What do you think about when you hear the word “Ponzi scheme”? A scam? Well, I wouldn’t blame you.
The term Ponzi scheme comes from the Italian-American man called Charles Ponzi, who payed out old investors with money from new investors, about 100 years ago:
So the money and investments never existed. All that it took for the whole scheme to fall apart, was for more people to pull out their money, than new investors coming in.
Now, what if I tell you that your government pensions are a Ponzi scheme?
I don’t mean it is a fraud or scam but that, by definition, younger people are needing to support older workers.
You see, with a government pension, your retirement pot doesn’t rely on investments in stocks in a performance-related sort of way.
It relies on more people paying into the system, to fund your future pension, from tax receipts.
So if the pool of people paying in gets smaller over time, governments will have to go back on their promises.
Think it only happens in Third World countries? Note the UK election last year, when Women Against State Pension Inequality (“Waspi women”) protested after the UK government reneged on their pension promises pushing the retirement age up in the process:
The same thing is true for company pensions. Most people thought final salary pensions schemes were great.
They were……too great in some cases. So great that many schemes collapsed and had to move to a more sustainable performance-related investment.
So don’t put all your eggs in one basket, including relying on your company and government.