Question

How is the following treated in national income calculation?

Pensions

Answer 1

Pensions are not included in national income because they are considered transfer payments. These are payments made without any corresponding production of goods or services in the current accounting year. For example, old-age or retirement pensions are given to individuals after they stop working and do not involve any productive contribution in return. Since national income accounts only for incomes earned through current economic activity, such transfer payments are excluded from the calculation.