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One of the shocking graphs going round at the moment is from many millennials expect to work until they die:

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Now I'm a UK millennial who wants to retire early, however if I did think I were going to work until I die, why do I have to contribute* to a pension plan at all?


*According to gov.uk I have to put in, and that contribution rate will rise to 4% of my qualifying earnings:

The law says a minimum percentage of your ‘qualifying earnings’ must be paid into your workplace pension scheme.

and

The minimum you pay: 0.8% of your ‘qualifying earnings’ rising to 4% by 2018

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    Its weird how you are concentrating on a Japan stat, but on UK laws. 88% of UKers expect to retire. That would make a defined benefit plan a good idea. Sorry I have to down vote. – Pete B. Jul 7 '16 at 14:47
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    This may be a US-specific interpretation...but my father worked until he died (in his early 60s), and ~20 years later, my mother is still collecting his pension. That may or may not be relevant to pensions as they exist in other parts of the world, but "...so that your spouse will have income after you die" seems like a fair response, in my parents' case. Pensions, though, strike me as a bit like insurance....everyone pays in, some get less out than they paid on, some get more. – steve_0804 Jul 7 '16 at 17:22
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    I would note that people are really, incredibly bad at affective forecasting: en.wikipedia.org/wiki/Affective_forecasting Trying to draw meaning out of what 18-34 year olds think they will be willing and able to do in their 60s-70s+ should considered with extreme skepticism. If 18 year old me had so little understanding of what 30-year old me would be doing and enjoying, how is 30-year old me suppose to seriously know what 60-year old me will want? – BrianH Jul 7 '16 at 19:00
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    As you get older and your faculties start to give up you may not be able to earn a living whether you want to or not. Plus: expecting to work and planning to work are two different things. – Octopus Jul 7 '16 at 19:15
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    @MonkeyZeus - From the UK government pensions website: "A new law means that every employer must automatically enrol workers into a workplace pension scheme" – SeanR Jul 8 '16 at 7:55
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Why? Simply: because it has been mandated as law, and so you may have no choice in the matter whether to contribute or not. Quoting from GOV.UK – Workplace pensions:

‘Automatic enrolment’

A new law means that every employer must automatically enrol workers into a workplace pension scheme if they:

  • are aged between 22 and State Pension age
  • earn more than £10,000 a year
  • work in the UK

Next: even if you think you will work "until you die", you can still access the money saved in the pension scheme when you attain the required minimum age for withdrawals under your scheme. For instance, that may be age 55, but it may also vary by scheme.

Becoming fully retired — as in stopping all work — is not a requirement to access retirement income from your pension scheme. In the eyes of a pension scheme, retirement is typically when you elect to take your income benefits according to the established rules of the scheme. Quoting from nidirect – Working past State Pension age:

Continuing in work and your workplace pension

If you reached the age at which you can start claiming your workplace pension scheme, you don't need to stop work in order to claim. You have a number of options, including taking some of the pension you've built up while continuing to work for the same employer.

As to why things are set up this way: While some younger folk may, today, expect to continue working until death, for a variety of reasons that isn't always possible. Two typical such reasons are: disability, and involuntary unemployment (i.e. willing and able but still can't land the next job). Moreover, plans change. Young workers with health and vitality may expect they'll always feel invincible, but end up learning otherwise over time, and may come to appreciate the savings that were forced upon them.

The "forced savings" aspect of state and state-sponsored pension schemes are meant to provide some safety net for those later years when it is a strong possibility that one can't continue to work. The alternative is to be a 100% burden on family and/or society.

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    +1. It is sort of like asking "Why would I buy car insurance if I never plan on getting into a car accident?" Like a car accident, employment is something that is only partially under your control. – BrenBarn Jul 7 '16 at 16:00
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    This goes double for the US - we legally have to contribute 6.2% to Social Security (matched by the employer, so a net 12.4%). Plus another 1.45% (also matched, 2.9% total) for Medicare. And the better you do financially, the more you contribute and the less you get paid on retiring. Most US millennials expect to never see most of their SS or Medicare contributions ever again. – brichins Jul 7 '16 at 22:17
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    "no choice in the matter whether to contribute or not" is not correct. Yes, you don't have a choice on whether you're enrolled, your employer must enroll you, but you can choose to opt out after enrollment. I'm not saying people should opt out, I'd encourage everyone to contribute to a pension, I'm just pointing out that line is wrong. – Ash Burlaczenko Jul 8 '16 at 8:03
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    @brichins in the UK we pay both National Insurance and Income Tax on our earnings. The use of those two revenue streams is much more arbitrary nowadays but historically I believe that NI was for the National Health Service and State Pension. I know your years of NI contributions currently affect what state benefits you can draw (in terms of disability, etc) and what state pension you get at retirement. The UK's NI might be like the US's Social Security payments in some ways. Now we are also being enrolled in (private) workplace pension schemes. – TafT Jul 8 '16 at 12:27
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    @brichins US social security tax is capped at around $7k/yr. That is, if you make more than about $118k in wages, you will not pay social security tax on the wages over the limit. Further, social security is not means tested. The higher your average contribution, the higher your monthly benefit will be. Whether or not you see the full amount of your contribution in benefits depends on how long you live. – Charles E. Grant Jul 8 '16 at 18:23
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  1. Even if you expect to work you might not be able to due to health reasons or economic factors that make it difficult to obtain employment, so it's good to have a safety-net.

