Monday, 22 February 2010

The pensions Ponzi scheme

Just in case you don't know what a Ponzi scheme is, it works like this: I get N people to pay money into my "fund" and promise them that the fund will pay out some crazy benefit. They all like the idea and get their friends to put money in. As new people add more money in, I use the money coming in to pay out to the original investors and skim off a chunk for myself. The more people chucking money into the pot, the more I can skim off and the more I can dish out to investors. But since I'm not doing any kind of investing, the problem comes in when people stop chucking money into the pot, or even worse, when people want to withdraw their money.

Then all hell breaks loose, as it did with the Bernie Madoff case.

But what far too few people realise is that the government's "National Insurance" is nothing but a Ponzi scheme. While the economic population is growing there is no problem meeting pension requirements (and all the other things that National Insurance ostensibly pays for) but when the population starts ageing and you have more claimants than contributors, it all gets a bit messy.

Inevitably, people will say that we can't just shitcan the whole scam, much as it would be lovely to do so. "What about the OAP's?" they cry, while I look at the miserable life offered to those on the state pension. Fortunately, the ASI has come up with a cunning wheeze that allows current obligations to be met, while allowing people to make rational decisions about their own future.

Personally, I don't think it goes far enough, but I commend it to you as a way in which you can start defusing a severely disruptive time bomb.


bayard said...

They'll never go for it, because "It actually redistributes the power to control their retirement from Whitehall to the people." Anathema!

formertory said...

Did anyone say "Citizen's Pension"? And if you can live on it, crack on; and if you can't / don't want to, save?

Interesting article. I wonder though whether "Gordion Knot" was a Freudian slip or a pun?

Uncle Marvo said...

I've seen some understatement in my time.

"don't think it goes far enough" is probably a biscuit-taker.

I'm afraid I'm going to have to blog about this - the comments page isn't big enough.