Pension facts for kids

A pension is like a regular payment that someone gets, usually after they stop working. Often, pensions are part of a country's social security system. People who get pensions are usually retired (meaning they've stopped working because of age) or they are disabled (meaning they can't work due to a health condition). They might have worked for many years, or they might be unable to work. Pensions are usually paid regularly, often for the rest of the person's life.

What is a Defined Benefit Pension?

A defined benefit pension promises a specific amount of money to the worker when they retire. This amount is usually calculated using a formula. The formula often looks at how much the person earned, how many years they worked, and a special percentage.

For example, a plan might promise 2% of a worker's highest average salary for every year they worked. If someone worked for 30 years, they would get 60% (2% x 30 years) of their average salary each year in retirement. The company or government running the plan is responsible for making sure this money is available.

What is a Defined Contribution Pension?

A defined contribution pension works differently. Instead of promising a set payment later, this type of pension focuses on how much money is put into the worker's account now. For example, a company might put 10% of a worker's salary into a special retirement account each year.

The amount the worker gets when they retire depends on how well these investments grow over time. The worker often chooses how their money is invested. This means the final amount can go up or down based on the investment's performance.

Why Pension Systems Face Challenges

Many pension systems around the world are facing problems. Sometimes, there isn't enough money saved to pay everyone who is supposed to get a pension. This can happen if people live longer than expected, or if there are fewer workers paying into the system than there are retired people receiving money.

Since about 2009, many governments have been talking about "pension reform." This means changing the rules of pension systems to make sure they can keep paying people in the future. These changes are important because pension debt can affect how much money governments have for other things, like schools or roads.

Images for kids

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  Public sector workers in Leeds striking over pension changes by the government in November 2011

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  2018 Russian pension protests

See also

In Spanish: Pensión para niños