Pension: Retirement fund

If pensions are part of a system of social security, the recipient of the pension is usually retired or disabled. They either have worked a long time during their life, or they are physically unable to do so. A pension is usually paid until a certain date (or event) occurs. In the case of social security plans, pensions are usually linked to the life of the person who receives the pension.

A defined Benefit pension defines the benefit to the worker based on salary basis, years worked, and a multiplier. An example might be 2@55 final 3, meaning that the annuity is the highest 3-year average salary times years worked times 2% (if age 55). A worker with 30 years service would receive 2*30 or 60% of their salary. Some systems allow a worker to receive more than 100% salary by various maneuvers to alter the final salary basis.

A defined Contribution pension defines the contribution, without constraining or promising a certain benefit. For example, a company might contribute 10% of a worker's salary to a pension account of the worker's choice, with final benefit received linked to the performance of the investment chosen.

Many pension systems are underfunded and likely unsustainable based on independent financial analysis. Pension reform is a popular topic since about 2009, with pension debt seen as a contributing factor in the deficits at all levels of government.

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