Deck 11: Public Pensions

Question 1

The Guaranteed Income Supplement is an example of

A)the retirement effect.
B)a regressive tax.
C)a negative income tax.
D)the wealth substitution effect.

Answer 1

a negative income tax.

Question 2

A worker can begin receiving Canada Pension Plan benefits as early as age 58.

A)True
B)False
C)Uncertain

Answer 2

False

Question 3

There is no yearly maximum to pensionable earnings for Canada Pension Plan retirement benefits.

A)True
B)False
C)Uncertain

Answer 3

False

Question 4

From 1960 to 1999, the percentage of men aged 55-64 participating in the labour force increased.

A)True
B)False
C)Uncertain

Question 5

Only those who contribute to the Canada Pension Plan are eligible to receive benefits in retirement.

A)True
B)False
C)Uncertain

Question 6

A pay-as-you-go system of financing pensions is better than a fully funded system.

A)True
B)False
C)Uncertain

Question 7

A fully funded plan

A)requires current working citizens to pay for current retired citizens.
B)is more politically popular than a pay-as-you-go plan with the first generation of retirees.
C)requires no taxes since current workers pay for current retirees.
D)is where retirees are paid from accounts that have accumulated with interest over their working lives.

Question 8

Consumption smoothing is

A)increasing consumption in high-earning years in order to offset decreased consumption in low-earning years.
B)unnecessary because individuals receive public pensions in retirement.
C)reducing consumption in high-earning years in order to increase consumption in low-earning years.
D)consuming the same amount throughout your lifetime.

Question 9

The Old Age Security program is used to redistribute income.

A)True
B)False
C)Uncertain

Question 10

The Old Age Security program has played an important role in the improved economic status of the elderly over time.

A)True
B)False
C)Uncertain

Question 11

Some young people may decide not to save for old age, gambling that they will supported by the public sector when they retire. This is an example of

A)adverse selection.
B)strategic thinking.
C)moral hazard.
D)consumption smoothing.

Question 12

A current worker may save more towards retirement so that he or she will have more to leave his or her children later. This is known as the

A)wealth substitution effect.
B)retirement effect.
C)savings effect.
D)bequest effect.

Question 13

The retirement effect is

A)when people retire earlier than they normally would have due to a public pension.
B)when people retire later than they normally would have due to a public pension.
C)when people save less for their retirement due to a public pension.
D)when people decide not to retire at all because of problems with a public pension.

Question 14

Having a public pension plan makes people less inclined to save for their own retirement.

A)True
B)False
C)Uncertain

Question 15

The Canada Pension Plan contribution rate has increased since the program's inception in 1966 due to

A)enhancement of the plan's benefits.
B)declining wage and salary growth.
C)changing demographics.
D)all of these answers are correct.

Question 16

Pensions and annuities that account for inflation are said to be

A)inflation accounted.
B)inflation rated.
C)inflation adjusted.
D)inflation indexed.

Question 17

In 2013-14, the Old Age Security program and Canada and Quebec Pension Plan had a combined cost of approximately

A)$100 million.
B)$100 trillion.
C)$100 billion.
D)none of these answers is correct.

Question 18

When workers save less during their working lives due to the fact that they have been contributing to their public pension, this is known as

A)the bequest effect.
B)the life cycle model.
C)the wealth substitution effect.
D)the public pension wealth effect.

Question 19

Most countries with public pension schemes use a fully funded scheme.

A)True
B)False
C)Uncertain

Question 20

Pay-as-you-go financing is an attractive method of financing pensions if total wages and salaries grow _ the rate of return.

A)slower than
B)inversely to
C)at the same rate as
D)faster than

Question 21

Suppose a self-employed economist makes a salary of $49,939. How much will she pay in CPP contributions if the rate is 9.9 percent, the yearly maximum pensionable earnings (YMPE)is
$53,600 and the yearly basic exemption is (YBE)is $3,500?

Question 22

The age of eligibility for Old Age Security will gradually increase from 65 to 67 starting in 2023. What are the potential implications of this reform?

Question 23

The age of eligibility to receive Old Age Security is

A)72.
B)67.
C)65.
D)55.

Question 24

During the 1960s and 1970s, total wages and salaries grew faster than real interest rates, but since the 1980s, total wages and salaries have grown at a slower rate than real interest rates. What are the reasons for this change? What are the implications for a pay-as-you-go system?

Question 25

Do you feel that when you retire there will still be CPP/QPP? If so, do you feel that benefits will be at present levels or contribution rates will have increased? Finally, has this discussion changed your plans regarding your own personal savings for your retirement?

Question 26

Public pensions can be justified on the grounds of

A)decision-making costs.
B)paternalism.
C)adverse selection.
D)all of these answers are correct.

Question 27

Suppose that the ratio of retirees to working citizens is currently 1 to 5, meaning that there are 5 working people for every retiree. Suppose that in thirty years the ratio will change to 1 to 2. If benefits remain the same, what will happen to the contribution rate assuming retirees are provided benefits in a pay-as-you-go system? How much would benefits decrease if the contribution rate remained the same?

Question 28

A pay-as-you-go system is

A)where retirees are paid from accounts that have accumulated with interest over their working lives.
B)less politically popular than a fully funded system for the first generation of retirees.
C)where there is no need for taxes since current workers pay for current retirees.
D)where current working citizens pay for current retired citizens.

Question 29

Empirical research suggests that the public pension system has reduced savings. Discuss this result in the context of the life-cycle model and the consequences of the wealth substitution effect, the retirement effect, and the bequest effect on savings decisions.

Question 30

The Canada Pension Plan is fully funded.

A)True
B)False
C)Uncertain

Question 31

In 1997 the Canada and Quebec Pension Plan contribution rate was and had increased to by 2003.

A)0.585%; 0.99%
B)5.85%; 14.2%
C)9.9%; 9.9%
D)5.85%; 9.9%