Retirement is the administrative procedure of leaving the labor market mainly for reasons of old age. However, it is a procedure that can also be initiated by extraordinary situations that prevent the individual from continuing to work. This happens, for example, in the event of an accident that causes permanent disability.
After retiring, the employee begins to receive periodic remuneration to cover his expenses during his last years. This regular payment is known as a pension, and it can be administered by a private or public institution, such as Social Security in Spain.
To access retirement, a minimum number of contributions can be requested. For example, in Peru, where you can choose between a public and a private system, people who belong to the former must demonstrate at least twenty years of contribution to the National Pension Agency (ONP) to receive an income in their old age.
It is worth mentioning that the term retirement can also be used as a synonym for pension.
Minimum retirement age
The minimum retirement age, established by the law of each country, is a requirement for the employee to be able to request ordinary retirement for old age. In Peru, for example, the individual must have reached 65 years of age. This fence has been gradually increasing throughout the world as life expectancy increases.
Every time we live longer and therefore we are able to extend our period of work activity. However, at the same time, the population is becoming longer, as a consequence of the decrease in the birth rates. This situation raises concern about the funds that will be required to pay in the future the incomes of retired workers.
For this reason, it is necessary for employees to contribute (pay part of their salary) for more and more years to finance pensions.
It is important to clarify that people can retire a few years before reaching the minimum retirement age. But they can only do so under certain conditions.
For this, there are two alternatives. First, early retirement, a legal regime with certain requirements such as a minimum number of Social Security contributions.
On the other hand, if the worker does not meet the requirements for early retirement, they have the option of reaching a private agreement with their employer. In this way, the employment relationship ends in exchange for financial compensation from the company. This is known as early retirement.
Types of pension in retirement
There are, in general, two types of pension that workers can receive in their retirement:
- Contributive: The income that the retired employee will receive is conditional on a minimum number of contributions. In some countries there are even private entities where each worker has an individual contribution account from which the payment of his pension comes. In other words, the more the person saves in their entire working life, the higher the income they will receive upon retirement.
- Non-contributory: The pension does not depend on contributions to the pension system. This is the case, for example, of a person with a chronic illness who is recognized a periodic financial benefit even though they have not paid enough, for example, to Social Security.
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