A pension is a payment of money that a beneficiary receives occasionally or for life by the State according to its laws or by a private entity according to an agreed sum.

These subsidies are usually interpreted in most legal frameworks as social insurance against occupational risks such as unemployment, accidents or illnesses or against old age (called ‘retirement’). As well as other more particular situations such as disability, widowhood, military, victims of terrorist attacks, etc.

The most important part of the contribution for pensions is provided by active workers. There are private companies, unions and organizations that manage a ‘private pension plan’ among their institutional policies.

Types of pensions

According to the Spanish Social Security System, pensions can be of two classes: contributory and non-contributory benefits.

The first type are defined as “economic benefits subject to a prior legal relationship with Social Security. In other words, accredit a minimum contribution period ”.

The second case is stipulated as "economic benefits recognized to citizens in need who lack the resources for their subsistence, even when they have not contributed long enough."

The sustainability of pensions

One phenomenon that is occurring mainly in Europe is the sustainability of pensions. This occurs because the population over 65 years of age has increased and there is an increasing life expectancy, which causes a greater number of people to contribute with a part of their salary.

For this reason, it is advisable for the worker to supplement his pension with a private savings plan, in order to increase the amount that he receives periodically in the event of retirement.

A private pension plan is the way for an employee to transfer part of his salary into the future, generating interest and thus being able to enjoy it when he reaches retirement. There are two main types of private pension plans:

  • Defined benefit pension plan: The company defines a remuneration or benefit that the employee will receive once they have retired.
  • Defined contribution pension plan: The company agrees to make monetary contributions each year for the benefit of the employee.

See Pension Plan.

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