What are Transfer Payments?

Transfer payments have to do with the scheduled issuance of funds to individuals when the recipient is not expected to provide any type of goods or services in return. While the use of a transfer payment is common in providing government assistance to private citizens of a given country, the term can also apply to subsidies that are issued by philanthropists and other private agencies as well.

Examples of transfer payments commonly issued by a government are all associated with providing assistance in basic living needs for citizens of the country. Some of the payments that are issued are to provide temporary help during a personal crisis, such as when individuals lose their jobs. Unemployment compensation falls under the classification of transfer payments, since the recipient is usually not expected to repay the funds issued. In like manner, any type of relief, disability, or welfare payments issued to private citizens also qualify as transfer payments.

Along with temporary assistance programs, transfer payments may also include disbursements that are part of a pension or retirement plan that the individual either earned due to past service or paid into for a number of years. Many governments provide military pensions for retired military personnel. Depending on the country, the military pension may be a benefit that the individual did not pay into or may have contributed funds to the pension during active service. In like manner, government stipends issued to retired civilians, such as the Social Security program in the United States, may also make use of funds collected in the form of taxes in years past to provide monthly financial support to retirees.

Outside the scope of government transfer payments, corporations may also utilize this approach to provide assistance to nonprofit organizations. The corporation may choose to endow a nonprofit with a gift of cash that may be used to assist in the work of the organization. Transfer payments of this type may be on a one time basis, or may be subject to review and periodic issuance such as on an annual basis.