Produced by The Domestic Policy Studies Department Published by The Heritage Foundation 214 Massachusetts Ave. There are only two ways to finance pensions. The first is to tax those who work to pay for the pensions of those already retired. Most European countries rely largely on this method. This year's taxes are used to pay the pensions of people already retired.
Nothing is saved or invested for the future.
So as the number of pensioners rises and the number of workers falls, they face an increasingly crippling burden of tax. That is the nightmare facing most finance ministers in Europe and elsewhere. The second approach to financing pensions is to encourage people to save and invest during their working life to pay for their future pensions. We in the United Kingdom have relied on this approach. We have persuaded the bulk of people to build up pension funds for retirement.