The then and now of pensions

January 16, 2013

What is the right size for pensions? That question can be approached in two ways: “then” and “now”. Pensions, and other economic arrangements to support elderly people, may be considered repayments for what they did back then, when they were young. Alternatively, these payments may be considered as a share of output right now. In rich countries, the two approaches are in conflict. The “then” logic, which is based on promises made long ago, supports higher pension payments than the “now” logic, which is mindful of rapidly ageing populations. Politicians struggle to find acceptable compromises between the two approaches.

Until 60 or 70 years ago, politicians did not have to worry much because governments played a minimal role in supporting the few people who lived long enough to be unable to earn their keep. The elderly mostly relied on their own families for support. Moralists provided a “then” justification for this obligation: children had a duty to the parents who gave life, the young owed the old more than could ever be repaid for the provision of nurture and wisdom.

Philosophers and religious teachers often claimed that the duty of children to parents was as natural as that of parents to their children. However, many people must have remained unpersuaded. Otherwise, the injunction would not have been repeated so often in such solemn tones.

Perhaps the popular desire to shed some of these unwanted personal loads lies behind the last century’s great pension shift – from families to the state. While children in rich countries still often take some care of their elderly parents, direct financial support has become rare. Rather, the old now usually depend on some combination of their own savings, state-regulated private pension plans, income from government retirement plans, and state benefits such as free or heavily discounted medical care. Americans rely more than Europeans on private means, but even in the United States the government has become the predominant source and arbiter of income in old age – and the “then versus now” pension question has become highly political.

The “then” arguments have changed. There is less talk of unquantifiable inter-generation debts and more of the just repayment of past financial contributions. The larger the past contribution, the larger is the correct size of the current pension. Whatever its ethical value, this then-and-now picture of pensions is economically misleading. While individuals who contributed more in the past may be given higher pensions, a whole society cannot really save for old age. Pensions are always “now”, a share of total current income.

In other words, when a society increases the share of GDP which is given to old people, younger generations’ share must decline. This reality is clear in the small society of an extended family. The ethics of giving Granny the warmest bed or nicest piece of meat may be “then”; the practice is “now”. This reality can be harder to see in a nation, where pension payments are determined by a formula based on past incomes, and medical care is allocated on the basis of perceived needs. However, there is no escape from the division of consumption goods. Whatever the non-working elderly receive is not available to the rest of the population.

In the political debate over pensions and health care, too little attention is paid to this “now”. Instead, there are extended debates about the economic details of “then”, about past choices and promises. Those debates lead only to arbitrary and unjust allocations, because times have changed – higher GDP, longer life expectancies and quite different investment returns. Past expectations are almost irrelevant to current conditions.

Politicians and rule-makers could make pensions more just by dealing exclusively with the hard ethical questions of “now”. The United States and most other rich countries have already moved in this direction, for example by increasing the official retirement age, despite past commitments. However, the debate is still distorted by misleading “then” claims of supposed injustice to old people who paid so much and receive so little. In reality, these details are a distraction. The only “then” arguments which matter are the traditional ones about society’s obligations to its older members.

A more philosophical political debate would be welcome, but I have a more radical suggestion for reform: admit the great pension shift – from individuals, families and communities to governments – has been a move in the wrong direction. It saves no money; it substitutes bureaucracy for personal ties; and it has not clearly promoted justice. Society would be stronger, and no less just, if the state reduced its role in the determination of pensions. Let the government do no more than alleviate misery, and let the people take care of themselves and of each other. They can decide how best to turn “then” into “now”.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see

Well said sir.
I would really like to see you expand this topic into “then”, “now”, and “Will Be”. Automation and globalization have taken hold and will not let go (I hope anyway). We fast approaching the time when all able bodied people will not be needed to support the rest. It’s already starting to happen, and in just forty years it will be significantly further along. Probably still uneven, but indistinguishable to today.
The basic concepts of retirement, pensions, and social safety nets must be re-thought soon. Unfortunately necessity is the mother of invention, not wisdom.

