The difference between a pension and Social Security is quite radical, and while certain Social Security programs may resemble pensions, no part of Social Security is administered like a pension plan. Pensions are retirement benefits which are provided to people who have paid into a pension plan or who have been granted pension benefits by an employer. Social Security is a social insurance program in the United States which 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 pension plan as they work for an employer, or they may bank funds privately in a retirement account which 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 Social Security Administration provides a variety of benefits to Americans with disabilities, retired Americans, and surviving spouses and children of people who have died. Social Security benefits include health benefits for certain Americans, unemployment benefits, temporary assistance in times of need, and monthly payments which 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 benefits 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. However, a pension and Social Security 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 people 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 a pension and Social Security benefits, as for instance in the case of someone who works for a company which funds retirement accounts for its employees. In fact, since Social Security benefits are often very low, it is difficult to survive on these benefits 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 pension alone, although this is not always possible.