<P> The PAYG nature of state pension systems is often cited as the main cause of the current pension crisis . This is because the dependency ratio or the number of people in retirement age over the size of the current working population is constantly growing and therefore the balance of contributions and benefits is broken resulting in deficits that need to financed from government budget or addressed by increasing the contribution size . </P> <P> As result of this constant pressure many countries have stopped trying to cover the pension of their citizens only by PAYG schemes and instead switched to multi-pillar pension systems, which are generally considered to better diversify against many risks of pension provision . In those systems PAYG plays only supplementary role with occupational pension plans and state - supported private pension plans as the other "pillars" of pension . While not perfect those systems are less susceptible to ageing risk . </P> <P> The ageing related problems are actually not just a matter of specific demography, it has been suggested that each PAYG system passes through three stages--the young, the expanding and the mature . This must inevitably lead to situation in which it is problematic to provide the funds for it and even harder to reform the system . </P> <P> Stage 1 sees the introduction of PAYG pensions, this is most often in time when the country's population is rather young with more than fifteen working age and contributing individuals for each pensioner . The coverage of working population is still quite small . The system is in surplus, which allows government to increase the size of old age pensions, providing much bigger return to their contributions then they would receive on the market . This stage could have been observed in Germany in 1920 or in Brazil, Argentina and other Latin American countries in 1950 . </P>

How to account for defined benefit pension plan