Pension

A pension (/ˈpɛnʃən/, from Latin pensiō, 'payment') is a fund into which a sum of money is added during an employee's employment years, and from which payments are drawn to support the person's retirement from work in the form of periodic payments. A pension may be a 'defined benefit plan' where a fixed sum is paid regularly to a person, or a 'defined contribution plan' under which a fixed sum is invested and then becomes available at retirement age. Pensions should not be confused with severance pay; the former is usually paid in regular installments for life after retirement, while the latter is typically paid as a fixed amount after involuntary termination of employment prior to retirement. The terms 'retirement plan' and 'superannuation' tend to refer to a pension granted upon retirement of the individual. Retirement plans may be set up by employers, insurance companies, the government or other institutions such as employer associations or trade unions. Called retirement plans in the United States, they are commonly known as pension schemes in the United Kingdom and Ireland and superannuation plans (or super) in Australia and New Zealand. Retirement pensions are typically in the form of a guaranteed life annuity, thus insuring against the risk of longevity. A pension created by an employer for the benefit of an employee is commonly referred to as an occupational or employer pension. Labor unions, the government, or other organizations may also fund pensions. Occupational pensions are a form of deferred compensation, usually advantageous to employee and employer for tax reasons. Many pensions also contain an additional insurance aspect, since they often will pay benefits to survivors or disabled beneficiaries. Other vehicles (certain lottery payouts, for example, or an annuity) may provide a similar stream of payments. The common use of the term pension is to describe the payments a person receives upon retirement, usually under pre-determined legal or contractual terms. A recipient of a retirement pension is known as a pensioner or retiree. A retirement plan is an arrangement to provide people with an income during retirement when they are no longer earning a steady income from employment. Often retirement plans require both the employer and employee to contribute money to a fund during their employment in order to receive defined benefits upon retirement. It is a tax deferred savings vehicle that allows for the tax-free accumulation of a fund for later use as a retirement income. Funding can be provided in other ways, such as from labor unions, government agencies, or self-funded schemes. Pension plans are therefore a form of 'deferred compensation'. A SSAS is a type of employment-based Pension in the UK. Some countries also grant pensions to military veterans. Military pensions are overseen by the government; an example of a standing agency is the United States Department of Veterans Affairs. Ad hoc committees may also be formed to investigate specific tasks, such as the U.S. Commission on Veterans' Pensions (commonly known as the 'Bradley Commission') in 1955–56. Pensions may extend past the death of the veteran himself, continuing to be paid to the widow. Many countries have created funds for their citizens and residents to provide income when they retire (or in some cases become disabled). Typically this requires payments throughout the citizen's working life in order to qualify for benefits later on. A basic state pension is a 'contribution based' benefit, and depends on an individual's contribution history. For examples, see National Insurance in the UK, or Social Security in the United States of America. Many countries have also put in place a 'social pension'. These are regular, tax-funded non-contributory cash transfers paid to older people. Over 80 countries have social pensions. Some are universal benefits, given to all older people regardless of income, assets or employment record. Examples of universal pensions include New Zealand Superannuation and the Basic Retirement Pension of Mauritius. Most social pensions, though, are means-tested, such as Supplemental Security Income in the United States of America or the 'older person's grant' in South Africa.