Pension is a plan which provides people with some amount of money
when they are not working or getting a regular salary from their job.
Pensions are different from the severance pay; Pensions are paid at
regular installments whereas severance pay is paid as a whole. Riester Rente The
pension which is granted upon retirement is known as superannuation or
retirement plan.
Retirement plans are set up by government institutions or others like
trade unions or employer association or by insurance companies or
employers. In USA these are referred to as retirement plans, whereas in
UK they are known as pension schemes and in New Zealand and Australia
they are known as super or superannuation plans. Retirement pensions
typically are in forms of life annuity which is guaranteed, thus it
insures against risks of longetivity.
The term occupational /employer pension refers to the pension which is
created by the employer for the employee's benefit. Labour Unions,
government institutions or any other institutions may also grant
pensions. The occupational pensions are advantageous to both the
employer as well as the employee for the reason of tax. An additional
insurance is also contained with many pensions, as they will benefit
disabled beneficiaries or survivors.
The term pension usually refers to the payment which a person receives
after his retirement. It is usually under contractual terms or under
the pre-determined legal terms. The person who gets the pension after
his retirement is called the pensioner or retiree.
There are different types of pensions such as Employment - based pensions, social and state pension and disability pensions.
Employment - based pensions are also referred to as retirement plans. It
provides people with a certain amount of income after their retirement
from their job. In order to get the benefit of retirement pension both
the employer as well as the employee have to contribute money during the
employee's working period. Pension plans can also be referred to as
"deferred compensation".
Social and state pension creates funds for the residents and citizens in
order to provide income after their retirement. For this the citizen
has to pay throughout his working period. This is a benefit which is
contribution based and it depends on the contribution theory of the
individual. Disability pensions are provided for the members who are
physically disabled.
Retirement plans are generally classified as defined contribution or
defined benefit depending on how benefits are being determined. In the
case of defined contribution the payout given at the retirement depends
on the money which was contributed and also the performance of
investment vehicles used. Defined benefit plans provide certain amount
of payout at the retirement based on a fixed formula that generally
depends on salary of the member and on number of years of membership in
that plan.
There is also a third type which is called as cash balance plan. It
combines features of defined contribution plan as well as that of
defined benefit plan. This is commonly known as hybrid plans which is
becoming more popular in the US.