The Country Where Salaries Fund Parents' Pensions

Opening

Think back to your pay stub this month. That line item for National Pension deductions. Where is that money actually going? If the title startled you, take a breath—this is a story about Europe.

You’d assume it’s quietly accumulating for your own old age, but the reality is different. That money is flowing, right now, into the account of someone who is already receiving a pension. It’s a structure built to fund someone else’s present, not your future. In economics, this is called a pay-as-you-go system¹.

This system worked flawlessly when populations were growing and economies were expanding. Every newborn was, in effect, a future contributor. But what happens when both of those premises vanish at once? The Economist recently wrote that this structure makes “the welfare state look like a pyramid scheme.”

🇪🇺 Europe, and the Bill the Baby Boomers Left Behind

Europe’s intergenerational inequality began with housing.

The baby boom generation, born after 1945, bought homes for a song. They took out mortgages at high interest rates, but even after paying them off, home prices kept climbing. Even adjusted for inflation, European housing prices rose 25% over the past decade, and rents climbed faster than incomes. As a result, nearly a quarter of Europeans born in the 1980s are still living with their parents at age 30—1.5 times more than the same age group 20 years ago. Wait—doesn’t this sound familiar?

It’s tempting to write off the baby boomers’ fortune as simple luck, but the structural consequences of that luck are too large to dismiss so easily. Rising home prices may have made them feel like financial geniuses, but in reality they were merely beneficiaries of market timing. And the cost of that luck was passed on, in full, to the next generation.

But there’s a bigger problem than housing: pensions. While everyone was fighting over real estate—both socially and politically—the pension problem was quietly ballooning in the background. Sound familiar again?

In other advanced economies, a substantial share of income for people over 65 comes from their own earned income and private pensions. In the US, Japan, and Korea alike, retirees tend to keep working to some degree while living off pensions they themselves contributed to. Europeans, by contrast, retire early, live long, and hand the rest of the bill to the state—which is to say, to today’s taxpayers. Pensions in most European countries run on a pay-as-you-go basis: today’s workers’ contributions fund today’s retirees’ benefits. In the 1960s, Western Europe had 5 workers supporting every 1 retiree. Today, it’s 2.5 workers per retiree. Across the EU as a whole, aging-related costs now consume 24.4% of GDP, with pension spending alone accounting for 12.2% of GDP. In Italy it’s 15.5%; in France, 14.6%.

What’s worse is the political capture. In France’s most recent presidential election, the median age of voters was 52—effectively a voting bloc already near retirement age. When budgets tighten, pensions and elder care facilities are protected, while education and R&D budgets are cut first. Maxime Sbaihi, an economist at the French demographic think tank Club Landoy, put it bluntly:

“The future of democracy is being decided by voters who have no future.”

Europe’s younger generation endured social restrictions during COVID-19 to protect the elderly. But that sacrifice has yet to be repaid. The French thinker Raymond Aron warned long ago: “An aging society will be gripped by a spirit of renunciation.” The European landscape—where daycare centers are, one by one, being converted into nursing homes—is that warning made real.

🇰🇷 Korea: Same Movie, Double Speed

Europe’s story might sound like a distant country’s problem. But looking at the numbers, Korea is standing on a far steeper slope than Europe. I’ll admit I’m hesitant to even bring this up, because in Korea, raising this topic gets received as strangely “political.” But this isn’t actually a political issue or a generational issue—it’s simply the future arriving on schedule. It’s a matter of time, like summer turning to fall and then to winter—pretending not to notice doesn’t stop it from coming. Shouting that winter won’t come doesn’t actually stop winter. And the moment we treat even discussing this as taboo, we lose any ability to prepare for it at all.

Korea crossed the 20% threshold for population aged 65 and over in 2025, entering “super-aged society” status. It took 18 years to go from an “aging society” (7%) to an “aged society” (14%), but only 7-8 years to go from there to a “super-aged society” (20%). The US took 15 years for the same transition; Japan took 12. Korea did it in half that time. In 2026, the average age of Koreans is 46.1—16 years above the world average.

The National Pension Service’s numbers are even colder. The 2025 pension reform raised the contribution rate from 9% to 13% and adjusted the income replacement rate to 43%. Thanks to this reform, the fund’s depletion date was pushed back from 2056 to 2064—by 8 years. Think about that for a second. A 44% increase in contributions bought only 8 years. And the contribution hikes starting in 2026 are a burden that today’s people in their 20s and 30s will have to shoulder for decades. Meanwhile, the benefits of the higher replacement rate go first to the generation already approaching retirement.

