Pension Systems

Gu D., Dupre M. (eds) Encyclopedia of Gerontology and Population Aging. Springer, Cham​, Forthcoming

10 Pages Posted: 5 Jun 2020

See all articles by Jennifer Alonso-García

Jennifer Alonso-García

Université Libre de Bruxelles (ULB) - Department of Mathematics; ARC Centre of Excellence in Population Ageing Research; Netspar

Date Written: February 27, 2019

Abstract

Pension systems combine government and privately-sponsored support to finance a suitable standard of living during retirement. Pension systems can be financed through pay-as-you-go (PAYG) or through pre-funding. PAYG pension schemes finance old- age retirement benefits in one particular period with the contributions of the working- age population. Pre-funding, on the other hand, relies on the capital markets. Both financing methods face labour and longevity risk. Benefits differ across pension systems depending on who the main bearer of the risks is. Defined benefit (DB) schemes provide guarantees in the benefit payout, and transfer the financing risk to the sponsor. Defined contribution (DB) schemes guarantee a minimum level of financing, transferring the risk to the retiree. Some pension systems offer hybrid schemes that combine DB and DC features. The benefit design has an impact in the long-term sustainability of the pension system, the standard of living during retirement and the actuarial fairness that represents the link between lifelong contributions and benefits. Recent reforms have reduced benefits to achieve long-term sustainability and solvency caused by population ageing. Future research should focus on the impact of policy design in inequality arising from gender or heterogeneous life expectancy.

Keywords: pay-as-you-go, funding, defined benefit, defined contribution, points, NDC

JEL Classification: H55, H75, J32

Suggested Citation

Alonso-García, Jennifer, Pension Systems (February 27, 2019). Gu D., Dupre M. (eds) Encyclopedia of Gerontology and Population Aging. Springer, Cham​, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3596128 or http://dx.doi.org/10.2139/ssrn.3596128

Jennifer Alonso-García (Contact Author)

Université Libre de Bruxelles (ULB) - Department of Mathematics ( email )

Brussels
Belgium

ARC Centre of Excellence in Population Ageing Research ( email )

Level 6, Central Lobby (enter via East Lobby)
Australian School of Business Building
Sydney, New South Wales NSW 2052
Australia

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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