The difference between a pension and Social Security is quite significant, and while certain Social Security programs may resemble pensions, no part of it is administered like a pension plan. Pensions are retirement benefits that are provided to people who have paid into a plan or who have been granted pension benefits by an employer. Social Security is a social insurance program in the United States that provides a wide number of services, one of which is taxpayer-funded benefits to the elderly. When people talk about “Social Security,” they are usually thinking of these benefits, and some people talk about a Social Security pension, further confusing the issue.
Pensions may be funded in a variety of ways. Employees may pay into a plan as they work for an employer, or they may bank funds privately in a retirement account that will work like a pension. Pensions can also be funded by employers, unions, or the government. Depending on how the pension is organized, funds may be banked against the beneficiary's eventual retirement, or they may be paid out as needed.
The US Social Security Administration provides a variety of benefits to Americans with disabilities, retired Americans, and surviving spouses and children of people who have died. These benefits include health benefits for certain Americans, unemployment benefits, temporary assistance in times of need, and monthly payments that are distributed to people, such as retired seniors. These monthly payments lead many people to compare a pension and Social Security, but in fact Social Security is a form of insurance, not a pension. Social Security benefits come from federal taxes paid by working Americans, who receive payments later in life based on how much they have paid into the system.
A key difference between a pension and Social Security is that the latter is an American government program versus a privately run pension plan. They are also administered and funded differently, and these benefits are designed for different people. Pensions are used all over the world to provide retirement income to people, and they are not available to those with disabilities, unless those disabilities were acquired at work, or people who have never worked. Social Security is a large insurance pool into which all working Americans pay.
It is possible for an American to have access to both, as for instance in the case of someone who works for a company that funds retirement accounts for its employees. In fact, since Social Security checks are often very low, it is difficult to survive on them alone, unless the beneficiary owns his or her home, or has a secondary source of income like a job, a pension, or a trust fund. A pension, on the other hand, is designed to provide enough money for the beneficiary to survive on the payments alone, although this is not always possible.
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.