Securing enough funds for old age, when one will no longer be able to actively earn, is the basic concern of every person. However, not everyone can secure themselves for old age on their own. Modern states therefore introduce pension systems that are mandatory for all citizens. However, they are associated with a number of economic problems. Among other things, they limit the independence of citizens in their efforts to secure themselves.
The state takes people’s money/savings for retirement and in return pays them pensions at an unpredictable rate (40-50 years is a long time during which many governments change). People therefore have no control over how they will be in retirement.
For individuals, the question arises as to how much to rely on the pension paid by the state and to what extent they must save themselves. For the state, the question arises as to how to ensure that the pension system is stable in the long term, resistant to economic crises and demographic changes. In principle, the state must think similarly to an ordinary person in the era “before the modern welfare state”.
Regarding saving and spending money, there are certain mathematical and economic laws that cannot be circumvented. On the other hand, they provide a certain anchor for our thinking.
The parameters that enter into consideration are: the length of economically active life, the length of retirement, income, expenses, the amount of savings, consumer inflation and the possibilities of evaluating savings. The average life expectancy in Europe is approximately 81 years. 80% of the population has the hope of living to 80 or more years. In many cases, it can therefore be expected that a person will live to 85 years. Therefore, one must realistically take this goal into account when considering old-age security.
Let’s try to model several scenarios of savings and spending under different economic conditions. For simplicity, we assume constant spending in the models, although their structure naturally changes over time. At 35, a person will spend more on vacation or children’s education. At 70, a person will spend more on medicine than on vacation.
The first set of numbers shows what it looks like if, in a non-inflationary environment, you save 10%, 20%, or 30% of your income and retire at 65. In the first case, with the same spending, the money will last you until you are 70, in the second until you are 76, and in the third until you are 84.
The second set of data shows what happens when, under the same conditions, savings are burdened by 2% inflation and incomes also increase at the same rate. The value of “older” savings gradually decreases. Such inflation is now the goal of the central banks of most developed countries. However, historical data shows that pervasive inflation is more likely to be 3-3.5%. In the first case, savings last only 3 years, in the second 6 years, and in the third 11 years.
The third set of data shows a situation where we manage to value savings at the same percentage as inflation, i.e. to cover it.
In principle, we will return to the same state as in a non-inflationary environment. Since inflation is part of our lives, the only real chance of securing funds for old age is to invest with a return that beats inflation.
So let’s try to model a situation of realistic 3% inflation and at least 1% appreciation above inflation (i.e. 4%).
By saving 10% of our income, we will only be able to extend our life in the plus by 1 year to 71 years. By saving 20%, it is already an extension of 5 years to 81 years, and by saving 30%, we will have enough money until 94 years.
It seems obvious that for solid old-age security, we must save and invest at least 20% of our income throughout our lives and beat inflation. Both the individual and the collective (state) pension system must cope with this mathematics.
What are the realistic possibilities for achieving this goal?
As mentioned in the introduction, most developed countries are trying to create pension systems in which participation is to some extent mandatory. It is therefore necessary to take into account that a citizen will have to direct part of his “investments” into such a system. On the other hand, for most residents this is the safest option. They do not have to be financial experts.
What pension systems do individual countries use? How much do citizens have to contribute to them during their working life and how much do they get back in old age?
Historical note: Efforts to provide for their employees in old age are very old. In ancient Rome, soldiers received land or a cash benefit after serving for 20-25 years. The Guinness brewery created a pension scheme for its employees over 60 around 1880. Germany introduced social insurance for workers in 1889, because they no longer had any benefits. Workers and employers contributed to the system according to their wages. The state also contributed from taxes and the tobacco monopoly. Workers received a pension after reaching the age of 70. In Britain, the pension system was introduced by law in 1908.
Czech Republic
The Czech Republic has a two-pillar pension system.
The first pillar is the mandatory state pension system for employees and self-employed persons. It is based on a pay-as-you-go system. The money goes directly through the state budget. Employees contribute 7.1% of their gross salary/wages to the system and the employer contributes another 24.8% of the employee’s salary. Self-employed persons contribute 16.1% of their profit (taxable income).
People retire at the age of 65.
