Pension System Comparison: Canada vs Uk Essay

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Having once been a colony of Great Britain, Canadian society has been heavily influenced by that of the United Kingdom. Many facets of government, culture, and social service are very similar between the two countries. The policies and rules behind pension laws are no exception. However, while there are many similarities between the two pension systems, there are a number of fundamental differences that set Canadian and British pensions apart from one another. One of these differences is the amount of individual choice available to workers in the type of pension they receive. This difference has a significant impact on the resulting pensions of the average retiree, and is the topic of this document. In the United Kingdom, pensions are divided into three tiers. Each of these tiers provides a different level of pension to suit the needs of the individual. The first tier is the Basic Flat Retirement State Pension (BSP). It is financed through employer and employee taxes on a pay-as-you-go basis, and is designed to provide a minimum standard of living to British citizens. The second tier applies to all employees above a set Lower Earnings Limit. The government-provided pension in this tier is a pay-as-you-go DB plan known as State Second Pension Scheme (S2P). This tier is where the high level of employee choice originates. The employee faces three options in this tier. They can take the S2P State system that offers a pension with relatively low to average earnings, but fully indexed to prices. The second choice is to take the occupational system, which has a relatively high pension value but loses substantial value when transferring or changing jobs. The third is to fully or partially opt out of the government and employer’s sponsored S2P, and instead use their contributions to purchase Personal Pensions from the private sector. This opting out option provides

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