pensions

Pensions are regular payments made to people who have retired. Most people retire and start to receive a pension when they are about 60 or 65. The amount of money they receive depends on how much they have paid into their pension scheme and also on the type of scheme.

  In Britain, a basic state pension has been provided by the government since 1908 for those who paid National Insurance contributions while they were working, or whose husband or wife paid contributions. Pensions for each generation are paid for out of the contributions of people still working. A problem arising from this arrangement is that more people now live longer but the number of younger people in work has fallen, so that there is less money to pay for pensions.

  Some pensioners complain that the state pension does not provide enough money for them to have a reasonable standard of living. People who do not qualify for a state pension, e.g. because they have not paid enough National Insurance, may receive income support if they have no other source of money. War pensions for soldiers injured on duty are also paid by the government.

  There are several other kinds of pension which pay larger amounts of money, though people have to pay more towards them. There are many company pension schemes, into which both workers and their employers pay certain amounts. A similar scheme, SERPS, was started by the government in 1978 for people who could not join a company scheme. Some people, especially those who are self-employed, belong to private pension schemes arranged through insurance companies. The money paid into company or private pension schemes is invested in the stock market and the pension funds, the organizations that manage this money, are among the most important investors in the City. However, many people who, encouraged by the government, left SERPS and company schemes in the 1980s and took out private pensions, were badly advised by financial organizations and lost money.

  In the US there are three main types of pensions. The US government operates a programme called social security, and people who work have to pay into this programme. The amount of money they get when they retire depends on how much they earned when they were working, but it is never a lot. It would be difficult to live only on social security payments, and so people also arrange to receive a pension from another source.

  Many employers and unions operate pension programmes for their workers. As in Britain both employers and workers put money into these private pension funds and the money is invested. By law, pension funds must report to the government and to their members about the way they manage the money. Many people who want to be sure of having enough money when they retire also make their own personal arrangements. One common way of doing this is by opening a special bank account called an IRA, or Individual Retirement Account. With this kind of account people pay less tax than normal, but must agree to leave the money in the bank until they retire.

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