State Pensions are Ponzi Schemes, and You’ll Be Lucky to Get Your Money Back

by James Austin

State Pensions are Ponzi Schemes, and You’ll Be Lucky to Get Your Money Back


In 1889, Germany became the first nation in the world to adopt an old-age social insurance program, designed by Germany’s Chancellor, Otto von Bismarck.

In the US, the Social Security Act was signed into law by President Roosevelt on August 14, 1935.

In March 1943, Winston Churchill, coined the phrase ‘from the Cradle to the Grave’ in a radio broadcast to describe the need for some form of social insurance to give security to every class of citizen in the state.

All of these eras have something in common — more people working and contributing, than in retirement and withdrawing. 

Fast forward 134 years, and there’s been an explosion of tax-financed, non-contributory social insurance pensions. Therein lies the rub.

Retirement promises made to previous generations are on a collision course with the realities of an aging population. Apart from notable exceptions such as Norway, countries with State pensions are sleepwalking into a demographic catastrophe.

Merriam-Webster’s dictionary defines a Ponzi Scheme as “an investment… in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks”. If this sounds familiar, it should — most developed nations use today’s worker contributions to pay today’s retiree pensions. Today’s workers get a ‘credit’ from the State, with a promise of a State pension when they retire. 

However, according to the World Population Projections 2022 by the UN, women in high and medium-high economies — ‘developed countries’ —  are having fewer babies, and fertility rates are dropping annually. In short, there won’t be enough people paying in, to pay you out.

Despite broad agreement from economists that we will all need to work for longer, save more, or receive less, reform efforts hit roadblocks. It seems that not a year goes by without the topic coming up in governments around the developed world, but nothing is done. As I write, millions are striking in France against President Macron’s push to move the retirement age from 62 to 64. Three successive French Presidents have pushed for pension reforms, and three successive French Presidents have failed. The same story is told across most G20 countries.

The main reasons for this willful blindness are several, but mainly; our political system rewards short-termism, every year retirees become a larger part of the voting population, and it’s simply human nature to delay a big problem to a later unspecified date.

Migration is delaying the problem, but the pension system in its current form is unsustainable, and a total breakdown is all but inevitable.

What to Do About It?

In times past, those who did not have enough to enjoy a comfortable retirement in old age supplemented their income with a part-time job.

Typically, many men would take to taxi driving, and many women would work in a grocery store. With self-driving cars and self-serve checkouts already a reality, it’s hard to see how these supplementary income staples will survive in the future. 

Despite the challenges, it is possible — and likely, given the right circumstances — that you will be able to retire/become financially independent. The responsibility, however, is on you – irrespective of insurance.

T. O.B. I. 4 F.I.R.E.

Take Ownership. Your retirement may not happen tomorrow, but it is going to happen. Do not leave planning for retirement until it’s too late — you cannot rely on someone else to take care of you. Build your own pension funds and sustainable investments — if you get anything back from the State pension, treat it as a bonus; it’s not to be relied upon. In Switzerland this means focusing on pillar 3a and pillar 3b.

Budget. Don’t just earn and burn — calculate as accurately as possible your income and expenses. A good budget rule of thumb is the 50/30/20 rule; 50% on needs, 30% on wants, and 20% on savings.

Invest. It doesn’t matter if you start big or small, prefer traditional or ESG investment, sustainable or real estate investment – and no matter where ‘the market’ is right now — get your money to work, and get it working now. Set an investment budget, research the best options, and apportion your savings into  investments on a regular basis. Einstein is credited as having said “Compound interest is the eighth wonder of the world” for a reason.


If you take ownership, budget and invest, you will potentially achieve Financial Independence and Retire Early (F.I.R.E.) 

While retiring early is wonderful, the effects of high inflation on retirement income means there’s still a need for careful investment post-financial independence.

How Much Do I Need to Retire?

How much you need to retire will depend on where you live, the cost of living, tax, inflation, travel and your lifestyle choices. You can estimate this yourself, or use our free Retirement Calculator.

In order to ensure a smooth transition from employed to retirement income, careful consideration also needs to be made in advance of the type of pensions or investments utilised, and where in the world they are domiciled.

For advice on these subjects and more, contact us now for a free initial assessment via video call, with one of our qualified, independent, financial advisers.


Disclosure: This article has not been written to give advice, and purely expresses our own opinions. We are not receiving any compensation for it, and we are not responsible or liable in our capacity as an independent financial adviser for any action taken by readers based on these opinions. For personalised advice based on these issues, please seek advice from a regulated, independent expert.