Posted by tmc | Report as abusive

Some aspects of “now” you didn’t mention: Young people starting out today have prospects considerably less rosy than their parents’ generation. They may be just barely self supporting. Moreover, people must go where the jobs are, often putting mom and dad in one town and each adult child in another. I fully expect the punditocracy to view the world through its own privileged lens, but every once in a while it irks the heck out of me that the people who most romanticize the family never seem to realize that family ties, and family members’ ability to care for each other, are consistently weakened by the social innovations and laissez faire economic policies favored by the technocratic elite.

Posted by JBookly | Report as abusive

I find your opening sentence a bit leading. It is not really a question of the “right size of pensions”, but rather are pensions actually legally binding contractual agreements ? If pensions are legally binding, then the argument veers off in a rather different direction, doesn’t it? I suspect the dividing line in this discussion is private vs public pension programs. On the private side pensions are prone to various corporate machinations rendering them susceptible to discontinuation. In contrast, public sector pension plans appear much more subject to legal strictures. Of course it is the massive size of the aggregate public pension programs that we now find threatening. What is the solution to this ?

Posted by Ortone | Report as abusive

As usual, you have taken obvious facts and made powerful arguments. I agree with many of them.

Yes, “…in the United States the government has become the predominant source and arbiter of income in old age…”. But it is not logical to sweep programs almost all Americans must contribute to and participate into the same basket as “pension benefits” imposed by unions for federal, state and local government employees upon taxpayers without meaningful representation or recourse, similar private employer union pensions, and “at will” pensions in the non-union private sector. One must always discuss apples, oranges and bitter kumquats separately because the demand for and appeal of each are fundamentally different.

Those substantially dependent upon Social Security for dignity and independence in retirement today may count on neither. From one hand “we, the people” are given “cost of living” adjustments to protect us from the relentless progressive destruction by our own government of the purchasing power of “our” dollar. From the other hand, we are charged more and more for absolutely essential Medicare “coverage” even as Congress considers a new “Chain Calculation” proposal to further divorce “our” cost of living adjustment from reality.

Already many must choose between necessary food and medicine once rent, utilities, medical care, and transportation have each been reduced to the minimum possible. It is inequitable to suggest, in essence, that ALL “pensions” be “on the table” for renegotiation with 20-20 hindsight.

Government playing games with recipient’s Social Security amounts is no different than your landlord changing your rent or your local government changing your property tax without notice. Oh, I forgot. My bad. They do that all the time!

You say: “The only ‘then’ arguments which matter are the traditional ones about society’s obligations to its older members…”. The word “obligations” here casts the “arguments” as substantially moral ones. While I must agree that morals have changed a LOT over the last half-century, it is one thing to argue the morality of pensions in the abstract and to debate “commitments” made in writing by a government to “we, the people” that have been universally accepted in good faith by all parties until now.

When a government takes earnings from it’s citizens for a specific purpose and makes specific promises as to why the money is taken and for what it will go there is a binding legal obligation created that should be honored so long as the illusion of a “civil society” is to be preserved. It is quite different from the process of unions extorting excessive compensation from captive “employers” ultimately lacking necessary resources to honor same.

“We, the people” cannot refuse to “play” in the casino of our government, even though history and experience confirm to one and all that all the games are rigged and NOT in “our” favor! The “due process” purported to be the birthright of every American as taught in our schools is thus reduced to mere illusion.

You attempt to discuss in the abstract that which is an unfolding, living reality to “real people”. Even if the “…great pension shift…” by “our” government was “…a move in the wrong direction…”, for “we, the people” it was a choice, or request no different than the Mafia’s that one couldn’t refuse. “Premiums” were extracted from our pay before we got it over all of our working years.

We could not choose to instead invest in the stock market or even gold (to offset the government’s intentional and progressive destruction of the purchasing power of those dollars). Had we done so, no one today could deny us or devalue such proceeds.

So it is conspicuously disingenuous and inequitable to say today, with 20-20 hindsight that “that was then and this is now”. Yes, we “retirees” figuratively stand today “hat in hand” before those who disburse from the “national purse”; but only because OUR involuntary “investments” have been stolen by a government shorter of scruples than tax revenue that left IOUs in place of hard-earned dollars deposited in good faith if not willingly.

So yes, today there are no longer the “personal ties” of old. Government action is why. What meaningnful “justice” remains in any society that would “strengthen itself” by abandoning it’s solumn legal obligations to curently retired generations?

