The first is to rely on taxing those who will be in work to pay the pensions of those in retirement. The second is to encourage people to save and invest during their working life to pay for their future pensions. Most European countries rely largely on the first method. Almost all their pensions are paid out of taxes and charges on those in work. This year's taxes are used to pay the pensions of people already retired.
Nothing is saved or invested for the future.
It is pay as you go. So as the number of retired people rises and the number of people of working age falls they face an increasingly onerous burden of tax on their economies. That is the nightmare facing most finance ministers in Europe and elsewhere. By contrast the UK has persuaded the bulk of people to build up pension funds for retirement. It allows and encourages them to opt out of the State Earnings Related Pension Scheme.