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Annex C
The key features of
a Contributory Old Age Pension System
A contributory old age pension system functions on the principle of social insurance i.e. the working population (including both employers and employees) contribute а fixed percentage of their earnings or a fixed amount to fund a pension for the entire aged population, with or without government contributions. As contributions and pension payments are made simultaneously, it is commonly called a "pay-as-you-go" system.
2.
3.
(a)
(b)
(c)
Key features of a typical system include :
compulsory contributions, in the form of a fixed percentage of earnings or a fixed amount, for all employers and employees. The contributions are paid into a central fund from which pension payments are made simultaneously. There would
no provision for opting out, participants in existing voluntary retirement
schemes, protection
on operates different funding and benefit principle;
be
covered.
as
it
even
for
а
universal pension benefits, i.e. both the working and the non-working population will be While different eligibility criteria (e.g. years of residence) can be built into the system, strict means-testing is rarely applied as an old age pension is not seen in the same light as social security or public assistance benefits; and
a defined level of benefits for all. i.e. every eligible citizen would receive the same level of pension benefits irrespective of their The benefit level is usually pegged to an objective reference wage rate or to inflation. A commonly suggested reference level is 30% of the local median wage.
contributions.
The system incurs income redistribution
high
income earners to low income earners; contributors to non-contributors; and the working population to the aged. Its viability depends on a number of factors
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