Private pensions and state pensions discussion

[JamesT]

We can debate the state pension, but Defined Benefit pension schemes absolutely are Ponzi schemes. Indeed, so much of the capitalist system is that in some form, yet nobody (not even Reform) is willing to address that honestly.

mods note - split from this thread

Reform UK discussion

As we have one for the other parties... Reform are campaigning in the Kent County Council election as they are elsewhere. From their local social media pages they seem to be doing door to door campaigning more than the Tories. They have a series of Facebook posts with a lot of likes / comments...

www.railforums.co.uk

In what way are they Ponzi schemes?
Apart from the government unfunded ones, the trustees are obliged to maintain the fund at a level that can pay for all future liabilities. This includes the event of the scheme closing, so there aren't any future contributions.

 

[Bletchleyite]

In what way are they Ponzi schemes? Apart from the government unfunded ones, the trustees are obliged to maintain the fund at a level that can pay for all future liabilities. This includes the event of the scheme closing, so there aren't any future contributions.

Because to maintain the fund at such a level, continuous business growth is required, and that is not a given any more.

We are reaching the limits of economic growth. That is something some find very hard to contemplate, as it wrecks the economics of anything even vaguely like this.

 

[JamesT]

Because to maintain the fund at such a level, continuous business growth is required, and that is not a given any more.

We are reaching the limits of economic growth. That is something some find very hard to contemplate, as it wrecks the economics of anything even vaguely like this.

In order for a Defined Contribution pension to give a decent payout without ludicrous contributions it will require similar levels of growth.
Growth in Western Europe may have stagnated with little sign of recovery, but that's not true for the world as a whole.

 

[35B]

Because to maintain the fund at such a level, continuous business growth is required, and that is not a given any more.

We are reaching the limits of economic growth. That is something some find very hard to contemplate, as it wrecks the economics of anything even vaguely like this.

That is not the definition of a Ponzi scheme, though I agree with you on their unsustainability. The fundamental issue is not about economic growth, but the assumption in any individual scheme that the number of people paying in will be sufficient to maintain the obligations to pensioners. That assumption is undermined by the changing ration of workers to pensioners, as the ration of taxpayers to pensioners is undermining government pension schemes.

In order for a Defined Contribution pension to give a decent payout without ludicrous contributions it will require similar levels of growth.
Growth in Western Europe may have stagnated with little sign of recovery, but that's not true for the world as a whole.

Agree completely.

 

[Bletchleyite]

In order for a Defined Contribution pension to give a decent payout without ludicrous contributions it will require similar levels of growth.

This is true. But the result isn't as catastrophic if it just means individuals are a bit poorer rather than a scheme collapsing. The problem with Ponzi schemes is that it's inevitable that they eventually collapse.

Growth in Western Europe may have stagnated with little sign of recovery, but that's not true for the world as a whole.

I suppose one can invest in other markets than one's own.

== Doublepost prevention - post automatically merged: 11 Feb 2026 ==

That is not the definition of a Ponzi scheme, though I agree with you on their unsustainability. The fundamental issue is not about economic growth, but the assumption in any individual scheme that the number of people paying in will be sufficient to maintain the obligations to pensioners. That assumption is undermined by the changing ration of workers to pensioners, as the ration of taxpayers to pensioners is undermining government pension schemes.

Indeed. I should probably have said "tantamount to a Ponzi scheme". It's not literally one by the dictionary definition, but it has the exact same flaws in a very similar way.

 

[oldman]

the assumption in any individual scheme that the number of people paying in will be sufficient to maintain the obligations to pensioners. That assumption is undermined by the changing ration of workers to pensioners, as the ration of taxpayers to pensioners is undermining government pension schemes.

The principle is that the contributions of today's workers (with investment growth) fund their own future pensions when they retire. They are not paying for today's pensioners' future pensions. The number of current workers in a scheme should not matter.

 

[Bletchleyite]

The principle is that the contributions of today's workers (with investment growth) fund their own future pensions when they retire. They are not paying for today's pensioners' future pensions. The number of current workers in a scheme should not matter.

Indeed.

The problem with the State Pension, however, is that that is not how it works. Thus it is unsustainable without growth of the working population, and a decline of the working population (which we probably actually need) is completely incompatible with it.

I'd be half tempted to look at a policy of some sort of windfall tax being imposed on the super rich and on very profitable large businesses to fund moving the State pension to a partly contributory system, so NICs are actually pension contributions going forward rather than a compete misnomer.

 

[Broucek]

Another factor in the "hollowing out" rightly noted by @Bletchleyite is the loss of Defined Benefit schemes. That may have been inevitable, but those who have such schemes do need to consider their relative privilege when opining on others.

Looking at you, Members of Parliament.....

BTW, I'm a qualified pensions Actuary and funded DB plans are NOT ponzi schemes.

(Even unfunded ones aren't really: in the UK they only really exist when they're governement backed and the assumption is that tomorrow's pensions will be funded by tomorrow's tax payers which isn't that silly.)

