Retirement Pension Plan

Know your Pension Plan

• What after retirement? Do you have enough savings to sustain the same kind of lifestyle when you are no longer employed? Getting a substantial pension amount can be your answer to financial stability.

• A pension is a fixed amount that is paid to a person regularly after his retirement from service. Pension plan is a type of a retirement plan. A plan that makes sure that you are able to sustain your life even after your retirement.

• In most cases the company you work for provides a certain amount in monthly payments after retiring.

• A pension plan offered by the employer’s is available to the employees only after working in the organization for a certain number of years. The employer invests the employee’s contribution in a fund so that he or she can receive the benefits on retirement. The person receiving pension is called a Pensioner.

• Retirement plans may be offered by employers, insurance companies, trade unions or the government. Pensions funds that are created by the employers are also known as Such investments are tax exempted.

Classification of retirement plans: There are two main classifications of pension plans available in the market, defined benefit pension plan and defined contribution plan.

• In a defined benefit plan the employer guarantee’s that the employee would receive a certain definite amount of money on his retirement, no matter how the investment fund performs. In other words the retirement benefit amount is decided upon by a formula on the basis of the employee’s salary during his tenure, his age and tenure of service.

• On the other hand in a defined contribution plan, the benefits are dependent on the market performance of the investments. In such a plan a certain fixed amount or percentage of money is reserved every year by the company for its employees. However in such a fund, the time and way in which money can be withdrawn is limited.

Types of pension’s plans that are available: 

• Employment based pension: In such a retirement pension plan an amount is paid to a person on his retirement from employment.  The employer and employee contribute money to a fund account during their employment so that they can receive the benefits on retirement. Such income is exempted from taxes by the government.

• Social and state plan: Some countries around the world have created various types of funds so that they can provide funds to their citizens and residents. In such a case the people have to make regular payments throughout their working life so that they can receive it when they retire. There are some plans, where older people are paid pension though they do not contribute to the fund.

• Disability plan: Such a pension plan is offered by the company if the employee suffers from a disability. It could be an early entry into a retirement package or even retirement before the normal age limit.

Life insurance plans aim at making good the loss on the untimely death of the insured, a pension plans helps an individual to maintain his lifestyle in case he survives beyond the retirement age.[Source: http://onlinelifeinsurance1.weebly.com/blog/know-your-pension-plan]

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