Understand · Social Protection · France

Pensions
by pay-as-you-go

In 1950, four people worked to pay one retiree's pension. By 2040, they will be 1.7. The system, however, still assumes the world of 1950.

This shift is happening because we live longer and have fewer children — two facts that together crack an 80-year-old promise. Concretely, what is giving way? Who will foot the bill? And above all: what is the solution to this crisis?

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WORKERS PER RETIREE 1950

4,0 workers
per retiree

I Act I · The problem

What, exactly, is giving way?

See how pay-as-you-go pensions became an ever-heavier burden to carry — especially for the younger generations.

01 The mechanism — how pay-as-you-go works

WORKERS

contribute

FUND⇄

collects & redistributes

RETIREES

receive

Contributions collected≈ 28 Md€

each month

Pensions paid≈ 28 Md€

02 The pyramid that flips over

In 1950, France had 4,0 people aged 20-64 per senior.

Youth (< 20 yrs)

—

Workers (20-64 yrs)

—

Seniors (65 and over)

—

1950

When pay-as-you-go pensions were designed, France's demographics were quite different. There were many workers for few retirees. Today it is the reverse: more and more retirees, fewer and fewer workers. What made pay-as-you-go possible is no longer true today. The pay-as-you-go system is therefore obsolete.

03 The double squeeze

Retirement lasts longer. Contributors are fewer. Both at once.

1970

Not only are there more and more retirees, which raises the burden on workers, but on top of that: retirement keeps getting longer.

04 The generational trap

Four generations, each more disadvantaged than the last — and it is not about to stop.

Illustrative balances (orders of magnitude, constant €): what is solidly documented is the declining return on contributions from one generation to the next and the fall in the replacement rate — from ~79% (1938 cohort) toward ~63% for generations born after 1980 (COR 2025).

● The invisible rule

The later you are born, the heavier the bill.

The current system punishes the most vulnerable workers — by preventing them from saving and building wealth — to the benefit of earlier generations. Each new generation suffers this mechanism more than the last.

05 The invisible bill

To try to keep the system alive, there are only three approaches — all bad, all temporary, and all at your expense.

To keep this system alive a few more years, there are only three options. Each time, the reforms have been painful and never really solved the problem.

The verdict

Five reforms in thirty years, each wrenched through in pain — strikes, the 49.3, weakened governments. And yet the bleeding has not stopped. These reforms have only delayed the inevitable a little longer. Pay-as-you-go is broken simply because it no longer fits today's demographics: no painful reform can change that reality. We must rethink the system entirely, drawing on what actually works best.

II Act II · The solution

Demography forces an adjustment. Which one is left to choose.

Reality can no longer be ignored: the current system is under strain. The liberal answer: stop the bleeding by adopting a new, better-fitted system that has proven itself.

06 The proposal

Funded pensions — a capital and a safety net.

Demography forces an adjustment — that is a constraint, not an opinion. It is time to stop thinking about how to reform the system — and start thinking about how to replace it.

Our proposal rests on two levels that add up. A floor: an individual capital, invested, that belongs to you, beyond the reach of politicians. A base: a minimum old-age income — indexed to the cost of living — so the most vulnerable are never left behind.

And this is no leap into the unknown: several countries have run this model for decades. We will see which ones further on.

For now, keep the principle: a capital that belongs to you, paired with a net for those who need it.

07 The safety net

Funded pensions are not every man for himself.

It is the blind spot of every debate: pitting capital against solidarity, as if you had to choose. The proposed model does both — and it is the base that carries the solidarity.

The minimum old-age income is no consolation prize: it is a guaranteed floor, tax-funded, paid to those who need it. Broken careers, low wages, interruptions: those whose capital is small receive the net, in full.

08 Head to head

On a €1,600 net salary — what does it actually give?

Take a worker paid €1,600 net a month. Each month, about €500 is taken (employee and employer shares) for their pension — i.e. €0 over the whole career. Two fates for the same money: (a) paid into the pay-as-you-go system, or (b) placed in an account in your name.

Pay-as-you-go

An intergenerational transfer

Your contributions fund today's pensions. In return, you are promised the same, later. Meanwhile, you build neither savings nor wealth.