There’s a piece of recent good news layered on top of this. In 2025, the National Pension Fund posted a return of 18.82%, pushing total assets past ₩1,458 trillion. It’s the highest return since the fund’s founding. Boosted by the KOSPI and KOSDAQ rally, domestic equities alone returned 35.12%, and by February 2026 the fund’s assets had surpassed ₩1,610 trillion. Thanks to this, projections now suggest the depletion date could be pushed back another 4-7 years. Even a vice minister at the Ministry of Health and Welfare explained that “strong returns have pushed the depletion date back by about 7 years.” An optimistic narrative—“maybe the collapse won’t happen after all”—is starting to take hold.

The trajectory of the dependency ratio is even more dramatic. As of 2025, every 100 working-age people support 29.3 elderly people. By 2050, that rises to 77.3; by 2072, to 118.5. We’re heading toward an era where one working-age person must support more than one elderly person. Europe’s shift from 5:1 to 2.5:1 was already shocking—Korea is set to fall from 3.4:1 to 0.8:1.

Housing conditions mirror Europe’s as well. For Korean households that own their homes, the average home price is 6.3 times annual income—8.7 times in the greater Seoul area. It now takes 7.9 years on average from becoming a householder to buying a first home—the longest span since 2019. As the path to wealth accumulation shifts from “earned income → savings → investment” to “rising home prices → expanded borrowing → asset re-accumulation,” the gap widens between those who already own real estate and those who don’t.

But here’s where Korea’s own cruel paradox emerges. Unlike Europe’s baby boomers, who enjoy generous pensions, Korea’s relative poverty rate among those 66 and older is 39.7%—the highest in the OECD. Younger generations face rising contribution burdens, yet the elderly generation receiving that money is itself poor. It’s a game where both the givers and the receivers lose. In Europe, a comfortable baby boom generation draws the anger of the young. In Korea, an impoverished younger generation is forced to pay more to support an impoverished older generation. The target of anger, and the direction of any solution, are both far more complicated.

The Moment the Pyramid Collapses

Once you break down the structure, it’s clear why pay-as-you-go pensions get called “pyramids.”

The core mechanic of a pyramid scheme is simple: money from new entrants pays returns to earlier entrants. As long as new participants keep joining, the system holds. The moment participation shrinks, it collapses. Pay-as-you-go pensions work exactly the same way structurally: benefits promised to today’s retirees can only be paid if the pool of new workers keeps growing.

Here’s what Europe’s baby boomers did, in one sentence: they designed generous pensions for themselves, and then didn’t produce the next generation to pay for them. A generation that drove down the birth rate demanding high pensions is like standing at the top of a pyramid, shrinking the base, and still expecting returns.

But there’s a lesser-known collateral damage buried in this structure: the depletion of capital markets.

In the US, a substantial share of retirement savings accumulates in funded private pensions²** like the 401(k). That capital flows into venture capital and private equity, underwriting the growth of Silicon Valley. American pension funds invest more than 10% of total assets in private assets. European pension funds invest less than 0.1%. Total US venture capital is 20 times the size of Europe’s. EU pension funds allocate a mere 0.018% to venture capital; the US allocates 1.9%. That’s a difference of more than 100-fold.**

Put simply: the American pension system invests in “the industries of the future,” while the European pension system wires money to “today’s retirees.” That’s part of why Europe has no Google, no Amazon, no Nvidia. Pension design determines the structure of capital allocation, and capital allocation determines industrial competitiveness. This is exactly why the 2024 Draghi Report identified the underuse of pension capital as a core cause of Europe’s competitiveness crisis. Estimates suggest that redirecting just 1% of Europe’s pension funds toward venture capital would unlock €87.5 billion a year—but against the wall of pay-as-you-go, this capital remains dormant.

The only demographic lever that could meaningfully improve the dependency ratio is, effectively, immigration. But in Europe, attempts to expand immigration have triggered a political backlash in the form of rising far-right populism—and Korea is no exception. And even if National Pension returns keep improving, that alone doesn’t solve the problem, because the fund’s depletion date is already fixed on the calendar.

Korea’s National Pension Fund, currently holding assets of ₩1,526 trillion, is one of the world’s three largest pension funds. As long as the fund has reserves, Korea is in a better position than Europe. But no matter how strong the returns, this fund runs dry by 2071. Once the fund is depleted, Korea too will have no choice but to shift to a pure pay-as-you-go system, just like Europe. And by that point, Korea’s dependency ratio will be far worse than Europe’s is today.

Oswald’s Lens

I read this as a failure of market design. It’s not for nothing that people are calling for a redesign of the National Pension system.

There’s a pattern I’ve confirmed over and over while building go-to-market strategies: any business model works while the market is growing. The problem surfaces only when growth stops. Pricing structures, distribution structures, and profit-sharing structures built during a growth phase all break simultaneously the moment the market contracts. Pension systems follow exactly the same dynamic. They were business models designed on the premise of “market expansion” through population growth, and now that population growth has reversed, they’re going structurally bankrupt.

