Pension

A pension is a retirement income arrangement that provides a regular payment after an individual stops working. Pensions are designed to replace a portion of pre-retirement earnings and can be funded by individuals, employers, or the state. They are typically managed by specialized institutions such as pension funds, insurers, or government agencies.

Pension schemes are commonly categorized as defined benefit or defined contribution. In defined benefit plans, retirement income is determined by a formula that usually includes length of service and final or average earnings, with the employer bearing investment risk. In defined contribution plans, contributors accumulate assets in an individual account; retirement income depends on investment performance and withdrawals, and the saver bears risk.

State pensions are often financed on a pay-as-you-go basis, relying on current workers to fund current retirees. Occupational and private pensions may be funded (assets set aside for future payments) or unfunded to varying degrees. Benefits may be paid as lifetime annuities, periodic withdrawals, or periodic government transfers, and may be indexed to inflation or wages.

Eligibility and vesting vary by system. Common requirements include a minimum age, a minimum contribution period, and a benefit-earning period. Some systems permit early retirement with reduced benefits.

Across countries, pension systems differ in generosity, age of eligibility, and level of public involvement. Many regions are experiencing reforms to address aging populations, sustainability, and funding gaps, with trends toward portable, defined contribution plans and higher retirement ages.

Pensions face criticism over adequacy, complexity, and investment risk. They are also sensitive to demographic shifts, capital markets, and macroeconomic conditions, prompting ongoing policy debates about retirement security and social protection.