Old-Age Pensions, provision of regular payments for the aged. The first old-age pensions granted by a government to its employees appeared in France in the early 19th century and in Great Britain in 1812 and were instituted in the newly unified Germany in 1873. The establishment of pensions spread to many other European countries and North America in the early decades of the 20th century.
Today three principal sources of old-age pensions exist. The most important are state pensions, maintained by about 130 nations in the world as part of the social security system. These are variously supported, usually with some welfare assistance paid for directly from taxation, and additional amounts available from a government fund contributed to by employers and/or employees, as in Great Britain’s national insurance scheme. The second type of old-age pension is one provided directly by many employers, sometimes with the assistance of employee contributions, to people who have been employed by them for specified minimum periods of time; it includes pensions provided by both private employers and government bodies. Most companies maintain pension schemes, either secured by trade unions through collective bargaining agreements or offered as an additional benefit for staff which (being untaxed) is cheaper than equivalent wage payments. The third principal source is the pensions funds which some trade unions, companies, or other institutions administer on behalf of their members. These are often extremely substantial and are professionally administered, with actuaries being employed to decide payment levels and financial experts retained to secure the funds’ growth through investment. The potential for abuse of these funds, however, was highlighted in 1991 when the employees of the British company Mirror Group Newspapers found, after the death of its proprietor Robert Maxwell, that their pension fund had been substantially depleted by his uncontrolled raiding of it to support other business ventures.
Taxation laws usually provide benefits for both pensioners and pension schemes. Special provisions in tax law permit the self-employed, and employees not covered by private plans, to establish pension plans for themselves. Pensions are sometimes offered as part of a health insurance or life insurance scheme. A frequent supplement to old-age pensions is provided by the veterans’ pensions issued to war veterans.
Pension payments and benefits can take various forms. Basic state pensions are usually flat payments adjusted to the cost of living. In some countries, such as Great Britain, benefits begin at different ages according to sex. Employer pension schemes may offer a pension proportionate to the final salary, or hold pension contributions in a fund which is used to buy the pension on retirement, or provide a lump sum on retirement, or a combination of these. Pension funds may provide similar benefits, or fixed payments, or dividends proportionate to investment or performance of the fund.
With growing average lifespans in the developed world, provision of pensions will become increasingly important. However, modern economic thought favours movement from state coverage financed by taxation to schemes organized or administered by the private sector, which is felt to utilize pension contributions more effectively. World macroeconomics favour countries with balanced budgets, leaving governments anxious to reduce taxes and worried by the growing numbers of non-productive pensioners. Furthermore, many developing countries are too poor to contemplate adequate provision of pensions and have to leave support for the elderly outside the domain of the state altogether. There are signs that newly developed nations will avoid extensive pension provisions. Singapore, which has no state pension system but maintains a compulsory provident fund, has introduced legislation to oblige families to support their parents in old age.