CIA15-study-guide10-public-finance

Question 1

What is the primary purpose of public pension programs?

Answer 1

To provide income support to the elderly

These programs vary by country, often covering different segments of the population.

Question 2

What are the two broad types of public pension programs?

Answer 2

• Funded systems
• Pay-as-you-go programs (PAYGs)

Question 3

What is a funded system in public pensions?

Answer 3

A system where enrollees accumulate assets in government-approved accounts

Question 4

What does a pay-as-you-go (PAYG) program rely on?

Answer 4

Contributions from current earners to fund benefits for current retirees

Question 5

What economic problem does myopia in public pension programs address?

Answer 5

Short time horizons of individuals regarding retirement savings

Question 6

How can public pension programs help with distributional concerns?

Answer 6

By providing income support to less affluent individuals, including low-income elderly

Question 7

What is adverse selection in the context of annuities?

Answer 7

Individuals with shorter life expectancies are less likely to purchase annuities

Question 8

What is a major advantage of fully funded pension systems?

Answer 8

They compel young and middle-aged workers to save for retirement

Question 9

What is a disadvantage of PAYG pension systems?

Answer 9

High contribution rates can be burdensome for workers

Question 10

What are some risks that affect all pension systems?

Answer 10

• Adverse macroeconomic shocks
• Demographic risks
• Political risks
• Management risks
• Investment risk

Question 11

What is the implication of an aging population on PAYG systems?

Answer 11

Decline in the ratio of workers to retirees, affecting revenues

Question 12

What are the qualifying conditions for retirement benefits in the Philippines’ Social Security System?

Answer 12

• At least 60 years old and separated from employment
• At least 65 years old regardless of employment status
• At least 55 years old if an underground mineworker

Question 13

What is the expected trend for public pension expenditure in the European Union by 2060?

Answer 13

Expected to rise from about 10% in 2007 to about 13% in 2060

Question 14

True or False: Fully funded systems can impose a financial burden on the government sector.

Answer 14

False

Question 15

What do public pension programs offer against the costs of aging relatives?

Answer 15

They help reduce the financial burden on family members

Question 16

Fill in the blank: Public pension programs can help insulate families against the costs of _______.

Answer 16

aging relatives

Question 17

What is a significant risk for private pension programs compared to public ones?

Answer 17

Investment risk due to reliance on market performance

Question 18

What has been the trend of gross public debt in advanced economies from 2001 to 2018?

Answer 18

Increased from about 70% of GDP to 102%

Question 19

What is one way to improve fiscal balances in major economies?

Answer 19

Expenditure cuts, including reforms to public pension programs

Question 20

What is the projected average net public debt for advanced economies in 2024?

Answer 20

About 80%

This is an increase from approximately 70% in 2010.

Question 21

What is the projected average net public debt for G7 countries in 2024?

Answer 21

About 92%

This is an increase from approximately 80%.

Question 22

What must happen for major economies to return to traditional ratios of public debt to GDP?

Answer 22

Fiscal balances will need to improve significantly.

Question 23

What are the main strategies to improve fiscal balances?

Answer 23

Expenditure cuts and revenue increases.

Question 24

What is the first pillar in the five-pillar approach to public pension reform?

Answer 24

A flat, basic income grant designed to keep the elderly from falling into poverty.

Question 25

How is the first pillar financed?

Answer 25

Directly from the state budget, requiring no contributions from individuals.

Question 26

What does the second pillar of the five-pillar approach involve?

Answer 26

A mandatory, publicly managed pension plan.

Question 27

What is the goal of the second pillar?

Answer 27

To replace a certain percentage of preretirement earnings.

Question 28

What is the financing method for the second pillar?

Answer 28

Contributions from individuals.

Question 29

What is the third pillar in the five-pillar approach?

Answer 29

Mandatory, individual retirement accounts.

Question 30

What is the aim of the third pillar?

Answer 30

To supplement benefits from the first and second pillars.

Question 31

What does the fourth pillar involve?

Answer 31

Voluntary, individual savings accounts.

Question 32

What incentives might be provided for the fourth pillar?

Answer 32

Tax credits or a government match for savings.

Question 33

What does the fifth pillar include?

Answer 33

Informal support from family members and other social programs.

Question 34

What is a potential component of the fifth pillar related to housing?

Answer 34

Reverse mortgages.

Question 35

What is a primary advantage of PAYG programs?

Answer 35

Facilitating redistribution toward lower income households.

Question 36

What challenge do PAYG programs face with an aging population?

Answer 36

Threat to financial sustainability due to rising ratio of retirees to earners.

Question 37

What is a key advantage of fully funded pension systems?

Answer 37

Avoiding sustainability problems.

Question 38

What issue do fully funded systems face?

Answer 38

Difficulty in replacing a high percentage of preretirement earnings.

Question 39

What reforms have many countries with PAYG schemes implemented?

Answer 39

Raising retirement age, curbing benefit increases, and raising social insurance taxes.

Question 40

What do experts from the World Bank suggest for pension systems?

Answer 40

Consider moving to a multi-pillar approach.

Question 41

What should the multi-pillar approach include?

Answer 41

Universal basic payment, support for voluntary savings, and recognition of informal support.