Pay-as-you-go system

A system in which current contribution revenues are used directly to finance current pension endowments. No pension assets are built up. This system is sensitive to demographic fluctuations and is based on the principle of solidarity. If the population ages, the ratio between pensioners and the working population changes. Fewer working age people will have to pay for an increasing group of pensioners, and therefore contributions will rise. The system is not affected by developments on financial markets, on the other hand.
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