Pyramid schemes are part of human financial history, from Charles Ponzi to multilevel marketing, lots of people have already fallen prey to some kind of pyramid fraud, it is so common that now even cryptocurrencies are being used to trick gullible “investors” into giving away their assets to make extraordinary returns, only to see all of it vanish overnight. At this point most people are aware of how those schemes work, and know better not to be a victim of such an obvious scam, however the biggest pyramid scheme in human history is going with full force, and unlike all of the others, has complete support from the government, and we are all part of it.
I’m talking about state pensions. The way they work now is pretty simple: you pay taxes now, and by the time you are old you are going to get it back. Some people believe that somehow the government saves the money we are paying now, and gives it back to us in the future when we are old, but this couldn’t be further from the truth. The way pensions work today is pretty much like a pyramid scheme, the money that is paid in taxes by the young people is redirected straight away to the retirees, and you don’t need to be a math genius to know this can’t hold for long.
According to the official statistics the UK government spends 20% of its budget on pensions, with 18% of the population that is retired, and the current projection is that by the year 2040 the retiree population is going to grow to 24.7%, which represents a 37.2% increase. Looking at this prediction it can be argued that in order for those retirees to have the same amount of money as the current ones, in relation to the GDP, the government would also need to increase the percentage of its budget dedicated to pensions by the same rate, which means that in the year 2040 the government would have to be spending 27.4% of its budget in pensions. So where is this money going to come from? It will have to be cut from somewhere, but where exactly? Education? Welfare? Health Care?! The ageing population will also put pressure on the budget for the NHS, which will require ever increasing funding to keep up with the demand, so it becomes clear that this system is doomed to failure, and needs drastic change.
The libertarian perspective on retirement is usually one of personal responsibility, where each individual would have their own fund, which they are going to consume in their non-working years, such system would incentivize people to save their resources and invest/spend them wisely, exactly the opposite of what happens currently with the perverse incentives laid by the current system, where you pay into a system hoping someone will pay for you in the future.
It may very well be that there is going to be no one there for the future retirees, and that the young people today are going to be the suckers in the scheme, who will be left with nothing but the costs of running this irresponsible arrangement for such a long time.