  2. A pension scheme, especially if it's tax-advantaged or there's a company-match, can be a useful savings scheme. So even if you're still working when you reach normal retirement age, it provides you with a handy pot of money you can use for travel, recreation, or whatever.

  3. As others have mentioned, the pension might benefit other family members such as a spouse or children.

  4. You might change your mind about working until you drop.

  5. With NHS cuts and austerity you might need the money to supplement whatever care benefits you're entitled to when you do fall ill in your old age.

  • Point 2 is a big one in the UK. Employers are now required to automatically enrol their employees in a pension scheme and to contribute to it. Combine the employee contributions with the tax advantages and you lose a lot of money by opting out. – Peter Green Jul 8 '16 at 14:57
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I would look at the wording of the question. "Expect" does not necessarily mean that they plan to work until they die, or that they want to work until they die.

"Expect" here likely means that they think they will have to work until they die - in particular, think that they will not be able to save up enough to retire. Thinking that you will have to work until you die doesn't mean you shouldn't save money - that's just giving up if you don't, right? Instead you save up money and hopefully you're one of the luckier ones.

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The thing you appear to neglect is that: Many people don't have a choice of when they retire.

  • They get sick
  • They break a leg or arm or physically can't work anymore
  • They get laid off and employers don't want to hire a senior citizen (ex. because they require larger salaries)
  • They get laid off but can't find a comparable job
  • Etc...

Another issue is that "work 'til I die" people are often 20-50 years old. If they changed their minds or were forced to retire (see above) or came to a realization later in life that they would like to retire, they've missed their chance. They've lost decades of compounding interest because they thought they knew everything in the world when they were 23. Forced retire savings hedges this 'common' mistake.

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I'd like to make two points:

To focus on your test case of Japan. You point out that about a third of them believe they'll work until they die. That means more than a majority of them believe they'll retire. In a democracy where a majority of people make decisions it is completely expected that the majority will dictate the policy. Of course there is fuzziness around that last statement because people who believe they'll retire could very well be of the mindset that they'll handle their retirement savings themselves rather than rely on government. Similarly some people that expect to work until they die might realize that there's a risk that they won't be able to.

To focus on the case of government run pensions. The pension program that a government runs isn't like a private savings plan where its purpose is to get you a good rate of return. At best it's an insurance policy; more accurately it's just a tax and you should think of it this way. The reason you should think of it that way is several fold. One, if the pension fund is ever short, the government will make up the difference from the general fund. Two, the government can spend the money from the pension fund on other programs if the law changes which, over the course of a lifetime, is entirely possible. Three, no one has a legal right to withdraw their contributions directly. Four, the point of the program is to take care of old people so they aren't starving in the street. To do this, they take the money of the young and give it to to old people. The money you pay in doesn't go to investments of any sort, it goes directly to the elderly. Ultimately this is why you can't opt-out and why you should think of those contributions as a tax and not as savings.

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    Do you mean so old people are NOT starving in the street? – Karen Jul 8 '16 at 14:48
  • @Karen whoops!! – Dean MacGregor Jul 8 '16 at 14:50
  • Your first point is good. Your second point is misguided: although there is a state pension in the UK, the OP is actually writing about the government-mandated personal contributions into a private pension. The (not officially stated, I believe) aim is that the government can eventually only pay state pension to a low percentage of retirees, as it wants most people to have saved enough themselves. – AndyT Jul 8 '16 at 15:43
  • The worst part about democracy is where the majority forces their opinions upon the minority, where there is no clear requirement for unanimity in the solution. – Mauser Jul 8 '16 at 15:46
  • @AndyT That's a potentially a good point. I can't quickly find information as to what happens on the backend to completely concede the point. What kind of taxes/fees are on the mandatory savings themselves? Are they only allowed to buy gov't bonds? If no, what happens to people that get wiped out? How are defined benefit schemes funded? – Dean MacGregor Jul 8 '16 at 19:41

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