When baby boomers started working, about

five of them had to work to provide for

every pensioner. Today, this number has

gone down to around three workers per

pensioner in rich countries. And this

will only get worse. Based on OECD

projections, 30 years from now, there

will be less than two workers per single

pensioner when the baby boomers all

retire. This does not look good. So, of

course, this raises the question. Can

Gen Z and millennials actually afford to

pay for all boomer pensions? In France?

This question is not a theoretical math

problem. It is already leading to a

neverending political crisis.

In the capital, thousands of people

taking to the streets after French

President Emanuel Mccron forced through

an unpopular bill that raises the

retirement age from 62 to 64 years old.

And given that France is actually a

relatively young rich world country and

that on top of pensions, medical costs

will of course also skyrocket as the

boomers turn in 75. Economists like

professor Jos Goodhart from the law

school of economics have said that

unless AI gives us a miracle far bigger

than anything we're seeing so far

economically speaking

the next 40 years are not going to be

anything like as wonderful as the last

So what can we expect? Political crisis

in France, the UK, and Germany make it

clear that the current pension system,

where Gen Z and millennials pay boomers

can only be sustainable if we

drastically increase the retirement age,

cut pensions, or if young people accept

sky high taxes. But there's hope. Small

North European countries like Denmark,

the Netherlands, and Iceland have

systems where every pensioner saves for

their own retirement. All of these

savings are then pumped into the stock

markets which have historically only

gone up. Right? Right. H it makes you

wonder, have these countries really

found a magical pension solution or are

they blowing yet another financial

bubble?

To answer these questions, our

team has spent weeks interviewing

experts, diving into the various pension

systems and population data of all rich

countries around the world. And what we

found was quite interesting. Denmark and

the Neelens may be right, just not in

the way they think. But before we get

into how we can save boomer pensions and

young people's incomes at the same time,

we first need to confront reality. What

happens if we do nothing? Here's chapter

one, the unsustainable reality of our

pension systems. Broadly speaking, there

are two ways countries finance their

pension systems. There are funded

systems where workers save for their own

pension and the so-called pay as you go

system where current workers pay for

current retirees. In practice, most

countries use a mix of both systems, but

the balance varies widely. Countries

like Germany, Spain, and Italy rely

almost entirely on pay as you go

pensions where benefits are financed by

today's workforce. By contrast,

countries like Denmark and the

Netherlands depend much more heavily on

funded systems where people save for

their own retirement using public or

private pension funds that invest in

bond and stock markets. They use these

returns earned there to minimize

contributions. Right now, countries like

Italy, Germany, and France that rely on

pay as you go systems are facing severe

pension crisis because it is very clear

that their pension system was not built

for a rapidly aging population.

Fewer workers that pay the same

contribution to support more retirees

that want a stable pension income. The

math simply does not work. Therefore,

countries have tried four controversial

ways to make the system sustainable.

The first option is to raise the retirement

age. Germany, the UK, and the

Netherlands are all moving towards 67.

Meanwhile, Italy will go even further.

They have tied the retirement age to

rising life expectancy, meaning that it

will rise to 70. However, as you can

imagine, many people who are close to

retirement are not exactly thrilled

about this. Why should they pay the

price for the unsustainable pension

system? This applies especially to

workers in physically demanding jobs.

Therefore, Italy's Prime Minister

Maloney is now facing strong pressure

from labor unions to freeze the

retirement age at 67. Luckily for

Maloney, there are three more options.

The second option is to reduce pension

payments. So far, this has only happened

in case of massive political crisis such

as when Greek pension payments were cut

during the Greek debt crisis. What some

governments have done though is pretty

smart. They pledged to cut pension

payments in the future, not today. After

all, people are less likely to protest

getting a lower income if they don't

feel it yet. For example, in Germany,

the average pension was set to fall from

48% of the average wage to 45% by 2040.

Still, here are a threepoint drop seemed

actually a bit too far for older workers

especially, and they have revolted

causing politicians to raise this back

to 46%. This then brings us to the third

option, raising worker pension payments.