They obviously cannot, at this late date (having left the work force due to age, etc.) to “…take care of themselves and of each other…”. There is already “misery” to be alleviated on the part of some sick retirees who receive less each month than their rent, utilities, food and medicine cost; and yet they today face a “chained index” to further reduce the purchasing power of that which they receive.

If retirees have lost the capacity to trust anyone today, perhaps it is because we see few, if any, deserving of such trust. Who should the next generation put their “trust” in? They, too, will age and become old.

Posted by OneOfTheSheep | Report as abusive

A small comment about something that has not been said.
At the moment in some states money for pension scheme are also used to invest in financial markets, not only paid back to elderly.

Posted by Jacopo81 | Report as abusive

I disagree with you on this one OOTS. I’m younger than you and have a completely different position.
Your generation promised themselves various forms of retirements and social safety nets. They were all good ideas at the time. Unfortunately, those that always said that the math don’t work were right. It doesn’t matter why it didn’t work. Corruption, greed, ignorance, economic swings, doesn’t matter. The point is it failed and now your generation is basically demanding that I pay for your mistakes and broken promises. I won’t. I and my generation made no promise. We have little voting power against the giant baby boomers and the AARP. I’ve been paying into systems for twenty years and will receive nothing back. The vast majority of the younger generations realize they will not “retire” at all. We will receive far, far less in inheriting, and all the homes are being sold back to the banksters with reverse mortgages. Oh, then there’s the debt left to us too.
Yes, I truly believe we will yank those precious retirements and benefits back from the older generations. Via inflation, system collapses, and changes to government systems.
I’m not working my arse off until I drop so the baby boomers can retire in Florida at 65 or less. I don’t give a two bits about who promised who.

Posted by tmc | Report as abusive

@ tmc. Your ire is misplaced.

My generation did not promise ourselves anything. SS was first put in place in 1935– 15 years before I was born. And, the benefits were expanded in 1964 when I was nine years old (Lyndon Johnson’s “war on poverty”.) I have been “taxed” on my earnings for the past 48 years (since I was 15 years old). I did not have a choice–it was a mandate–and I have not had any input whatsoever into the tax rates, amounts withheld, nor the proposed benefits.

Also, “baby boomers” have not demanded anything from your generation. In fact, we would be a lot better off if we could have taken the dollars withheld and invested them ourselves. And, if we had managed it ourselves, we could have passed it on to our heirs–people like you. Right now, if I dropped dead tomorrow, there is zero wealth left behind.

If you have an issue–call your Congressman–as they are the ones who have managed the entire process since the beginning. Before doing so, however, you might do just a little research, as your emotions are disconnected from reality.

Posted by COindependent | Report as abusive

Clearly, you are not qualified to discuss US pension plans, nor Social Security which you imply by stating ” Pensions, and other economic arrangements to support elderly people, may be considered repayments for what they did back then, when they were young”!

Social Security is social insurance (in the full meaning of that term) and was paid for currently by recipients through payroll taxes during their working lives, and are NOT being paid for by the younger generations — at least, they should not have to be, except that the US government has stolen the funds and used it for current expenses since the Johnson era to cover all manner of excess spending on both military and social programs that were never properly funded. What you see today in terms of current funds used to pay Social Security is a case of egregious fraud that, if the fund manager was not the government, they would have been jailed for their activities.

Pension costs should be considered current costs at the time they were incurred, but they were allowed to be “deferred” because the companies who were promising them had the option to leave them unfunded, thanks to their lobbying efforts to Congress. Thus, many pension funds were never funded, many have been discharged in bankruptcy, and any that are being paid now should not have to be paid out of current funds.

As a result, there is no “now” to anything you are saying.

I suggest you research your articles more thoroughly before attempting to write them.

The US has the worst social programs of ANY of the OECD nations and you are suggesting we rid ourselves of what little we have in terms of a social safety net.

You claim to want to put a moral spin on economics, but you obviously know nothing about either one.

Why don’t you take your elitist bullshit elsewhere?

This nation doesn’t need your “advice”!


Posted by PseudoTurtle | Report as abusive

I posted this under another article today in Reuters, but I think my reply would be equally appropriate for this article as well.

Capitalism is NOT working and something must be done that works. This is one of the ideas I have that I think might work and actually generate benefits to the American people.


