What is a pension?

Part of the service remuneration paid to employees or staff in an enterprise or institution in one lump sum or in installments after retirement.

The retirement measures formulated by enterprises should be conducive to improving employees' work enthusiasm and providing them with something to rely on in old age, which is beneficial to social stability and improving enterprise efficiency.

Classification of pension financing methods In practice, the pension financing methods formulated by enterprises can be divided into retirement methods with deposited funds and retirement methods without deposited funds.

Retirement method of deposited funds: Enterprises withdraw retirement funds and hand them over to independent trust institutions, such as banks or insurance companies, for safekeeping and use. When employees retire, the trust institution pays pensions from the retirement funds.

An enterprise shall not withdraw pension funds unless it has fully fulfilled its pension payment obligations.

Retirement methods without deposited funds: The enterprise does not withdraw the retirement funds and transfer them to the trust institution for safekeeping and use, or although the enterprise withdraws the retirement funds, it keeps and uses them instead of delivering them to the trust institution for safekeeping and use. When employees retire, the enterprise raises funds on its own to pay

pension.

Compared with the retirement method of depositing funds, this method lacks protection for employees’ pensions.

Retirement plans can be divided into defined contribution pension plans and defined benefit pension plans based on how pension benefits are determined.

The agreed deposit method is that the enterprise withdraws a certain amount of retirement funds every year in accordance with the provisions of the retirement regulations and gives them to the trust institution for safekeeping and use. When the employees retire, the retirement funds belonging to the employees will be paid to the retired employees.

Usually, a fixed amount of funds are withdrawn every year based on a certain proportion of employees' wages (such as 5% of wages). The pension that employees can receive when they retire depends on the amount of deposits and the interest generated. The company does not guarantee retirement.

The amount of the payment.

The amount of pension withdrawn by the enterprise in each period is the pension cost that should be recognized in the current period.

The accounting treatment of the agreed method of withdrawing funds is relatively simple. It only needs to debit the pension cost and credit the cash when withdrawing, and there are no other entries.

Most enterprises in our country adopt this method.

The agreed payment retirement method is that the enterprise promises to pay a certain amount of pension in one lump sum when the employee retires, or to pay a certain amount of pension in installments when the employee retires; as long as the enterprise is able to fulfill its obligation to pay pension when the employee retires, whether the enterprise withdraws the pension on time

The fund is determined by the company.

Under this approach, the amount of pension is usually determined based on the employee's salary level and length of service, or both need to be considered, or only one of them, such as length of service, needs to be considered.

The former is called the final salary method and the latter is called the fixed payment method.

Retirement methods are divided into contributory pension plan and noncontributory pension plan according to whether the employee participates in withdrawing the pension fund.

The method of jointly withdrawing pension funds is that the enterprise and the employees jointly withdraw the retirement funds and hand them over to an independent trust institution for safekeeping and use. The proportions drawn by both parties are not necessarily the same.

If employees resign early, they can recover the principal and interest they withdraw, and whether they can share the funds withdrawn by the company depends on the provisions of the retirement policy.

In our country, retirement funds are jointly withdrawn by the state, enterprises and employees.

The non-contractual pension withdrawal method is a method in which the pension fund is entirely raised by the enterprise and the employees do not participate in the raising.

Most retirement options in the United States fall into this category.

Retirement methods can be divided into lump sum payment and installment payment according to the payment method of pension.

The former refers to a lump sum payment of pension after the employee retires.

After the enterprise pays pensions, it has no obligation to pay benefits to employees upon retirement.

The latter refers to the payment of pension in installments after the employee retires until death, such as monthly or annual pension payment.