qz: there is a maximum because that is the highest they are willing to "insure"

For example in Canada the maximum YPE (yearly pensionable earnings) for CPP is about $52k a year. So they only collect CPP from you until you reach the maximum contribution for an individual with $52k of income (or until the max for your income, if your income is below $52k).

Your CPP benefit is based on a formula that uses your YPE as well as other determinants such as # of years you contributed, your age when you start to collect CPP etc.

They could set no maximum on the YPE, but then you would have people with very large incomes having vary large YPEs in their benefit calculation.

Currently the maximum CPP benefit one can receive is about $1,100 a month, which is based on that maximum YPI of $52k. If you set no maximum YPE you could conceivably have people with an YPE of $1 million receiving a monthly CPP benefit of up to $21k.

That is the main reason why they set a max - not only would it be bad PR to be giving a rich person $21k a year in government pension - there is an argument to be made that they don't need it. Thus they try to strike a balance with what is reasonable to sustain a certain standard of living in retirement.

Also if you don't set a maximum, the actuarial tables can get pretty screwy and there is a lot of financial risk involved.