Jan 17, 2013
6:50 pm UTC

@ OneOfTheSheep –

Forget the WPA. It’s a waste of taxpayer money.

I have a better suggestion — this is one of those things that, if you lived in my world you may not like, but want me to agree with yours that won’t work (private joke).

Reinstitute the draft.

Here are just a few of the reasons why it makes sense:

(1) At the age of 18 (or sooner if you fail to complete high school) you must be inducted into government service. This would apply to 100% of both males and females, with no exceptions for “disabilities”.

(2) This would NOT be the same “military” focus of previous drafts, but one to train and educate people to ready them to enter the job market.

(3) NO COLLEGE DEFERMENT FOR ANYONE! You only qualify for college IF you have your government service completed. A certain amount would be paid 100% by the government — generally 100% of the typical state university system — and if you wanted to attend a private university, the rest is up to you to fund.

Certain fields, such as doctors and nurses, will only be accepted at ANY school if they agree to perform a certain number of years of work in their field wherever they are assigned. In that case, their higher education is paid for 100% by the government.

(3) You can sign up for training in whatever field of interest you have, providing you can pass the tests to show you have the necessary intelligence to do so, and there are open positions. Otherwise you must accept whatever assignment the government feels best suited for you.

(4) You will be assigned wherever the need is greatest to help the government perform its necessary social functions that presently fall through the cracks.

(5) This will SIGNIFICANTLY reduce the amount of “military” costs now being buried in private contractors who are paid egregious amounts of money to do what draftees could be doing for virtually nothing. The pay and benefits would be roughly that of a starting position in a commercial enterprise, but have all medical and dental paid for. Unless you are married, you must live in a barracks-type arrangement so that control and discipline can be maintained.

(6) YOU CANNOT BECOME A US CITIZEN UNLESS YOU SERVE YOUR TERM IN GOVERNMENT SERVICE. That means it would be difficult for anyone to survive in this country without having proof of citizenship. You could not get a job, buy or sell anything, travel anywhere, etc. without a national ID card.

(7) This would also reduce our medical care costs nationwide since ALL medical care would be provided to its citizens free of charge (from the savings generated by this program and the enormous amount of free labor available from those in training programs).


Those are just a few of the benefits of a real training program, not the bullshit outlined above.

I’m sure you can think of a lot of your own with a huge, young and healthy workforce ready for training in any area needed by the government.
Posted by PseudoTurtle

Posted by PseudoTurtle | Report as abusive

I don’t think it was misplaced, but I regret it none the less. I certainly meant no insult to @OOTS as he’s a very respectable commenter on this site. My first comment is more appropriate. I do though have issue with the older generations dumping on the younger ones. It is happening and those that have eyes and see it don’t like it. In the context of Mr. Hadas opinion Social Security is but one micro instance in a larger discussion of Social Safety Nets. It doesn’t matter who started it, the boomers and, as Mr. Brokaw seemed to have forever dubbed them, the Greatest Generation kept them in place. Other programs, from all government levels and private sector have all basically failed. You make Mr. Hadas’s point very well as you lament ” if we had” and “we could have”. All “then” words. But you did mention “now” too. ” Right now, if I dropped dead tomorrow, there is zero wealth left behind.” is a great example of “now”. SS was forced upon your generation, you paid in most of what you needed, you then took it right back out and spent it on yourselves as you just admitted. You see, as OOTS likes to say, you are “We the People”. And the reality is so are the people in the government. So from my point of view you clearly agreed with pretty much every thing I said. Because you can’t blame Red or Blue, Liberal or Conservative, the government, the rich, the middle class, as they are ALL YOU! We the People.
AARP is one of the fastest growing and most powerfully lobbies in the government. Just ask Mr. Boehner. The younger generations have no such group. You say to call my Congressmen? He won’t take my call. Or read my letter. Or even care about my vote as once again, the boomers and greatest generation found ways to gerrymander voting districts. And besides, you know as well as anyone else that you don’t call on a congressmen without tribute. So making that statement means nothing to us of the younger generation, just another bit of spin.
As I state in my first comment. These old systems and programs are doomed to continue failing in new and interesting ways as they were designed for a different era. I just hope “We the People” can use wisdom and forethought to solve our social problems. But I guess we haven’t reached that level as a society yet. We still wait until things collapse around us before we innovate.