== Doublepost prevention - post automatically merged: 11 Feb 2026 ==

When I look back now to how my parents and grandparents lived I realise just how little money they had and how difficult times were. If you were lucky enough to be able to own your own home it was usually furnished with second hand furniture handed down from parents, grandparents, aunts and uncles. Bathrooms and kitchens were very basic many people still didn’t have the central heating or luxuries such as fitted carpets. These days when people move into a new house they expect to be able to have everything new. I can remember the excitement when my parents were able afford to buy their first fridge! We still had to walk into the village for many years to make phone calls from the phonebox.

We were loved and well cared for but had none of the things which people today see as necessities. There were no mobile phones, computers, large televisions and home cinema and all the other electronic devices and gaming things which are part of young people’s lives today. We didn’t eat out because we couldn’t afford it and all the food we had at was very basic with lots of fresh vegetables and potatoes, certainly non of the ready meals and takeaway foods people have today. Most people went on holiday only once a year perhaps to a caravan on the Lincolnshire coast and that had meant saving money for a whole year to pay for it. Even when on holiday most of the meals were home cooked in the caravan until the last day of the holiday when we splashed out and had fish and chips and an ice cream.

Yes, exactly this. My dad didn't earn that much but the house I grew up in (1970s/1980s) is now worth about £800k (long since sold for a fraction of that). And like you we had very basic holidays, cheap furniture, never ate out etc

 

[ainsworth74]

The problem with the State Pension, however, is that that is not how it works.

It is however the myth that will never die. I still speak to people who are shocked when you gently correct them that their state pension (or future state pension) is not being paid out of a pot of money that their NI contributions were put into but by people who are currently paying taxes. Indeed many of them will likely get out far more than they paid in (even accounting for any growth that might have incurred had their contributions been invested rather than spent on day to day expenditure).

The New State Pension (which not everyone is on and not everyone will get at the full whack) is going to be around £12.5k a year in 2026/27. That's a lot of money considering you can quite reasonably expect to get fifteen to twenty years more life from 66 (current pension age). Even if the State Pension was never increased again after 2026/27 someone who lived for another fifteen years would get £187,500 odd in State Pension payments (and the State Pension is definitely going to see increases seeing as we can't even give the Winter Fuel Payment a proper mean test touching the Triple Lock seems even less likely).

It would be nice if we could finally put that one to bed and get people to understand that their NI (and other taxes) are paying for todays pensioners and when they reach their pension age it will be people paying NI (and other taxes) who are paying for their State Pension. I suppose however it's one of those things that Government's find useful to not correct the understanding of.

See also the people who rail about the Benefits bill but ignore that the single largest line item in that bill is, er, State Pensions:

In 2025 to 2026 the government is forecast to spend £323.1 billion on the social security system in Great Britain. Total GB welfare spending is forecast to be 10.6% of GDP and 23.6% of the total amount the government spends in 2025 to 2026.

Around 55% of social security expenditure goes to pensioners; in 2025 to 2026 we will spend £177.8 billion on benefits for pensioners in GB. This includes spending on the State Pension which is forecast to be £146.1 billion in 2025 to 2026.

In 2025 to 2026 we will spend £145.3 billion on working age and children welfare. This includes spending on Universal Credit and its predecessors, and non-DWP welfare spending.

In 2025 to 2026 we will spend £76.9 billion on benefits to support disabled people and people with health conditions, and £37.8 billion on housing benefits.

Guidance and methodology: Benefit expenditure and caseload tables

www.gov.uk

But, again, it's politically expedient to pretend that the vast majority of welfare spending is on the idle and workshy...

It sometimes increasingly feels like the UK is basically just an old persons care home with nuclear weapons.

Looking at you, Members of Parliament.....

Though I think even their defined benefit scheme closed to new entrants a while ago now and they're also on a defined contribution scheme. I think, it's not something I've ever really studied closely. I don't personally get that wound up by things like MP pay and conditions. I actually think considering the level of responsibility and how god awful the job is (and insecure!) it's not actually that well paid for a basic MP. It's the other methods of enrichment that I have issues with (Yes, I'm sure BetFair are paying for two box tickets to the FA Cup Final out of the goodness of their heart, not because they're hoping you might think favourably on them when Gambling Regulation is being discussed, etce etc).

 

[Bletchleyite]

(Even unfunded ones aren't really: in the UK they only really exist when they're governement backed and the assumption is that tomorrow's pensions will be funded by tomorrow's tax payers which isn't that silly.)

It's very silly, because that part is the Ponzi scheme - it assumes an ever increasing number of workers and amount of profits - or at least not a reduction. It means population decline is not an option, yet population decline would be good for most of the world.

It's not technically a Ponzi scheme but it's similar. It's predicated on eternal growth.

 

[bleeder4]

I'm operating on the assumption that by the time I reach retirement age there won't be a state pension at all, as the state won't be able to fund it.

 

[Broucek]

Though I think even [MPs'] defined benefit scheme closed to new entrants a while ago now and they're also on a defined contribution scheme.

It's still DB - just career average rather than final salary. It still means all the risks falls on the taxpayer whereas DC members (99% of people in the private sector) are individually vulnerable to both investment and either longevity or annuity price risks

I agree with you that the "employee value proposition" for MPs is horrid in so many ways!