With the recent KOSPI and KOSDAQ rally, a mood is spreading of “the National Pension’s returns are so good, what’s the problem?” But this is a classic boom-time illusion. The National Pension Fund posted returns of -8.22% in 2022 and -0.92% in 2018. An analysis by the National Assembly Budget Office cuts to the heart of it: “A steady 4.6% every year is not the same as an average of 4.6% that includes negative years.” A good year in the stock market doesn’t change the population structure.

Korea carries one additional, crueler condition on top of all this. As mentioned earlier, the elderly poverty rate is 39.7%. Europe’s baby boomers at least live comfortably. In Korea, both the generation giving and the generation receiving are poor. The system is failing both sides at once.

The only option left is to redesign the intergenerational contract itself. Raising the contribution rate is a stopgap; immigration is political poison. Unless Korea moves on all three of these fronts at once—“a hybrid of pay-as-you-go and funded systems, flexible retirement ages, and productive investment of pension assets”—it will fall into a hole even deeper than Europe’s. This is just my own view. If you have other ideas or better solutions, please pool your wisdom with the rest of us. Honestly, the National Pension is closer to a social safety net—so I suppose you could argue that if everyone just fends for themselves, works hard, and lives individualistically, none of this needs to matter… I guess that’s technically true… But then, why do we need welfare systems or institutions at all?

Closing

To sum up:

Europe’s welfare state was a system designed for a growing population. Once that population turned, it mutated into a structure of intergenerational plunder. Korea carries the exact same structural flaw, while simultaneously experiencing the fastest aging and the lowest birth rate in the world. Even if a stock market boom buys a few years, the ending is the same unless the population structure itself changes.

Take another look at the National Pension deduction on this month’s pay stub. It might be worth asking, once and for all, whether the promise that this money will come back to you 30 years from now is actually backed by a structure capable of keeping it.

How do you personally think about the National Pension? Do you believe you’ll get back what you put in, or have you already started making other preparations for retirement? Let me know in the comments.

References & Further Reading

Primary sources

• The Economist, “How the boomers screwed Europe”, 2026. This is the article that sparked today’s newsletter. It analyzes Europe’s intergenerational inequality across three axes: housing, pensions, and political structure.
• National Pension Service, “National Pension Mid-Term Financial Outlook (2025-2029)”, 2025. Shows, scenario by scenario, how the fund’s depletion date shifts following the contribution rate and replacement rate adjustments.
• Financial News, “Amid Stock Market Tailwinds, National Pension Depletion Estimate Pushed Back 4-7 Years”, June 21, 2026. A recent article that balances the National Pension’s strong returns and the pushed-back depletion date against the limits of that optimism.
• CEPS, “It’s finally time to leverage pension funds to foster EU productivity”, 2025. Analyzes the mechanism by which Europe’s pension funds’ failure to invest in venture capital translates into an industrial competitiveness gap.

Background

• European Commission, 2024 Ageing Report, 2024. An official report projecting aging-related costs across the EU’s 27 member states through 2070, tracking pension, healthcare, and care costs as a share of GDP.
• Presidential Committee on Aging Society and Population Policy, “2025 Statistics on the Elderly”, 2025. Contains foundational data on Korea’s entry into super-aged society status and dependency ratio projections.
• Speedinvest, “Build in Europe: How Europe Can Fix Its Growth Capital Gap”, 2026. A recent report quantitatively comparing venture capital investment gaps between European and American pension funds.
• OECD, Pensions at a Glance 2025, 2025. Offers a side-by-side comparison of pension spending projections and dependency ratio shifts across OECD member countries.

The author, Kwangseob Ahn, is a professor of business administration at Sejong University and lead consultant at OBF (Oswarld Boutique Consulting Firm). He teaches statistics and data analysis — business data management and business analytics — while leading GTM and AI strategy consulting in the field, designing the seam between technology and business. He has published academic research on a memory architecture for AI dialogue systems (HEMA) and runs Daily Arxiv, a daily curation of global AI papers. He holds a master’s from Korea University’s Graduate School of Technology Management and a KMBA. He is the author of Homo Brainless: The People Who Outsource Their Thinking.

Footnotes

1. Pay-As-You-Go (PAYG): A system in which contributions from the currently working generation fund pensions for the currently retired generation. The opposite approach—accumulating and investing your own contributions in your own account—is called a funded system. ↩

2. Funded Private Pension: A system in which an individual’s contributions during their working years are accumulated and invested in a separate account, with the accumulated balance paid out as a pension upon retirement. The US 401(k) is the classic example. ↩