Your 0 € taken become 0 € of capital in your name at 67

Promised monthly pension 0 € ~66–70% of the last salary projected, on average, for current generations (COR)

Who holds the money: The State — not a euro in your name
Source of return: The number of workers contributing
Inheritable by your children: No
Changeable by vote: Yes — politicians decide
Main risk: Ageing, politics

Funded

Wealth that belongs to you and grows

You contribute to fund your retirement and build wealth in your name. Your contributions grow on the markets for several decades. At retirement, on top of the minimum income, you draw on your own capital.

Your 0 € invested become 0 € of capital in your name at 67

Monthly income from capital 0 € for 20 years · residual capital remains inheritable

Who holds the money: The money is yours
Source of return: Markets (~6%/yr real)
Inheritable by your children: Yes
Changeable by vote: No — it's your money
Main risk: Market volatility

And above all: you are free

With capital in your name, you are the one who decides.

Want a bigger pension? You work a little longer, or save a little more. Want to leave earlier? You can — you'll get less, but the choice is yours. Under pay-as-you-go, none of this: the age and the amount are set for you, and revised without asking you.

And if these figures seem too good: all the better, check them. The assumptions are spelled out just below — the return, the duration, the fees. Redo the calculation yourself: that is exactly what we invite you to do.

Illustrative case, constant €. Worker at €1,600 net ≈ €2,050 gross; old-age contributions (employee + employer) ≈ 27% of gross, i.e. ~€500/mo. Capital: €500/mo invested from 25 to 67 (42 years) at 6%/yr real net return (after inflation) — order of magnitude of a global index like MSCI World, ETF fees already deducted. The often-cited 7% is a nominal return, before inflation. Annuity: capital converted over ~20 years at 4%/yr. Pay-as-you-go: replacement rate projected at ~66–70% for generations born after 1970 (COR 2024–2025). Sources: COR 2024–2025 · OECD Pension Markets 2024 · MSCI World.

09 The results

Funded pensions are not just an idea — they have proven themselves.

● = funds (real capital set aside). Sources: Mercer CFA Institute Global Pension Index 2024 (scores /100, 48 countries) · OECD Pension Markets in Focus 2024 · ATO & APRA (Australia).

10 The challenger

Six classic objections —
and the liberal answer.

We have selected six of the most relevant objections a skeptic might raise. Scroll to discover the objection, then the answer.

● Conclusion

Pay-as-you-go was designed in 1950. It rests on assumptions that are today invalid.

The 1950 assumption: “there will always be enough contributors behind.”

The contract was built for four contributors per retiree. Fewer than two remain — and the number keeps falling. The assumption that held the promise together is simply no longer true.

The real question is not whether another system is possible — Australia, the Netherlands, Chile and many others have already built one.

The real question is: how long will we keep funding an obsolete system? The answer is a matter of political courage.

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Sources & methodology

COR — 2023 and 2024-2025 reports; contributor/retiree ratio (4.0 in 1950 → ~1.7), deficit projections and replacement rate (~66–70% for generations born after 1970).
INSEE — POPLEG 2024 demographic projections (age pyramid, central scenario); fertility 1.7 children per woman (2023).
DREES — Retirees and pensions, 2024 edition; retirement durations.
Mercer CFA Institute — Global Pension Index 2024 (system ranking; France 19th, grade C+).
ATO, APRA & RBA — Superannuation: contribution 3% → 12% (2025), assets ≈150% of GDP; targeted Age Pension, share of over-65s 74% (2001) → 62% (2021).
French reforms: 1993 (Balladur), 2003 (Fillon), 2010 (Woerth), 2014 (Touraine), 2023 (Borne).
Simulations: 6%/yr real net return (after inflation and fees), order of magnitude of long-term MSCI World; annuity converted over ~20 years at 4%/yr. Past performance not a guarantee.
Reserves: France has a Pension Reserve Fund (FRR) of around ~€20bn — negligible against the ~€340bn paid each year.

Comparative assessments (gauges, axis positions) are ordinal orders of magnitude, not exact measures. Capital simulations are indicative.

Pensions by pay-as-you-go