What you earn in retirement is generally based on what you earn while you work If you earn more, you get more in retirement If you earn less, you get less So if you earn more, it follows that you have more in retirement

The reality is more complex though This is because life expectancy and inflation both grow over time This means that pensions will be less generous than expected It also means that the cost of pensions to the state or taxpayers will grow

The reason for this is simple The reason for this is simple Life expectancy has grown faster than the pension system has increased benefits When the state pension was introduced in the 1940s, the average life expectancy was 65 for men and 71 for women This meant that the population was relatively young and the state pension was designed to be paid for from current tax receipts

Today, life expectancy has grown to 79 for men and 83 for women This means that the pension system will have to pay out more than it did when the original assumptions were made This means higher costs and lower benefits

So it follows that the cost of the state pension will grow faster than the rate of economic growth Government finances are thus likely to struggle to keep up

The failure of the pensions system to deliver on their promises will be stark

States owed a total of $1.25 trillion in unfunded pension benefits in fiscal 2019, the final year before the pandemic. People are living longer and drawing on their pension for greater lengths of time.

Pew projections in September 2021 indicated that pension debt had decreased below $1 trillion by the end of fiscal 2021, and state pension plans reached the highest-funded level since the Great Recession.

Unfunded pension liabilities as a share of 50-state personal income increased sharply during the Great Recession and kept growing until it peaked at 8.4% in fiscal 2016. That’s because many states deferred contributions to pension systems during the downturn and then made insufficient payments to keep unfunded liabilities from rising. Growth was also partially driven by lower-than-expected investment returns, and in some cases, expanded but unfinanced benefits. In fiscal 2014, changes to accounting rules led many states to make more conservative projections about future investment returns, further increasing reported 50-state pension debt.

https://www.pewtrusts.org/en/research-and-analysis/articles/2022/07/07/states-unfunded-pension-liabilities-persist-as-major-long-term-challenge

But this is not the only reason why pensions will fail

The biggest pensions challenge comes from the fact that private sector pensions are becoming increasingly underfunded According to the National Association of Pension Funds (NAPF) which represents the private sector, pension funds are currently underfunded

The reason for the underfunding is simple The amount that can be saved is falling This is because the amount that can be saved is falling This is because people are having to work for longer, there are more people in work and companies are taking on fewer people

This is the reason why many private sector pensions are underfunded