Figure 16 breaks down public pension contribution rates from 2014 to 2024, showing both who pays (employers versus employees) and what the money covers (current benefits versus paying down past debt).

The total contribution rate has climbed significantly over the past decade, but not all components have changed equally. While employer (government) contributions have been increasing, employee contribution rates have remained stable.

This increased funding need of public pensions is driven not by increased benefit costs, measured by the term normal costs (the price of benefits earned each year), which have stayed remarkably stable. The real driver of rising costs is pension debt amortization payments, which jumped from 9.1% of payroll in 2014 to 15.7% in 2024. These payments go entirely toward paying down unfunded liabilities that accumulated from past underfunding and investment shortfalls. Employers have absorbed nearly all of this, meaning taxpayers are bearing the burden of pension systems’ historical mistakes and market losses.

This shift represents a fundamental change in what pension contributions actually buy. A growing share of employer contributions now goes toward servicing old debt rather than funding benefits for current workers. In 2024, 54% of total contributions went to amortization rather than normal costs.

For taxpayers, this trend is particularly troubling because amortization payments represent money that goes toward promises already made rather than current public services. As these costs continue rising, governments face increasing pressure just to cover pension obligations that don’t provide any additional value to current taxpayers or improved benefits for today’s public employees.

Figure 17 tests whether employer pension contributions are adequate by comparing what governments pay against what they need to pay to properly fund their systems. The black line shows actual average employer contributions from 2014 to 2024, benchmarked against several funding targets.

The gray line represents “Zero Net Amortization,” the bare minimum needed to cover new benefits plus interest on existing debt. This is essentially the “tread water” level that prevents pension debt from growing larger but makes no progress on paying it down.

The other benchmarks show what's needed to actually eliminate unfunded liabilities over 30, 20, 15, and 10-year periods. These represent increasingly aggressive debt payoff schedules that would provide greater security for beneficiaries and require fewer total dollars from taxpayers.

The results reveal that for some plans employer contributions have been just barely adequate to avoid making the problem worse. Actual contribution rates have closely tracked the Zero Net Amortization level, meaning governments are essentially paying the interest on pension debt without touching the principal.

This approach pushes massive costs onto future taxpayers. By contributing just enough to tread water rather than paying down debt over a reasonable time frame, current policymakers are avoiding difficult budget decisions while ensuring that future generations will face much larger pension-related tax burdens.

To put this in perspective, properly funding pension systems over a 20-year period would require employer contributions several percentage points higher than current levels. The gap between actual contributions and responsible funding levels represents billions in deferred costs that will eventually come due, with interest.

Net Operating Cash Flow = Total Contribution - Total Benefit Payment

Figure 18 shows the cash flow picture for public pension systems from 2014 to 2024, measuring contributions coming in versus benefit payments going out as a percentage of total assets. When the line is below 0%, it means pension systems are paying out more in benefits than they’re collecting in contributions.

The aggregate pension system has been cash-flow negative throughout this entire period, which isn’t necessarily alarming for a mature system with lots of retirees. But the scale of the outflows reveals how much these systems depend on investment gains to stay afloat.

The trend has been moving in a positive direction. Net cash outflows peaked at nearly 3.0% of assets in 2016 but have steadily improved to approximately 1.7% by 2024. Rising contribution rates have helped to close this gap, reducing the system’s reliance on investment performance to cover current benefit payments.