Company pensions are actually loans from the employees to the employer
It appears that many if not most people think that pensions are a benefit that employers pay to employees, when they are actually a loan from the employees to their employers, to be repaid after retirement. An example:
An employer is willing to pay an employee $40,000 a year, altogether.
The employee may for example want to set aside $10,000 a year of those $40,000 and lend them to some investment fund that will pay back the loans, with interests or profits, after retirement.
The company may then offer a deal: lend us the $10,000 a year by taking a base salary cut of 25%, and we shall pay back that loan after you retire.
Assuming that the employee works for 40 years and is expected to be retire for 20 years, that means that overall the employer will receive a loan of $400,000 over 40 years, and will pay that back $20,000 a year for 20 years.
Actually the employee will want some interest for that loan, and therefore likely they will ask for example for $500,000 back, or $25,000 a year.
That means that the employeee will have a gross income of $40,000 during their work life, of which they will be able to spend $30,000 a year, and will have a retirement income of $25,000, or 62.5% of their work income.
The scheme described above is in effect that of defined benefit pensions, and the $10,000 per year loaned to the employer by the employee is called the "pension contribution" (and is sometimes formally split between employer and employee, which is just an euphemism).
Employers have found advantageous to borrow from their employees because this drastically improves their cash flow until the employee retires, and they hope to fund, with the money borrowed from their employees, investments that have a return rate higher than the rate of interest they are (implicitly) paying on their borrowing from their employees.
The switch to defined contribution pensions, in which the employees lend their pension contributions not to their employers but to a third party investment account, is actually disadvantageous for the employers, however most employers have chosen to do it, for another reason: they keep the base salary of $30,000 in the example above unchanged, and then pay not $10,000 but $3,000 in the employee's investment account, that is they never pay back to the employee the other $7,000 per year they are "borrowing".
Most employees are either fooled by seeing that their base salary is unchanged, or they reckon that an effective total salary cut of $7,000 from $40,000 to $33,000 is something they cannot oppose, even if means that the pension they will receive will be not $25,000 but $7,500 a year.