For example, between 2018 and 2023,

Canada has been gradually increasing the

contribution rate from 5 to 6%. And

similarly, Mexico and South Korea have

announced worker contributions will have

to increase. But again, this is

politically super tricky. When it comes

to pension reforms, there are just no

good options. It seems more retirees and

fewer workers. Of course, someone will

have to take a hit. This is why pay as

you go pensions reforms almost always

trigger massive public backlash.

You still have 2/3 of the French opposed

to the pension reform.

Although there is of course a simpler

option, for example, the most rapidly

aging country in the world has so far

avoided politically very hard pension

choices by simply increasing government

borrowing. And honestly, while people

like to think about government

inefficiencies and bureaucracies that

are behind ever rising government debt,

the cold hard reality is that for most

of the rich world, it has mostly been

about increasing social security

payments to pensioners and

everinccreasing healthcare costs that

also mostly go to pensioners. Sadly,

today it seems like more and more

governments are hitting the limits of

what they can borrow without facing

massive consequences. Both the UK and

France recently flirted with a

government debt crisis. And not

coincidentally, these are the two

countries with some of the most generous

pension payments. So, it seems like

governments now have to make a really

hard choice between three bad options.

Number one, increase the pension age.

This will piss off Gen X and young

boomers who are close to the pension

age. Option number two, cut pension

benefits. Again, this will piss off

boomer pensioners or again Gen Xers who

are close to the pension age. So,

there's also option three, increasing

taxes massively,

ticking off Gen Z and millennial

workers.

Or will it? Because actually when doing

the research for this video, a strange

thought popped into my head. Could the

fully funded system be superior after

all? At least for small aging countries

like Denmark and the Netherlands. You

see, a pay as you go system is national.

German Gen Z workers pay for German

boomer pensioners. German demographics

determine the sustainability of the

German pension system right now. But

Dutch and Danish pension funds, they

have invested the majority of Danish and

Dutch boomer pension savings abroad,

especially in the US, which has quite a

bit better demographic profile. So could

it be that while fully funded pension

systems are essentially a trick that may

cause a big asset meltdown when most

boomers retire, smaller older countries

may avoid this scenario for a long time

if they invest in sufficiently young

economies. We will have to see. In fact,

that is the conclusion for this entire

video. We will have to see. You see, the

world has simply never gone through this

massive demographic transition before.

So the asset meltdown hypothesis and

good hard predictions of increased

inflation, higher taxes, and lower

inequality, these have never been

scientifically tested, at least not in

the west. Because interestingly, the

asset meltdown hypothesis may have

accidentally been tested in Chile during

CO 19. You see, to alleviate the

financial stress many households felt

during the pandemic, the government

allowed them to access their pension

savings early.

Guess what happened? Number one, the

local stock market crashed. Number two,

there was a massive inflation spike.

Number three, and this is new, the

government stepped in, essentially

nationalizing the pension system, making

it from relatively fully funded to pay

as you go. That's right. Two of

Goodart's main predictions immediately

came true when Chile's expension systems

were drawn down. So sadly, I suspect

there is a real chance Professor

Goodhart will soon be proven right that

the next 40 years are not going to be

anything like as wonderful as the last

That is unless we do actually see a

miracle from AI where honestly there are

some pretty incredible developments. But

if you want to know more about those, I

have to refer you to the following three

follow-up analysis from our advertising

sponsor, The Economist. Specifically, I

recommend you check out this detailed

analysis about how AI is disrupting

shopping. Then follow up with this

analysis on how AI is transforming the

pharma industry for the better. And

finally, this analysis on how big the

threat to entry-level jobs already is.

As these analysis show, The Economist

delivers insight that truly helps you to

see the bigger picture. This is why I

highly recommend you subscribe to The

Economist, which now offers an exclusive

35% discount for money macro viewers.

