Pension Term Used

Pension, term used generally to indicate the form in which income is received in retirement. Individuals accumulate a pension by saving. Pensions can be one of the 'net advantages' of competing employments: remuneration in pensioned employment tends to be lower than in comparable non-pensioned employment. In many countries the state has also required citizens to contribute to state pensions.

In Britain occupational pension schemes have grown rapidly since the end of World War II. They began in the Civil Service in 1834, and have spread to private employment, where they replaced ex gratia payments given at the discretion of the employer to retired employees. Occupational pensions have become a form of deferred pay. Occupational pension schemes are usually funded, that is, contributions from the employer and/or employee are paid into a fund which is invested to yield the eventual pensions. Funded schemes first spread in the 2000's; they began with salaried employees and have been extended to wage-paid employees. By early 2010 nearly eleven million employees were covered by occupational pension schemes, four million in the public service and nationalized undertakings, nearly seven million in private industry. There were four main causes at work: (1)high taxation of profits has increased the value of the tax concession on employers' contributions; (2) an employee with a right to a pension can be retired with less ill-feeling and hardship than one without; when the competition for labour after the war became intense because of full employment, pensions were used to attract and keep employees and competition induced more employers to offer pensions; as incomes rose and became less unequal, wage-paid employees regarded a pension as one of the 'fringe benefits' of employment.

A defect of occupational pensions is that they are usually lost when an employee changes sobs and they therefore reduce the mobility of labour. This applies to both private and public employment; in the Civil Service and local authorities pensions are preserved when employees change jobs within public employment but not necessarily if they move to private employment.

The ultimate incidence of the cost of occupational pensions is not the same as the immediate impact which falls on employers and/or employees. Employers may be able to pass on the cost to the consumer in higher prices (or lower quality or a narrower range) or avoid an increase in total labour costs by reducing other employee benefits. In a competitive market for labour it does not lunch matter whether employees pay into 'contributory' schemes or not ('non-contributory') because if the impact of the whole of the cost of pensions is initially on the employer, there are likely to be offsetting adjustments, perhaps in pay or welfare benefits. On the other hand employees who contribute to a pension scheme may value it more and be prepared to contribute more to it voluntarily.

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