The pension question, honestly stated

The pension system is the largest single item of public spending here and it faces an arithmetic problem that does not resolve itself. Setting out the arithmetic is more useful than advocating a solution.

How the system works

Pay-as-you-go: today's contributions from working people pay today's pensions. Nothing is accumulated. The system's health is therefore entirely a ratio — contributors to recipients.

Why the ratio deteriorated

Falling birth rates over three decades. Emigration of working-age people. A large informal sector, in which people work and do not contribute. Early retirement categories inherited from an earlier system. And, latterly, war losses among people of working age.

Each of these reduces contributors, increases recipients, or both.

The three arithmetic options

Raise contributions, which increases the cost of formal employment and pushes more work into the informal sector, partly defeating itself.

Reduce benefits, in real terms if not nominally, which is what happens by default when pensions are not indexed to wages.

Raise the retirement age, which is the most effective and the most contested, and which runs into a specific local difficulty: life expectancy, particularly for men, is not high, and raising the age has a different meaning where it does.

The funded pillar debate

A mandatory funded second pillar would accumulate assets rather than transferring them. It also creates a transition cost: the generation that pays into a fund still has to pay for current pensioners, so the state must finance both simultaneously for years.

That transition cost is the reason the reform has been discussed for two decades and not implemented.

The honest conclusion

There is no version of this that is not expensive. The question is only who pays and when, and stating it that way is more useful than promising it can be solved painlessly.

As an employer I see my side of this arithmetic: the contribution I pay for every person I employ is the revenue side of the system. The heavier that burden, the harder formal employment becomes, and the system narrows its own base. None of the three options is popular, but there is no fourth — postponing simply leaves the choice to somebody else.