The pensions crisis or pensions timebomb is the predicted difficulty in paying for corporate, state, and federal pensions in the United States and Europe, due to a difference between pension obligations and the resources set aside to fund them. Shifting demographics are causing a lower ratio of workers per retiree; contributing factors include retirees living longer (increasing the relative number of retirees), and lower birth rates (decreasing the relative number of workers, especially relative to the Post-WW2 Baby Boom). There is significant debate regarding the magnitude and importance of the problem, as well as the solutions.[1]

For example, as of 2008, the estimates for the underfunding of the United States state pension programs ranged from $1 trillion using a discount rate of 8% to $3.23 trillion using U.S. Treasury bond yields as the discount rate.[2][3] The present value of unfunded obligations under Social Security as of August 2010 was approximately $5.4 trillion. In other words, this amount would have to be set aside today so that the principal and interest would cover the program's shortfall between tax revenues and payouts over the next 75 years.[4]

Some economists question the concept of funding, and, therefore underfunding. Storing funds by governments, in the form of fiat currencies, is the functional equivalent of storing a collection of their own IOUs. They will be equally inflationary to newly written ones[clarification needed] when they do come to be used.[5]

Reform ideas can be divided into three primary categories:

• Addressing the worker-retiree ratio, by raising the retirement age, employment policy and immigration policy
• Reducing obligations by shifting from defined benefit to defined contribution pension types and reducing future payment amounts (by, for example, adjusting the formula that determines the level of benefits)
• Increasing resources to fund pensions by increasing contribution rates and raising taxes.