reagardless of how many children are in education at that time (relative to the number of tax payers).

It's the same for keeping NHS free at point of use. This has to be funded as close to levels of demand as can be afforded. It's not ripping off the healthy to do that, and I think it's right that it is based on clinical need, not how much you've paid. And I certainly wouldn't be giving NI rebates to those who have stayed healthy and not used NHS in any particular N/tax year.

The main reason for the increased life expectancy over the last 40 years is the massive reduction in smoking. However much research you do, that would have been very hard to predict back in the 1950s when everyone smoked.

Ironically, the obesity crisis might sort out the problem for us!

And no, in answer to your question it's not a pyramid scheme as it's not run for profit.

OP - I whole-heartedly agree with you. My experience lies only in company pension - but I don't expect state to be better.

About 8 years ago when I was working in corporate we had a healthy pension scheme... Although even back then I had suspicions about the numbers adding up. Then we received information stating that the current pot was not covering currently retired staff members and that we (younger) would need to increase our contributions and accept downwards compensation ourselves.

Fwiw this is a global company and household name.

I expect upon retirement the pot will allow me a Starbucks a year - even though on paper it was healthy when I left.

I'm posing the question is it a Pyramid scheme?

No, there is no recruitment, which is what makes the money in a pyramid scheme. There is no person at the top of the pyramid laughing all the way to the bank.

A ponzi is a scam where someone is tricked in to investing and convinced to recruit others to invest too. The investment made by the people lower down will pay for the profit/return of those higher up.

The Government have made the workplace pension obligatory, meaning that people will have a pot of money elsewhere rather than just relying on a state pension. So there are steps being made to reduce the inevitable inability to pay out a state pension in, say, 2053 or whenever I become eligible for a state pension.

... and if you want to get further annoyed - request a FOI from your local council re: their pension scheme, liabilities, "cuts" to services and the impact upon your CT.

"One thing I would do is tell the public the truth, it is unsustainable as is. But that's why I'm not a politician. Truth doesn't work well with the masses."

They have been, at least since the 90s. The reasons for the rise in state pension age were fully debated before that, and had a 20 year lead time before they took effect.

And many times a major employer has changed pension scheme it has made headline news (remember the teachers strike?) and in so many cases the unaffordable pensions liability has featured in companies going bust. Plus the long-running and regularly in the news Prudential payout saga. Not to mention the huge campaign around the time of auto-enrolment.

The truth is definitely out there, and readily so. But you cannot force people to pay attention.

I get what you mean op.

It’s a scheme that relies on ever larger numbers of tax payers paying for the pensions of the retired.

It’s very concerning as requires more and more people of a younger age putting into the system. The planet can’t cope with more and more people.

I have no solutions though.

@meditrina at the earliest it was the late 90s, and they didn't say till the 00s who this would affect and when this would be affected. Each year they kept adding information until you are practically at the new retirement age and they push it back further. With less than 10 years notice what extra provisions could they make? Now you get told with 30 years to go. - even though that changes year on year, but those who are currently 60-70 they never got anywhere near that lead time.

@MyBrexitUnicornDied

Exactly.

Isn't this thread mixing up different types of pensions?
State pension & some company pension schemes are funded by current people paying-in, but it had to be, to get off the ground.

Other types of pensions are owned by the only person who paid in and depends only on what they paid in. I inherited 1/3 of my mother's pension when she died (she was still working). The pension was worth what she alone put into it + capital gains. There was no 'robbing' current people paying in.

My work pension has moved from first type to 2nd type.

Agreed. You can’t compare state pensions to private pensions. They work differently.

As others have correctly noted, the state pension is unfunded, I.e. it has no pool of assets backing it.

Occupational defined benefit schemes (the ‘final salary’ type arrangement, although most are moving to average salary now) are usually backed by assets, except some of the big public sector schemes (e.g. civil service pensions). That type of pension is unaffordable for most businesses now, and I suspect that’s what TiaMariaandcoke’s post concerned.

The thing is, you can’t really complain when your occupational scheme becomes less favourable, because what’s the alternative? The company going insolvent in order to support the pension scheme? Not many ‘global companies and household names’ are going to choose that option.

The usual pattern for companies that formerly offered defined benefit schemes is to preserve the benefits earned up to a certain date, and the benefits paid to retired members (and rightly so...if you’re 78 you can hardly make alternative income plans, can you?), then move to a defined contribution (‘money purchase’) scheme, where the employer contributes but the member takes the risk.

That’s just part of life, I’m afraid. You can’t level the same accusations against that sort of scheme as the state pension. The occupational scheme is funded by employees’ and employers’ contributions and backed by assets, and the people stewarding the scheme are taking sensible decisions for the benefit of all of the members, who will be better off with a pension scheme, albeit less advantageous, than they would be with an insolvent employer and the scheme in the pension protection fund, which for non-retired members is nowhere near as good as the scheme it bails out.