Whether you prefer their daily

journalism in the Economist app or you

are like me and prefer to catch up on

the global economy during the weekend,

sitting down with a nice cup of coffee

and the paper edition. You'll always

stay on top of the latest global

developments no matter where you are. So

don't miss out. Click the link in the

description or top comment below or head

over to economist.com/moneymackro

to claim your exclusive 35% discount

Now I have to say luckily economists

have found that so far many pensioners

actually do not perfectly spend down

their pension savings. Typically they

die with substantial saved up assets

still in their name which are then

passed on to the next generation. So

this could soften the blow but still the

underlying demographics are hard to

escape. Whether you are a pay as you go

or a fully funded country, the cold hard

demographic reality is that if more

people retire compared to those who

work, less stuff is made while demand by

pensioners remains high. Therefore,

economists like Goodart and his

co-author Prajan predict that what they

call the great demographic reversal will

lead to decades of number one lower

asset prices. Number two, higher

inflation because all these pensioners

do keep spending. Number three, higher

taxes and number four surprisingly lower

inequality which perhaps the only

positive takeaway. After all, if there

are not enough workers, especially in

the low paid care sector, then these

workers can demand higher wages. Yet,

even these workers will face higher

inflation. So, overall, the reality will

remain. Aging will lead to three tough

political choices. Number one, retire

later, number two, lower pension

payments, or number three, increase

taxes.

Or will it? Because actually when doing

the research for this video, a strange

thought popped into my head. Could the

fully funded system be superior after

all? At least for small aging countries

like Denmark and the Netherlands. You

see, a pay as you go system is national.

German Gen Z workers pay for German

boomer pensioners. German demographics

determine the sustainability of the

German pension system right now. But

Dutch and Danish pension funds, they

have invested the majority of Danish and

Dutch boomer pension savings abroad,

especially in the US, which has quite a

bit better demographic profile. So could

it be that while fully funded pension

systems are essentially a trick that may

cause a big asset meltdown when most

boomers retire, smaller older countries

may avoid this scenario for a long time

if they invest in sufficiently young

economies. We will have to see. In fact,

that is the conclusion for this entire

video. We will have to see. You see, the

world has simply never gone through this

massive demographic transition before.

So the asset meltdown hypothesis and

good hard predictions of increased

inflation, higher taxes, and lower

inequality, these have never been

scientifically tested, at least not in

the west. Because interestingly, the

asset meltdown hypothesis may have

accidentally been tested in Chile during

CO 19. You see, to alleviate the

financial stress many households felt

during the pandemic, the government

allowed them to access their pension

savings early.

Guess what happened? Number one, the

local stock market crashed. Number two,

there was a massive inflation spike.

Number three, and this is new, the

government stepped in, essentially

nationalizing the pension system, making

it from relatively fully funded to pay

as you go. That's right. Two of

Goodart's main predictions immediately

came true when Chile's expension systems

were drawn down. So sadly, I suspect

there is a real chance Professor

Goodhart will soon be proven right that

the next 40 years are not going to be

anything like as wonderful as the last

That is unless we do actually see a

miracle from AI where honestly there are

some pretty incredible developments. But

if you want to know more about those, I

have to refer you to the following three

follow-up analysis from our advertising

sponsor, The Economist. Specifically, I

recommend you check out this detailed

analysis about how AI is disrupting

shopping. Then follow up with this

analysis on how AI is transforming the

pharma industry for the better. And

finally, this analysis on how big the

threat to entry-level jobs already is.

As these analysis show, The Economist

delivers insight that truly helps you to

see the bigger picture. This is why I

highly recommend you subscribe to The

Economist, which now offers an exclusive

35% discount for money macro viewers.

Whether you prefer their daily

journalism in the Economist app or you

are like me and prefer to catch up on

the global economy during the weekend,

sitting down with a nice cup of coffee

and the paper edition. You'll always

stay on top of the latest global

developments no matter where you are. So

don't miss out. Click the link in the

description or top comment below or head

over to economist.com/moneymackro

to claim your exclusive 35% discount