Chapter 36 Flashcards
(15 cards)
Q: What key life phase has modern pension systems created?
A: Retirement, known as the “third age,” a life phase free from work.
Q: What are the four main goals of pension systems?
A: Poverty prevention, income smoothing, biometric risk insurance, and redistribution.
Q: What’s the difference between Bismarckian and Beveridgean systems?
A: Bismarckian systems are earnings-related and work-based (e.g. Germany), while Beveridgean systems are universal and tax-funded (e.g. UK).
Q: What is the “third age” and “fourth age”?
A: The third age is active retirement; the fourth age refers to frailty and care needs after age 80.
Q: What is PAYG (Pay-As-You-Go)?
A: A pension funding method where current workers’ contributions fund current retirees’ pensions.
Q: What are DB and DC schemes?
A: DB (Defined Benefit) guarantees a set pension amount. DC (Defined Contribution) depends on what’s paid in and investment returns.
Q: How has aging affected pension systems?
A: It increased the number of pensioners, straining finances and leading to reforms.
Q: What are some common pension reforms?
A: Raising retirement age, reducing benefits, increasing private savings, and adding caregiver credits.
Q: What is the replacement rate in pensions?
A: The percentage of a worker’s pre-retirement income that is replaced by their pension.
Q: How did the 2008 financial crisis affect pensions?
A: It exposed risks in private pensions and led some countries to reverse privatization.
Q: What is the difference between public and private pensions?
A: Public pensions are government-run (e.g. PAYG), while private pensions are managed by companies or organizations and are often funded.
Q: Why are women more at risk of poverty in old age?
A: Due to lower lifetime earnings and less pension accumulation, especially if widowed or working part-time.
Q: What are notional defined contribution (NDC) schemes?
A: A PAYG system that mimics DC logic by linking benefits to lifetime contributions with a virtual interest rate.
Q: What reform strategy links retirement age to life expectancy?
A: Automatic adjustment mechanisms that raise retirement age as people live longer.
Q: What is the political challenge of pension reform?
A: Reforms are often unpopular, especially with older voters who are directly affected, making them risky in democracies.