People receive a pension from the system in the amount of approximately 45% of the average gross salary, or 65% of the last net salary/wages (pensions are not taxed in the Czech Republic). In 2025, the average pension is 21,000 CZK (850 euros). The pension is calculated using a complex formula that takes into account the insurance period and the amount of the contribution (wages).
There is also the possibility of paying for supplementary pension insurance in the Czech Republic, to which the employer can contribute and which is tax-advantaged.
Germany
Germany has a three-pillar pension system.
The first pillar is the mandatory state pension system for employees and the self-employed. It is based on a pay-as-you-go system. Employees contribute 9.3% of their gross salary/wages and the employer contributes another 9.3% of the employee’s salary. Self-employed people contribute a standard 697 euros per month, which corresponds to 15% of the average gross salary, which in 2025 is 4,640 euros (the contribution range is 104 – 1,497 euros per month (data for 2025)).
Retirement is possible at the age of 67. Contributions must be made for at least 35 years.
People receive an average pension of 1,400 euros gross (men) and 950 (women) from the system. After 45 years of service/insurance, the pension is 1,835 euros gross. Pensioners must also pay income tax and health insurance, just like workers.
There are also subsidized company pensions for employees and private savings/insurance.
Netherlands
The Netherlands has a three-pillar pension system.
The first pillar is the mandatory state pension system for employees and the self-employed (AOW). It is intended for everyone who lives or works in the Netherlands. It is administered by the Social Insurance Institution (SVB) and is based on a pay-as-you-go system. It does not differentiate between employees and the self-employed. Both categories pay contributions of 17.90% of taxable income. In addition, a long-term care contribution of 9.65% of income is paid. Employees are usually paid about 70% of the contribution by their employer.
Retirement is possible at around 67 years of age. The age is linked to life expectancy. A full pension requires 50 years of contributions. For each year of insurance, you are entitled to 2% of the full pension.
Single people receive a pension from the system of 70% of the net minimum wage and married people each receive 50% of the net minimum wage. In 2025 it is 1,612 euros (gross) or 1,104 euros (gross).
There are also company pensions for employees (joint investment of the employee and employer in designated pension funds), which are partially mandatory, and private savings/insurance.
United Kingdom
The UK has a three-pillar pension system.
The first pillar is the mandatory state pension system. This has been significantly changed in the last decade. Employees pay contributions into the system on wages exceeding £125 per week (£533 per month). The contribution system is quite complicated. For most employees, it is 8% up to £4,189 per month and 2% for higher wages. The employer usually pays another 15%. Self-employed people pay a contribution of approximately £180 (per year) on annual earnings exceeding £6,845, a contribution of 6% on earnings between £12,570 and £50,270 and 2% above £50,270. There is no obligation to pay contributions if the earnings are small, but there is a gap in payments.
The employee and employer must pay at least 8% of the employee’s wage/salary into the company system, which they share, e.g. 5% employee and 3% employer.
The state (basic) pension is 230 pounds per week, or approximately 920 pounds per month. It is increased by 2.5% each year. The pension is divided into basic and additional, which takes into account the amount of the wage (contribution).
Retirement is taken at the age of 67/68.
There are also private savings/insurance.
Conclusion
The direction of every person’s thoughts about securing their old age is therefore clear. “In order to enjoy old age without financial worries, I have to save about 25% of my income and value these savings above inflation, or about 4% of net income (let’s say 5% gross). The state will take on part of this task. I have to give it (depending on the country and personal situation) 7% – 20% of my income. In return, I will receive some kind of pension. This is generally not very high in any country. I have to invest the rest of my income (up to that 25%) myself. Various forms of company pension or financial advisors can help me.“
What are the risks? Investing yourself requires time, effort and knowledge. The outcome is not always certain. However, the amount of the state pension is not certain and cannot be fully relied on. States almost exclusively use pay-as-you-go systems. At any given time, they pay out to current pensioners what they collect from current workers. If the number of pensioners continues to grow and the number of workers decreases, the system runs into problems. It must reduce the pensions paid and (or) equalize the numbers in both groups by extending the retirement age. Both have their limits. Pensions cannot be reduced below the amount necessary for survival, and there are not many jobs that a person could do at the age of 75.