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by pheug 2189 days ago
I ran the numbers and I don't think it's as amazing as you describe:

From what I could quickly find online (correct me if I'm wrong), the theoretical maximum pension you can get today is 3034 EUR/month, starting from the age of 67. With current life expectancy you're going to enjoy it for only about 15 years on average. To get it, you need to work for 45 years straight earning at least 82800 EUR each year and paying whopping 18.6% of that (incl. employer part) for the privilege to be part of this amazing system.

Let's look at net present value as of retirement age of both sides of the equation:

  for r in [1.07, 1.05, 1.012]:  # discount factor
    for y in [15, 30]:  # years to live
      print('%.3f %d %.0f %.0f' % (r, y, 
            sum(82800*0.186*r**i for i in range(45)),
            sum(3034*12/r**i for i in range(y))))

  #discount factor, years to live, NPV contributions, NPV payout
  1.070 15 4400768 354813
  1.070 30 4400768 483414
  1.050 15 2459510 396798
  1.050 30 2459510 587664
  1.012 15 911856 503038
  1.012 30 911856 923662
No matter how you slice it, the answer seems to be the same: you pay way more into the system than you get out of it. Only under rather unrealistic assumptions that you can't get more than ca. 1% investment return for 45 years(!) and you're going to live till almost your 100th birthday(!) do you approach a break-even point
1 comments
realityking 2188 days ago
I respect the effort you put in to really understand this system, most folks wouldn‘t do this based on our short conversation.

Unfortunately the system is rather convoluted and the math has more unknowns to it.

- the maximum salary on which you pay the retirement insistence is dynamic and rises every year - every year you earn “points” based on the relationship between the current average salary and your own salary. (The average is 1 point)

Now these two above can be ignored to get an estimate how the return compares to a capital based system. The following three can’t:

- the worth of a point changes, both while you’re working but also during your retirement. You’ll receive more money in year 14 of your retirement than in year 1. Today one point is worth 33,23€. 2010 it was just 24,13€. The value changes based on the average net salary of those who pay I to the system. - the insurance will pay out early if you become disabled and unable to work. I just looked up my numbers from last year and while I only earned retirement benefits of less than 300€ so far (based on the current point value) my disability benefits would be over 900€ - if I die my widow and/or unsafe children can get some money for a certain amount of time. E.g. children under 18 or under 25 while in college

I want to stress again that this system is far from perfect and smart folks will save up in a capital based system as well (and there are tax incentives for this, especially for low earners) but it does guarantee a good baseline retirement for folks who worked all their lives that can’t be lost. No divorce, personal bankruptcy or anything else will be able to touch this money.

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