Editing Pension (section)

===Unfunded or Pay-as-you-go===
{{See also|Defined benefit pension plan#Unfunded pension plans}}
In an ''unfunded'' defined benefit pension, no assets are set aside and the benefits are paid for by the employer or other pension sponsor as and when they are required. Pension arrangements provided by the state in many countries in the world are at least partially unfunded, with benefits paid directly from current workers' contributions and taxes. This method of financing is known as '''pay-as-you-go''', or '''[[PAYGO]]'''.<ref>{{cite web|url=http://stats.oecd.org/glossary/detail.asp?ID=5310|title=Unfunded Pension Plans|work= [[OECD]] Glossary of Statistical Terms|access-date=26 January 2009}}</ref> The social security systems of many European countries are unfunded,<ref>[http://www.economist.com/node/18502013 "Falling Short"] ''The Economist'' 7 April 2011. Retrieved 30 September 2012.</ref> having current benefits paid directly out of current taxes and social security contributions.
Social and state pensions depend largely upon legislation and future taxes for their sustainability. Some have identified funds, but these hold essentially [[government bond]]s—a form of [[IOU]].<ref>{{Cite web|last=AARP|title=How is Social Security Funded?|url=https://www.aarp.org/retirement/social-security/questions-answers/how-is-social-security-funded.html|access-date=2021-08-01|website=AARP|language=english}}</ref>
Some countries, such as Germany, France, Italy and Spain, have very little saved pension assets and depend the pay-as-you-go approach. Nevertheless, in terms of typical net income replacement in retirement, these countries rank well relative to those with pension assets.<ref>{{Cite web|title=Pensions at a Glance : Pension replacement rates|url=https://stats.oecd.org/index.aspx?queryid=69535|access-date=2021-08-02|website=stats.oecd.org}}</ref> The pay-as-you-go financing depends on [[Intergenerationality|intergenerational]] solidarity and the future [[dependency ratio]].<ref>{{Cite web|last=Bauer|first=Elizabeth|title=What Is Intergenerational Solidarity, And Why Does It Matter For The French - And For Us?|url=https://www.forbes.com/sites/ebauer/2020/02/18/what-is-intergenerational-solidarity-and-why-does-it-matter-for-the-frenchand-for-us/|access-date=2021-08-02|website=Forbes|language=en}}</ref><ref>{{Cite web|date=2015-07-23|title=Securing Employer-Based Pensions: An International Perspective|url=https://pensionresearchcouncil.wharton.upenn.edu/publications/books/securing-employer-based-pensions-an-international-perspective/|access-date=2021-08-02|website=Pension Research Council|language=en-US}}</ref><ref>{{Cite book|last1=Klein |first1=James P|title=Foreign pension plans, 1985: the new rules under IRC section 404A |last2=Practising Law Institute|date=1985|publisher=Practising Law Institute |location=New York, N.Y.|language=English|oclc=12414718}}</ref><ref>{{Cite book|url=https://books.google.com/books?id=lwG1AAAAIAAJ&q=%22security+contract%22|title=Foreign Pension Plans, 1985: The New Rules Under IRC Section 404A |date=1985|publisher=Practising Law Institute|pages=search "security contract"|language=en}}</ref><ref>{{Cite book |url=https://books.google.com/books?id=zOQWAQAAMAAJ&q=85-5242|title=Taxes International|date=1985|publisher=Taxes International|language=en}}</ref>
In Pay-as-you-go pension systems working adults pay for the current pensions of their parents and grandparents [[generation]]s, while the pensions of people above [[retirement age]] are paid by child and grandchild [[generation]]s. 

==== Dependency ratio ====
A growing challenge for pay-as-you-go pensions is the [[dependency ratio]].<ref name="i599">{{cite journal | last=Hyndman | first=Rob J. | last2=Zeng | first2=Yijun | last3=Shang | first3=Han Lin | title=Forecasting the old‐age dependency ratio to determine a sustainable pension age | journal=Australian & New Zealand Journal of Statistics | volume=63 | issue=2 | date=2021 | issn=1369-1473 | doi=10.1111/anzs.12330 | doi-access=free | pages=241–256 | url=https://figshare.com/articles/journal_contribution/Forecasting_the_Old-Age_Dependency_Ratio_to_Determine_a_Sustainable_Pension_Age/21529356/1/files/38163588.pdf | access-date=19 January 2025}}</ref> As [[List of countries by total fertility rate|birth rates in most countries drop]] and [[life expectancy]] increases, an ever-larger portion of the [[Population ageing|population is elderly]]. This leaves fewer workers for each retired person. In many developed countries this means that government and [[public sector]] pensions could potentially be a drag on their economies unless pension benefits are reduced or pension contribution are increased. Higher [[Dependency ratio#Old-age dependency ratio|old-age dependency ratio]] can result in a [[pensions crisis]].<ref name="l812"/>