I think Mr. Hadas was quite on target with this topic.

Posted by tmc | Report as abusive

@ tmc —

Your age bias and prejudices are clouding your judgement.

The programs will continue to fail as long as we allow the government to manipulate them without any downside.

It is the wealthy-driven totally corrupt government that is the problem.

Posted by PseudoTurtle | Report as abusive

I do have age bias, as we all do, but I do not believe it is clouding my judgment.
We agree 100%, The programs will continue to fail as long as we allow the government to manipulate them without any downside.
It is the wealthy-driven totally corrupt government that is the problem.

Mind fixing that before you retire?

Posted by tmc | Report as abusive

@ tmc —

I am retired, so it is really your problem now.

Good luck on that endeavor …

Posted by PseudoTurtle | Report as abusive

@ OneOfTheSheep & tmc —

Normally you both disagree with me vehemently when I express an opinion, but I would like you to respond to my idea of reinstating the draft for the good of this nation.

I think anything that is not earned is not appreciated, which is one of the main problems in this country today.

Before you reply, I should tell you I served during the Vietnam War, so I speak with some experience as to how life-changing a stint in the “King’s Service”, so to speak, can do for one’s perspectives.

Posted by PseudoTurtle | Report as abusive

So, you came up with a good idea after you retired. Thanks man! Seriously though we can’t actually implement plans of that scale quickly. AARP still remembers Joe McCarthy. Some fondly. It would need heavy spin to appease those already retired. Like citizenship? I have to top trolling now. My “local government” is calling.

Posted by tmc | Report as abusive

@ tmc —

This is from the other article where you responded to me.

Seems like you changed your mind in about a half hour.

It’s infinitely easier to criticize than accept responsibility for your actions, isn’t it?

No, I didn’t just suddenly change my mind after I retired. I am actually quite a bit less liberal than you think.

Your response, I suspect, would be representative of the younger generation of “whiners” (oops, my prejudice is showing now) who find it easier to complain than actually do anything about their situation.

The plan I outlined isn’t meant to be implemented retroactively, simply because it would destroy the economy. It would have to be put into place at a certain point in time — sorry, life isn’t fair, or maybe you don’t know that yet — and continued from then.

Even at that, it would certainly be a jolt to society, but then any “war” is likely to be. Whether you like it or not we are at war with capitalism, and need to take serious action before this nation collapses completely.

Personally, I don’t think this nation has the leadership, foresight or intestinal fortitude to deal with these problems.

You dis my idea, but fail to come up with a better plan of your own, except to whine about AARP.

You people need to grow up.

Jan 17, 2013
8:35 pm UTC

You are right @PseudoTurtle, I did not read that post clearly. And I do change my opinion. That seems to be a very interesting idea. You should put that to a public blog for longer discussion.
Posted by tmc | Report as abusive

Jan 17, 2013
8:48 pm UTC

@ tmc –

As I said, I am retired. So these issues are really your problem now.

However, if you find it interesting, you may want to pursue it as a solution that would actually cut the size and cost of the government.

There is no downside to the idea of a draft for government service to put “boots on our streets” to turn an old military phrase.

As to how we could reduce our military costs, they would be naturally reduced by elimination of ALL government contractors and replacing them with government service draftees — not with a military focus, necessarily — but there are, as you no doubt know, many jobs that are necessary for a military organization to operate effectively. Putting people in these positions gives them invaluable training when they leave after fulfilling their obligation to this nation.

You won’t get anywhere, though, because (1) this country has become far too liberal for something that stringent, and (2) too many “fat cows” would be gored by the elimination of civilian contractors.

I don’t want to end my life tilting at windmills.
Posted by PseudoTurtle |

Posted by PseudoTurtle | Report as abusive


When you say: “Whether you like it or not we are at war with capitalism, and need to take serious action before this nation collapses completely” I fundamentally disagree.

Such emotional pronouncements telegraph to more logical minds that you are not to be taken seriously. It is only today in the “KKey-Job” thread that you have demonstrated the logical side of your intellect. I look forward to seeing more of that from you here on Reuters.

