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Pensions are periodic payments to a person who has reached retirement age. These are sometimes provided by companies to employees who have retired after serving a minimum number of years, and can be funded by the employer, employee or both. In contrast, a Social Security pension is a pension paid by the government to older citizens who meet the requirements set by the country or district in which they live.
In the United States, a Social Security pension is only paid to individuals who have paid social security taxes. Private employers are required to withhold and match a percentage of wages, up to a certain income threshold, and submit them for credit with the Social Security Administration. Self-employed individuals must pay both employee and employer portions, based upon their net profit. The amount of the contributions is used to calculate the social security pension at the time the taxpayer reaches retirement age. Social Security benefits are also available to minor children of a deceased taxpayer and to people who have been determined to be totally and permanently disabled.
Many other countries also have also Social Security plans to supplement retirement income or to alleviate poverty among the elderly. The European Economic Area (EEA) has adopted a set of guidelines to assure that workers from member nations are eligible to collect a Social Security pension from the country in which they work and reside, regardless of citizenship, as long as they meet the eligibility requirements of the applicable programs. It has also established a coordination system that assures that migrant workers are not double paid, or completely excluded from all benefit programs.
Social Security pensions in the UK come in two parts. The first, called the Basic State Pension, is based upon the number of years a person has paid National Insurance Contributions (NIC). The minimum benefit is 25% of the maximum amount, and requires a person to have worked at least 10 years in the UK. NIC contributions are automatically withheld from employee wages, and are paid independently by self-employed individuals. Employees who do not have NIC withholding, like persons working on grants, may elect to pay voluntary Tier III contributions to ensure their future benefits.
A second Social Security pension is available to employees who earn over a certain minimum wage and have paid in Tier I NIC. This pension is based on both how much a person has earned and how much he has paid in contributions. The self-employed are not eligible for the second program.
Canada also has two government pension plans. The Old Age Security pension is for all Canadian residents who have lived in Canada for a certain number of years after their eighteenth birthday, regardless of their work history. The size of the Social Security pension may vary depending upon the number of years of residency. The Canada Pension plan is a contributory program based upon earnings. Like the US, the employee and employer pay equal amounts, and there is a maximum annual amount that can be withheld.
Australia does not have a universal Social Security plan. Its program is means tested, and does not come from employee contributions. Their Social Security pension pays a flat rate, depending upon marital status, from the general revenue to assist the elderly who cannot support themselves. Eligibility for the pension is based upon how much income and assets a person has, and has a phase out provision for those who have some resources, but fall below the maximum allowed under the plan.