A pension is an amount that the State pays to retirees, disabled people and other people.
Pension is a concept that comes from the Latin word pensĭo and has several uses. It can be an amount that the State pays a person when they retire, are widowed or become incapacitated. This money is delivered periodically, either over a period of time or permanently. For example: «We'd better go out to dinner next week, when I've already collected the pension» , «The government could have problems paying pensions starting in April» , «Juana has not yet processed the pension for José's death» .
Pensions, in this sense, are part of what is known as social security , which seeks to ensure that all people can meet their basic needs. The criteria for paying the pension depend on the legislation of each nation, as does the amount to be received.
Contributory pensions
Depending on its characteristics, a pension can be contributory or non-contributory. Contributory pensions are those that, in one way or another, the person receiving them has already paid for at another time (i.e., has contributed to their establishment). This is the case of retirement , whose funds are created from the contributions of active workers.
Specifically, we would have to explain that within what are these contributory pensions there are three main types:
- Unemployment pension or insurance . As its name indicates, it is the pension that the State grants to a citizen who is currently unemployed and who, when working, paid and contributed a relevant amount to maintain social security and the rest of public services.
- Retirement pension . This other type of pension is granted to people who, having reached their maximum legal working age, decide to put an end to their working life.
- Disability pension or insurance . Various types of pensions are established within this category, which are granted to a person who has been working and who, due to an accident or occupational illness, for example, cannot continue to carry out his or her professional work in the same way due to the consequences.
Non-contributory contributions
Non-contributory pensions , on the other hand, constitute a right that arises directly by law (such as alimony ).
On the other hand, it should also be noted that these non-contributory pensions include various types, among which the following stand out:
- Alimony , which is what a person must pay to another person because he or she is their child or because of having maintained a marital relationship so that they can survive.
- Widow's or widow's pension , given to the widower or widow of a person who has died due to illness or accident.
- Orphan's pension . As its name indicates, this is the pension granted to the children of a deceased person, mainly during the time they are minors.
A pension can provide a fixed income as a social security benefit.
Pension funds
Pension funds are financial instruments that can be used to support the pension system. What a fund manager of this type does is make an investment whose profits allow the flows generated by the pension plan to be met.
Specifically, pension funds are investment funds that receive monthly contributions from those who have pension plans. This money is invested in different products (such as bonds, shares, etc.) to generate a return.
At this point, it should be mentioned that a pension plan requires a periodic contribution from the beneficiary with the expectation of obtaining an extra income in the future. The pension fund, meanwhile, is the instrument that makes it possible to invest the contribution or savings in other financial products.
Let's suppose that, by taking out a pension plan, Carlos contributes 80 dollars a month. That money can be deposited into a pension fund that is in charge of its administration in order to invest it and produce returns.
Retirement systems
It is important to consider that, as with pensions, there are different retirement systems . Each one seeks, in its own way, to guarantee the economic security and social protection of the individual once he or she reaches retirement age and the time comes for retirement .
The pay-as-you-go system , in this framework, is based on contributions from workers (through a percentage of their salary ) and from companies to finance pensions. This system can be supplemented with money provided by the national State and which comes from taxes. The pension funds are thus managed and distributed by the authorities in charge of state management.
The capitalization system , on the other hand, implies that the worker allocates his savings to an individual retirement account managed by a private administrator. This administrator makes investments to generate interest.
It should be noted that the State sometimes proposes a labour reform to modify the collection of funds that are destined to the payment of pensions, either by changing the retirement age or the percentage of contributions. The minimum pension can also be updated to cope with inflation.
Individuals, on the other hand, can plan for retirement beyond the current system. A self-employed person, for example, can manage his personal finances and manage his assets in order to have a guaranteed income when he reaches old age.
A pension can be a hotel establishment.
The pension as a hotel establishment
On the other hand, pensions are known as certain establishments that accommodate guests and the food services offered by hotels .
"When I was 15, I left my parents' house and went to live in a boarding house" and "I made a reservation at a hotel with full board" are sentences that illustrate this usage.