You don’t tear down a rickety old bridge until you have a nice strong new one completed. In the same sense, democracy has huge flaws, but it’s many forms seem to offer a better life for more people than any other system of selecting political leaders thus far.

In the same sense, I see capitalism as a concept such as gun ownership. The concept itself is neither good nor bad.

There are many interpretations and implementations, some good, some evil. You clearly see in it every evil possible whereas I see any evil there the result of individuals not implicit or inseparable from capitalism itself. My view of capitalism is that it harnesses human ambition and capability as an engine of national productivity and prosperity. Can this be abused? Of course. So can prescription drugs!

Posted by OneOfTheSheep | Report as abusive


In disagreeing with me no insult was intended and none is taken. There is a saying that when two people always agree, one of them is unnecessary!

In no way would I infer your concern as to the “retirement” that awaits you and your generation is not valid. It is. At the same time, no generation to date has succeeded in providing all Americans with dignity and “the basics” for their “golden years”.

Our government was designed to be hard to change course quickly, insuring that major changes are sufficiently thought out and supported before being implemented. So the task will always be to “do what we can, where we are, with what we have”.

I see hope in your concerns. Yes. our “old systems and programs…were designed for a different era”. But it’s easier to tweak for success when possible than to rip up all the vines and plant new ones. I, you and ALL generations of Americans are “We the People”. Not just a given voting majority. The wisdom and forethought of ALL will be needed to address the eventual “solution” of “social problems”.

The fact that we haven’t reached that level as a society yet does not in any way “doom” America’s future. Our society is advancing in capability much more rapidly than in generations past.

So long as those who constitute an economic drag on it do not take the helm, there is every reason to believe that a more comfortable and prosperous awaits each successive generation if they can abandon all economic theories that only work with a growing population and figure out sustainability at a number of humans consistent with the ability of this planet to provide a “good life” for all at some point in the future.

So long as younger generations become older ones, the challenge of equity between each becomes simpler in concept and, hopefully, easier mathematically as the “standard of living” rises. While I am repeatedly”on record” that this is not happening in the near future for many reasons, “we the people” can change the “rules” and thus change what will be in both near and long term.

The key, unfortunately, is that the “engine of prosperity” within America will slow and stop if and when the unproductive gain control and redistribute the gross national product among everyone. Way back with colonial leader John Smith it was understood that if one didn’t work they didn’t eat (among the able-bodied). Too many in our nation don’t understand that concept or the necessity of it to a “good life”.

Posted by OneOfTheSheep | Report as abusive

@OOTS, We’ll have to pick this up again on the next pertinent piece. I have a bit more to say on the topics and would like your (and others) opinions.

@PseudoTurtle. I was not dis’in your idea on the other article. I truly believe it is a very good idea worthy of discussion. And I was not changing my mind, I just admitted that I did not read past your statement of re-instating the draft. Perhaps a different title would not get that stereotypical response to “re-instate draft”. I was by your generation to admit my mistakes and I do. I am not as young as you think, I’m the first of Gen-X. I have grandchildren. Congressmen are useless. We all agree that the government is defunct. I am doing something about it too. I post my real opinions on an public international news site for one thing, and encourage discussion. Very risky in this day and age. But I want desperately for my generation to step up to the plate now and change things. The elections of President Obama, if nothing else, showed that “we the people” all want real change. The few of us Gen-X type will lead. Your generation taught us that. But since you all live so damn long now, we need to teach the old dogs some new tricks. I’m pleasantly surprised by your ideas. They show that you too will think and lead instead of being lead. See you on the next piece.

Posted by tmc | Report as abusive

Of course SS will have to be changed, since when it was started very few people lived past, or even to, the age at which benefits were paid out. Since people in the United States live longer, healthier lives it only seems reasonable that SS should not kick in until nearer the end of those lives. Perhaps we need some kind of sliding scale where retirement comes earlier for those who do physical labor (more and more rare these days) and who may not be able to continue to work after age 65. Others whose work is not so physically demanding may appreciate being able to stay in their jobs past that age. In fact many companies require retirement at age 70 – 75, which is a shame if the employee is fit and wishes to stay in their job. But this raises another question. If an older generation lives and works longer, how will there be enough employment for the younger generation?

Posted by thinkb4its2late | Report as abusive