Pension

A pension is a regular payment made during a person’s retirement from an investment fund that they contributed to during their working life. It serves as a financial safety net for individuals after they stop working, ensuring they have a steady income in their later years.

Pensions can be classified into two main types: defined benefit plans and defined contribution plans.

• Defined Benefit Plan: This type guarantees a specific payout at retirement, which is often based on factors such as salary history and duration of employment. For example, a company might offer a pension that pays 60% of an employee’s average salary for the last five years of their career upon retirement.
• Defined Contribution Plan: In this plan, both the employee and employer contribute to an individual account. The final benefits depend on the investment’s performance. For instance, a 401(k) plan allows employees to save a portion of their salary, often with an employer match, and the total amount at retirement varies based on investment gains and losses.

Cases of pensions can vary widely depending on the country and the specific regulations in place. For example:

• In the United States, Social Security is a form of government-sponsored pension that provides income to retirees, while private companies may also offer pensions as part of employee benefits.
• In the United Kingdom, many employers have moved away from defined benefit plans to defined contribution plans, leading to concerns about the adequacy of retirement income for future retirees.